You may bank on Social Security retirement checks, but they're not guaranteed. Here's how you could lose or lessen your benefits, according to experts.
These Are the Ways You Can Lose Your Social Security Benefits
Published on Oct. 24, 2024
Retirement looks different for all of us, but if there’s one thing we have in common it’s this: Once we reach age 60, we start giving a lot of thought to retirement costs and Social Security benefits. Many retirees count on this money as a critical part of their income—or their entire income—once they stop working. But they don’t realize that there are ways they might lose their Social Security benefits or end up with reduced payments.
Luckily, you can better plan for such possibilities when you know what you’re dealing with. That’s why we asked two finance and retirement experts to explain the things that put your Social Security income at risk. “Knowing your options will help ensure you aren’t leaving money on the table by claiming a strategy that doesn’t line up with your goals,” says Eric Mangold, founder of Argosy Wealth Management.
Read on to find out what Social Security retirement benefits are, when you’ll be eligible and what things might put them in jeopardy.
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When are you eligible for Social Security?
While there are Social Security benefits you can access at any age—including disability insurance and survivor benefits—eligibility for receiving retirement benefits starts as early as age 62. “Workers must have at least 10 years of qualified earnings history, although exceptions apply for individuals who are disabled or blind,” explains Stephen Kates, the principal financial analyst for RetireGuide.
He points out that retirees receive the total amount of their benefits only if they wait until their full retirement age. “Claiming Social Security benefits earlier will permanently reduce your monthly income benefit,” he says.
One important note: The full retirement age isn’t the same for everyone. “For those born in 1937 or earlier, FRA [full retirement age] is 65, but for those approaching retirement right now, it is right around age 66, and it slides later for every year one is born after the year 1955,” says Mangold.
For instance, if you were born in 1956, your full retirement age is 66 and four months, but if you were born in 1959, it’s 66 and 10 months. “Right now, the latest FRA is age 67, so that’s when Social Security considers you retired,” Mangold says. That’s the case for anyone born in 1960 or later.
How much will you get each month?
As of January 2024, the estimated average monthly Social Security retirement benefit is $1,907. “When calculating your benefits, your average annual earnings before your 60th birthday will be indexed for inflation,” Kates says. “Your monthly Social Security benefit will depend on your earnings history and the age you claim benefits.”
Kates’s website, RetireGuide, has an easy-to-use Social Security calculator for estimating benefits. And the Social Security Administration offers four different calculation options.
- Quick Calculator estimates your earnings and benefits.
- Online Calculator requires all past earnings data.
- Windfall Elimination Provision Calculator determines the impact of pension income from federal, state or local government work. These pension benefits may reduce Social Security eligibility.
- Detailed Calculator requires you to download the program to your computer to calculate Social Security benefits.
How can you lose your Social Security benefits?
Social Security benefits aren’t as guaranteed as death and taxes, and there are a few ways you can lose or reduce your payments. While reducing payments isn’t the same as losing benefits entirely, you could lose money that’s rightfully yours.
Claim benefits early
If you choose to claim Social Security benefits when you’re eligible—at age 62—but before your full retirement age, you will permanently reduce your benefits. According to the Social Security Administration website, if you claim your retirement benefits early, the agency will “reduce your benefits by as much as 30% below what you would get if you waited to begin receiving benefits until your full retirement age.”
Let’s say you were born in 1962 and are 62 years old. If you started receiving Social Security today, the average $1,907 benefit would be reduced to about $1,335. The same goes for anyone born after 1962.
But here’s a positive fact about retirement planning: The longer you wait to claim Social Security retirement benefits, the greater the amount will be.
The Social Security Administration has an early or late retirement calculator to help calculate how your benefits are reduced or increased based on when you start receiving payments.
Make too much money in early retirement
Want to work after you retire? You’re not alone. Plenty of people do, and it doesn’t affect their Social Security benefits—if they do it at the official retirement age.
But if you plan to retire early, collect Social Security and keep working, expect smaller Social Security checks. Not only will your benefits be about 30% lower if you retire early, but the Social Security Administration will also reduce your benefits while you work until you reach the full retirement age.
Through the retirement earnings test, the administration determines benefit reductions based on how much you’re earning while retired. Make more than the limit (which changes yearly), and your benefits will be reduced. As Kates explains, working any year before your full retirement age will reduce your benefits by $1 for every $2 you earn over $22,320 this year. That earnings limit will increase to $23,400 in 2025.
“Working in the year you reach your full retirement age (but before your birthday) will reduce your benefits by $1 for every $3 earned over $59,520,” Kates says. In 2025, that higher limit will increase to 62,160.
On the upside, once you reach your full retirement age, the Social Security Administration will increase your benefits for the remainder of your life. “It is important to note that any benefits withheld while you continue to work are not lost,” its website states. “Once you reach [the normal retirement age], your monthly benefit will be increased permanently to account for the months in which benefits were withheld.”
Get remarried
“If you are receiving benefits based on the earnings record of an ex-spouse, you will lose those benefits if you remarry,” Kates explains. “However, you will always have access to your own benefits or the benefits of your new spouse.”
Go to jail
“Your benefits will be suspended if you are incarcerated for more than 30 days, but they will resume when you are released,” Kates explains. According to the Social Security Administration, benefits resume the month following the month of your release.
If your Social Security benefits are supporting others in your family, don’t fret. Your spouse or children will still receive benefits as long as they’re eligible.
Change your situation
We often think of Social Security in terms of retirement, but that’s not the only type available. Kates points out that other programs, such as Social Security Disability Income and Supplemental Security Income, can be terminated if conditions or income improve. For instance, if you exceed earnings limits or the Social Security Administration deems your disability improved, you could lose your disability benefits.
Will Social Security run out of money?
While claims that Social Security will run out of money are exaggerated, the administration’s trust funds are expected to reach a shortfall in the next decade or so, and this has many people concerned. According to the Social Security Administration website, “benefits are now expected to be payable in full on a timely basis until 2037, when the trust fund reserves are projected to become exhausted. At the point where the reserves are used up, continuing taxes are expected to be enough to pay 76% of scheduled benefits.”
What gives? As the administration itself points out, with people living longer and the birth rate dropping, the ratio of workers to beneficiaries is reduced. In other words, the taxes workers pay into Social Security may not be enough to cover those receiving benefits.
Still, it’ll be another decade before that happens. So as Kates points out, projections related to the timing and exact reduction are subject to change. Instead of focusing on what-ifs, consider ways to save up beyond Social Security when budgeting for retirement. “For many retirees counting on that money now or in the future, it could mean a significant reduction in living standards, and those who view the likelihood of a congressional solution with skepticism should plan to replace more of their pre-retirement income using personal savings,” he advises.
About the experts
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Sources:
- Stephen Kates, principal financial analyst for RetireGuide; email interview, Oct. 21, 2024
- Eric Mangold, founder of Argosy Wealth Management; email interview, Oct. 21, 2024
- Social Security Administration: “General Retirement Questions”
- Social Security Administration: “What Prisoners Need to Know”
- Social Security Administration: “Retirement Earnings Test”
- Social Security Administration: “The Future Financial Status of the Social Security Program”
- Social Security Administration: “What young workers should know about Social Security and saving”
