There’s nothing worse than losing your retirement income because of a sudden cut in Social Security benefits. Even in the best of circumstances, Social Security benefits aren’t enough to sustain a person’s standard of living, so a reduction in benefits could put you in serious financial peril.
Fortunately, there are some common ways that retirees lose out on their benefits that can be avoided if you know about them. If you’re concerned about losing out on some of your Social Security benefits, here are four possible triggers.
1. IF YOUR PROVISIONAL INCOME IS ABOVE TAXABLE LEVELS
Social Security benefits can be slashed if the IRS takes a chunk out of them. When “provisional” income exceeds a certain threshold, this can occur. Provisional income is a unique approach to figuring out one’s take-home pay. This is what’s included:
- Traditional 401(k) account distributions are included in taxable income.
- Some income that is not taxed, such as interest on municipal bonds
- A portion of your Social Security payments
If your taxable income exceeds $25,000 for a single filer or $32,000 for a married couple filing jointly, you may be subject to federal income tax on up to half of your Social Security benefits.
In addition, up to 85% of benefits are taxed by the IRS at a provisional income of $34,000 for single filers or $44,000 for married joint filers.
Despite the fact that many aspects of Social Security, such as the average benefit and the wage base limit, change annually, the taxation thresholds do not.
Sadly, this means that an increasing number of retirees will see their benefits cut in half each year as a result of rising federal taxes.
Also Read: 9 Social Security Myths Busted: What Retirees Need to Know
2. IF YOU LIVE IN ONE OF THE 13 STATES THAT TAXES SOCIAL SECURITY BENEFITS
You may also miss out on a portion of your Social Security benefits if you choose the wrong place to retire.
Retirement benefits are not taxed by most states in the US, but 13 do.
Depending on where you live, a portion of your benefits may be subject to income tax, which means you could end up handing over even more of your retirement savings to the government.
The 13 states in which this could be a problem for you are listed as follows:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- North Dakota
- Rhode Island
- Utah
- Vermont
- West Virginia
Before deciding whether to spend your later years in one of these places, take a look at the specifics of the tax rules.
3. IF YOU WORK LESS THAN 35 YEARS
Social Security benefits are designed to replace about 40% of pre-retirement wages. Consequently, they’re calculated by using a formula that gives you the compensation that is proportional to your earnings over the course of your career.
After adjusting each year’s income to account for wage growth, the benefits formula calculates your average monthly wage over the 35 years that you had the highest earnings.
Averages are drastically lowered if any zeros are included, which is exactly what will happen if you retire with less than 35 years of experience.
Average wages Social Security is based on are calculated by including five years of $0s in the wage calculation if you work for 30 years. More years you don’t meet your goals will have a greater effect.
You can benefit from the 35-year rule by working longer and earning more during those extra years, of course.
In other words, the longer you work while earning a higher salary, the more years with lower earnings are excluded from your overall average income.
So, if your salary has increased over time, you may want to consider working a few more years to get a better benefits package.
Also Read: Is Your Spouse Eligible for Social Security Benefits? You Might Be Surprised By These 3 Rules.
4. IF YOU’RE LATE SIGNING UP FOR MEDICARE
Most retirees have their Medicare premiums deducted from their Social Security payments. When the cost of Medicare goes up, so do your benefits.
In the unfortunate event that you enroll late in Medicare, you may face a lifetime premium penalty. Making sure you’re aware of the Medicare open rules and enrolling in time can help you avoid this financial burden.
Understanding these four ways in which you may lose benefits can help you better plan for your Social Security income.
Additionally, in some cases, you may be able to keep your retirement benefits intact. It’s important to keep one of your most important sources of income intact in your later years, so be sure to make wise decisions.
Also Read: In February of 2022, the first Social Security cost-of-living adjustments will be issued.
The $16,728 Social Security bonus most retirees completely overlook
When it comes to saving for your retirement, most Americans are a few years behind. One way to increase your retirement income is to learn a few of the so-called “Social Security secrets.”
You could make an extra $16,728 a year by using a simple trick, for example. We believe that once you’ve learned how to maximize your Social Security benefits, you’ll be able to retire with the peace of mind that we all desire.