In 2023, some 67 million Americans receive Social Security retirement benefits each month, according to the Social Security Administration (SSA). The average monthly benefit for all retired workers in 2023 is estimated to be $1,827—a sum that represents the primary source of income for some of them.
If you’ve saved funds in a 401(k), an individual retirement account (IRA), or another qualified retirement plan, and you’re counting on Social Security just to supplement that, you may still be in for a shock once your first payment arrives.
If you recently started receiving Social Security benefits, there are three common reasons why you may be getting less than you expected: an offset due to outstanding debts, taking benefits early, and a high income.
- Your Social Security check will decrease if you owe certain debts like back taxes or student loans.
- Taking your Social Security benefits early can reduce your payments by up to 30%.
- Triggered by higher income, a higher Medicare premium can diminish your monthly Social Security check.
1. Offsets Shrank Your Social Security Check
One potential scenario that may result in lower Social Security benefits is an offset. That’s when you owe money to the government and they collect it from your Social Security benefits. Examples of debts that could result in an offset include:
- Defaulted student loans
- Food stamp overpayment corrections
- Home loans owed to the VA
- Back taxes (technically a levy, but the concept is similar)
SSA regulations protect the first $750 in benefits you receive. However, if it’s determined that a debt does indeed belong to you, then the SSA will reduce your benefits each month by a certain amount until what you owe is repaid. Once an offset for debt is satisfied, you’ll receive your full benefit amount. Meanwhile, you have to deal with the temporary shortfall.
Also, you may be subject to a reduction of benefits if you receive Social Security benefits before you reach full retirement age, continue to work, and your income exceeds specified limits. However, once you reach full retirement age, your earnings will no longer reduce your benefit, no matter how much you earn.
2. Early Benefits Shrank Your Social Security Check
For most people retiring now, the full retirement age for Social Security purposes is either 66 or 67, depending on the year when you were born. But it is possible to begin taking your Social Security retirement benefits as early as age 62. While that can give you some financial relief if you’re strapped for cash, there is a tradeoff. The size of your benefits automatically—and permanently—go down.
A 2020 survey of 1,727 adults in the U.S. ages 24 and older by the Nationwide Retirement Institute (NRI), a subsidiary of the Nationwide Mutual Insurance Company, found that almost three in four baby boomers (80%), and most Gen Xers (90%) and millennials (97%), incorrectly identify the age at which they are eligible for full retirement benefits. In that same study, only 45% of Millennials, 49% of Gen Xers, and 69% of Baby Boomers+ correctly understood that if they take Social Security early, their benefits are permanently lowered. The rest of the respondents incorrectly thought benefits would be increase to the full amount upon reaching their full retirement age.
How much can taking benefits early really cost you? Let’s say your normal retirement age is 67, but you decide to apply for Social Security when you turn 62. Because you’re taking benefits for an extra 60 months, your Social Security check would be reduced by 30%.
If you’re entitled to $1,000 a month, then you’d only get $700. That’s a pretty significant chunk of money to give up, and that check will be lower for life. If you’re thinking of getting benefits early, then it pays to crunch the numbers to see how much you stand to lose by doing so.
If you wait until you’re age 70 to take Social Security benefits, you’ll get an extra 8% for each year starting with your full retirement age. But claiming after age 70 doesn’t increase your benefits further, so there’s no reason to wait any longer.
3. Medicare Premiums Shrank Your Social Security Check
You are eligible to enroll in Medicare the year when you turn 65. If you sign up for Medicare Part B, your premiums are deducted from your Social Security benefits. The standard monthly premium for Medicare Part B enrollees is $170.10 for 2022, an increase of $21.60 from $148.50 in 2021; however, it’s entirely possible that you could end up paying more if you fall into a higher tax bracket.
If you file an individual return and your income was higher than $88,000 but less than $111,000, then you paid $207.90 in 2021. If your income ranged from $111,000 to $138,000, then you paid $297. And if it’s more than $500,000, then the premium came to $504.90.
And in 2022, single filers with income greater than $91,000 and less than or equal to $114,000 pay $238.10 monthly. If their income is greater than $114,000 and less than or equal to $142,000, they pay $340.20. If it’s between $142,000 and $170,000, the premium is $442.30. For income between $170,000 and $500,000, the premium rises to $544.30. And if it’s more than $500,000, then the premium comes to $578.30.
“If your income has recently dropped, you may appeal to the SSA for a lower premium. The IRS may be providing the SSA with older data that needs to be updated,” says James B. Twining, CFP, founder, and CEO of Financial Plan Inc.
In addition, the hold-harmless provision protects beneficiaries from a reduction in their previous year’s benefit level due to an increase in Part B premiums. There are requirements to qualify for this, which are:
- “You are entitled to Social Security benefits for November and December of the current year;
- The Medicare Part B premium will be or was deducted from your Social Security benefits in November of the previous year through January of the current year;
- You do not already pay higher Part B premiums because of Income-Related Monthly Adjustment Amount (IRMAA) eligibility;
- And, you do not receive a Cost of Living Adjustment (COLA) large enough to cover the increased premium.”
Hold harmless does not apply to people if:
- “You are new to Medicare in 2022. Hold harmless does not apply to you because you have not been enrolled in Medicare Part B long enough to qualify.
- You are subject to IRMAA.
- You are enrolled in a Medicare Savings Program (MSP). However, the MSP should continue paying for your full Part B premium.
- You were enrolled in a Medicare Savings Program in 2021 but lost the program because your income increased or you failed to recertify.”
For certain high-income earners, Medicare premiums are equivalent to 35%, 50%, 65%, 80%, or even 85% of the total cost of coverage.
Other Factors Affecting Your Social Security Check
If you retire before full retirement age and your income goes up instead of down for any reason—you sell off a high-value asset, you start a profitable business, or you earn a lot as a consultant or freelancer—then that could substantially impact what you get from Social Security, at least until you reach full retirement age.
Fewer than one in 10 adults polled by the Nationwide Retirement Institute understand the factors that determine the maximum Social Security retirement benefit.
A Word About Reserves
Even though the Social Security fund is replenished each month with payroll taxes from all income earners, the fund’s resources are not infinite, meaning the fund could run out of money.
According to a 2022 report by the SSA, retirement benefits will be fully paid on schedule until 2034. In other words, the trust fund’s reserves are expected to be exhausted after 2034, and at that point, only 77% of the scheduled benefits will be able to be paid from continuing tax income. Congress will need to make changes to replenish the fund so that retirees can continue to be paid the full coverage.
Why Is My SSI Check Less in 2022?
Your SSI check might be less in 2022 if you are a high-income earner in retirement. If this is the case, your check will be smaller due to surcharges in Medicare.
What Determines the Size of a Social Security Check?
The amount of Social Security benefits you receive will be based on your lifetime earnings while you were working. Your earnings are adjusted to take into consideration changes in average wages from when the earnings were received. Your average indexed earnings are calculated for the 35 years you earned the most.
What Is the Average Size of a Social Security Check?
The average monthly benefit of Social Security checks as of April 2022 was $1,666.49. The average monthly spousal benefit was $837.34.
The Bottom Line
Relying on Social Security to see you through retirement can put you on thin ice financially. It becomes even trickier when you’re getting less money than you budgeted to receive. Taking the time to clear up any outstanding debts, weighing the cost of taking benefits early, and looking at how your income stands to affect your benefits can help you avoid any surprises once your Social Security checks start rolling in.