For millions of older Americans, Social Security is a lifeline in retirement. But the program is complicated and confusing at times, making it difficult to know exactly how much to expect in benefits.
Even if you know your estimated benefit amount, there are several factors that can affect how much you actually receive once you retire. In some cases, your benefit could even change years or decades into retirement.
While everyone's situation is different, these three lesser-known Social Security rules can affect the size of your monthly checks.
Image source: Getty Images.
1. Taxes could reduce your monthly payments
Most retirees will be subject to state taxes, federal taxes, or both in retirement. Not only could you owe income taxes on withdrawals from certain retirement accounts (such as a 401(k) or traditional IRA), but you may owe taxes on your Social Security, too.
The good news is that the majority of states don't tax Social Security, so you may already be off the hook for that type of tax. But federal taxes depend on your income, and if it's above a certain threshold, you may owe taxes on up to 85% of your benefit amount.
One figure you'll need to know is your provisional income. This is half of your annual Social Security benefit amount plus your adjusted gross income and any nontaxable interest. For example, if you're earning $20,000 per year from Social Security while taking $30,000 per year from a 401(k), your provisional income would be $40,000 per year.
| Percentage of Your Benefit Subject to Federal Taxes | Provisional Income: Individual Filers | Provisional Income: Married Couples Filing Jointly |
|---|---|---|
| 0% | Below $25,000 per year | Below $32,000 per year |
| Up to 50% | $25,000 to $34,000 per year | $32,000 to $44,000 per year |
| Up to 85% | More than $34,000 per year | More than $44,000 per year |
Source: Social Security Administration. Table by author.
Because these income limits are so low (they haven't been adjusted since 1984 when benefits first became subject to federal taxes), most retirees will owe taxes on at least a portion of their benefit.
The good news, though, is that you won't owe federal taxes on more than 85% of your benefit, no matter how much you're earning. Also, Roth account withdrawals don't count toward your provisional income. If the majority of your savings are in this type of account, it could lower your provisional income enough to reduce or even eliminate federal taxes on your benefits.
2. If your spouse passes away, it could change your benefit amount
In general, once you begin claiming benefits, your payments are locked in for life (save for annual cost-of-living adjustments). But if your spouse passes away, you may be entitled to larger checks through survivors benefits.
With survivors benefits, you could receive your spouse's entire benefit amount after they pass. However, if you're already receiving retirement benefits, you can only collect survivors benefits if your partner's payments are higher than your own. In other words, you'll only collect the higher of the two amounts -- not both.
Survivors benefits are most commonly available to widows and widowers, but other family members -- such as parents, children, or divorced spouses -- also sometimes qualify. The eligibility requirements can be tricky, so if you think you may be entitled to survivors benefits, it's best to contact your local Social Security office.
3. Reaching your full retirement age won't increase your benefit
The age you file for Social Security will directly affect your benefit amount, and if you claim before your full retirement age (FRA), it will reduce your payments by up to 30%.
One common misconception, though, is that reaching your FRA will change your benefit. In fact, roughly half of U.S. adults mistakenly believe that if they claim early, their benefit will go up once they reach their FRA, according to a 2023 survey from the Nationwide Retirement Institute.
Again, with the exception of cost-of-living adjustments, your benefits generally won't change after you begin claiming. If you file early, you can expect to receive smaller checks for the rest of your life. While claiming early isn't necessarily a bad thing, if you're doing so with the expectation that your benefits will increase in a few years, it could throw a wrench in your retirement plans.
Social Security can make an enormous difference in your senior years, so maximizing your benefits is key. By understanding the nuances of how your benefits are calculated, you can make the most of your monthly checks and enjoy a more financially secure retirement.
