If you're not yet receiving Social Security, the best estimate of the size of your eventual benefit check comes from creating an online account with the Social Security administration. You can create your account by following this link.
However, as great as that information from the Social Security Administration is, chances are that it only tells you half the story -- that is, the better half. In all likelihood, the net check you receive will be smaller than what that estimate tells you, even if Social Security perfectly predicts the initial size of your benefit.
Where's the rest of it?
Three key things can shrink your Social Security check: Medicare, taxes, and qualified garnishments for things like student loans, child support, or alimony. Any or all of those can be taken directly out of your Social Security check, leaving you with less than you originally thought you might be getting.
Medicare Part B premiums are typically deducted from your Social Security check, and you can request that some other Medicare premiums be deducted from your Social Security check as well. It's a convenient way to ensure you don't lose coverage for failing to make a timely payment, but it does decrease what's left of your Social Security check.
You can have income taxes withheld from your Social Security check. This is important for a couple of reasons. For one, up to 85% of your Social Security benefit itself may become taxable if you earn more than $34,000 and file an individual return or if you earn more than $44,000 and file jointly. Secondly, you are still responsible for timely estimated tax payments or withholdings when you stop drawing a paycheck and start living in retirement. Withholding from your Social Security benefit can help you meet that obligation.
If you owe back taxes, the IRS can garnish up to 15% of your Social Security check to begin paying them. Likewise, if you're late on a student loan payment -- either one for your own education or one you cosigned on -- that could cost you a garnishment of up to 15% of your Social Security check as well. Social Security can also be garnished to pay for late alimony or child support, which can cost you as much as 50%-65% of your benefit.
Why this matters to you
The average Social Security benefit for a retiree was $1,301.84 as of August. That's below what you'd earn from a minimum-wage full-time job in many states. That figure is also before Medicare costs, tax withholdings, and garnishments.
Most people pay $104.90 per month for their Medicare Part B benefit, though the monthly cost can be as much as $335.70. Medicare supplement plan costs vary by coverage type, state, age, and provider, but premiums around $183 per month are not uncommon. Subtract the $104.90 Part B and a $183 supplemental premium from a typical Social Security benefit, and the check shrinks substantially to $1,013.94. That's before considering the possibility of any taxes or garnishments.
If you can live on that net monthly benefit in your retirement, more power to you. If you can't, you'll need another source of income -- which makes it more likely that your Social Security benefit would be subject to taxes, reducing your net Social Security benefit even further. Throw on a garnishment on top of that, and what you actually get from Social Security may be far, far smaller than what you thought you'd see.
Plan for retirement with your eyes wide open
Social Security remains a critical part of most Americans' retirement plans. Still, as you plan for your own retirement, make sure you understand exactly what you're likely to get from Social Security so that you don't expect it to deliver more than it likely will. That way, you can better prepare the rest of your finances to cover the costs that Social Security won't.
Chuck Saletta is a Motley Fool contributor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.