5 Ways You May Accidentally Reduce Your Social Security Benefits

For many seniors, Social Security is your only means of income, so you want to make every penny count. This is especially true if you have little to no retirement savings. Medicare World knows your Social Security benefits are important to your livelihood, so we’re here to make things simple and easy to understand. Here are five ways you may accidentally reduce your Social Security benefits.

1. Collecting benefits before your full retirement age (FRA)

A common way to reduce your Social Security benefits is to collect benefits before your full retirement age. For most people, the full retirement age is 67. You can collect benefits as early as 62, but it’s generally not recommended as it will permanently reduce your Social Security benefits. In 2020, the average Social Security benefit payment is around $1,500 per month. If you decide to claim benefits a year or two early, your benefits will be reduced. Alternatively, if you continue working and wait to claim Social Security, your benefits can increase until they max out at age 70.

2. Working for fewer than 35 years

Your Social Security benefits are based on how much you earned while you were working, so it’s important to work for at least 35 years if you want to get as much out of your benefits as possible. If you worked fewer than 35 years, Social Security will factor in a salary of $0 for each year you did not work. You can boost your benefits by working longer until you max out your benefits at 70.

3. Filing for benefits before FRA and continuing to work

Not hitting your retirement savings goals could make it tempting to file for benefits and continue working before you reach FRA. However, this strategy is not recommended. If you’re younger than FRA, there is a limit to how much you can earn before you reduce your Social Security benefits.

If you reach FRA and continue to work—don’t worry. Your benefits will not be reduced no matter how much you earn.

4. Paying taxes on your Social Security benefits

Before you settle down for retirement, you should consider if your state taxes Social Security benefits. As of right now, 13 states tax Social Security benefits: CO, CT, KS, MN, MO, MT, NE, NM, ND, RI, UT, VT, and WV. However, if your income is low enough, some states offer tax exemption. There are four states that do not offer tax exemption: Minnesota, North Dakota, Vermont, and West Virginia. Don’t pack up and move just yet, though. If your state doesn’t offer tax exemption but it has a lower cost of living, it may be worth it to stay put.

5. Owing outstanding debts

If you have outstanding debts (like student loans or back taxes), you should pay these off before you start collecting Social Security benefits. If not, your benefits could be garnished. Your benefits won’t technically be reduced, but you will be receiving less money until these debts are paid off.