Millions of seniors today depend on Social Security to stay afloat financially. And even if you do a pretty good job of saving for retirement, once your career wraps up, you may find yourself pretty reliant on those benefits to cover your bills.
As such, it's in your best interest to get as much money out of Social Security as you can. But if you're not careful, you might end up with a lower monthly benefit than expected. Here are some common reasons why your Social Security income could shrink.
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1. You've filed for benefits ahead of full retirement age
Once you reach full retirement age, or FRA, you're eligible to receive your full monthly Social Security benefit. But FRA doesn't arrive until 67 if you were born in 1960 or later.
Now you're allowed to sign up for Social Security at any time once you turn 62. But if you claim Social Security even a month prior to FRA, you'll be looking at a lower monthly benefit for life. And if you claim Social Security several years ahead of FRA, it stands to reason that your monthly benefit will shrink even more.
2. You've filed for benefits before putting in 35 years in the workforce
The monthly Social Security benefit you're entitled to in retirement is calculated based on your personal earnings history. And it's your 35 highest-paid years in the labor force that are used to determine how much monthly Social Security income you'll get.
What this means, though, is that if you don't put in a full 35 years in the workforce, you'll have a $0 factored into your personal benefits calculation for each year you've gone without an income. So if you're gearing up to claim Social Security and have only worked 33 years, you may be looking at a lower benefit than what you'd be getting with a 35-year income history.
3. You're working while collecting benefits at the same time
It's permissible to earn money from a job while also collecting Social Security benefits. And once you reach FRA, you can earn any amount of money without risking losing out on Social Security.
However, if you opt to work and receive Social Security before FRA, you'll be subject to an earnings-test limit. And if your income exceeds that limit, you'll have some of your benefits withheld, resulting in a smaller monthly check.
Now the good news is that withheld Social Security isn't forfeited permanently in this situation. Once you reach FRA, any amount of Social Security you had withheld for exceeding the earnings-test limit will be added back into your monthly benefits for a boosted amount at that time. But you'll need to wait until FRA to get that money.
Know the rules
There are different factors that might result in a reduced Social Security benefit for you. That's why it's really important to read up on Social Security prior to claiming benefits.
Holding off on filing for a year or two, for example, could result in a much higher monthly paycheck for life. And if you don't have a ton of savings and need Social Security to get by in retirement, then the last thing you want to do is slash your benefits due to not fully knowing the rules.
