Checking your Social Security benefit statement annually is a smart financial move. It allows you to verify the accuracy of your recorded earnings, ensuring that your contributions to the Social Security system are reflected correctly. Reviewing your statement also provides a clear snapshot of your estimated future benefits, helping you to better plan for retirement.
Be aware that your actual benefit may be less than what your statement shows. Here are some reasons why that can happen.
— You claimed your benefit early.
— Your earnings changed.
— Medicare Part B premiums withheld.
— Medicare Part D premium increase.
— Tax withholding.
— Working after starting benefits.
The Social Security Administration began phasing out mailed benefit statements in 2017. If you haven’t started claiming Social Security, consider creating a my Social Security account to download your statement.
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You Claimed Your Benefit Early
Your Social Security benefit statement gives you an estimate of how much you’ll receive if you claim at various ages. For example, if you claim your benefit at the earliest possible time, which is when you turn 62, you’ll receive less than if you wait until full retirement age. That age is 66 for those born in the 1950s and 67 for those born in 1960 or later. Your benefit will be the highest if you wait until you turn 70, the oldest age at which you can claim.
Claiming before full retirement age “can be a bit of a double-edged sword,” says Jeff Rose, a certified financial planner and founder of GoodFinancialCents.com.
“You get to access your funds sooner, but it means you’ll get a smaller amount each month compared to if you waited until your full retirement age,” he says. “It’s a trade-off between time and money, really.”
Your Earnings Changed
Social Security payments are calculated based on a recipient’s 35 highest-earning years in the workforce.
If you have some years when you didn’t work, you’ll see zeros on those lines. Those years are included in your lifetime average and will reduce your monthly benefit.
When you look at your estimated benefit, the number you’ll see assumes you’ll continue earning at your current level until you retire. However, if you stop working or earn less, your benefit will probably decrease.
On the flip side, if your income increases, that could boost your benefit.
If you have an inconsistent work record or several years with zero earnings, working can increase your average indexed monthly earnings. According to the Social Security Administration, each year you work can replace a zero or low earnings year in your Social Security benefit calculation.
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Medicare Part B Premiums Withheld
Generally, your Medicare Part B premiums will be withheld from your Social Security payment.
The standard Medicare Part B premium is $164.90 per month in 2023, although it could be higher, depending on your income.
If the Medicare premium increases, which it sometimes does, it won’t put a dent in most Social Security recipients’ monthly benefits after they’ve enrolled in both programs.
However, higher earners may see a decrease. Social Security recipients who have an income greater than $97,000 for individuals and $194,000 for married couples filing jointly will see higher Medicare Part B premiums and potentially lower Social Security benefits.
“The thing with Medicare Part B premiums is that they usually come right out of your Social Security benefits,” Rose says. “It’s convenient, but it does mean that the amount you’ll have for other expenses each month will be a bit less since a portion is going towards covering those premiums.”
Medicare Part D Premium Increase
Social Security recipients may elect to have their Medicare Part D premiums withheld from their Social Security check. These premiums are calculated based on an individual’s income. The higher your income, the more you may pay for this prescription drug coverage, as determined by a sliding scale. The plan you join also affects your Medicare Part D premium.
Medicare Part D premiums are not automatically deducted from Social Security benefits, but you can ask your Part D drug plan to make that deduction.
“Part D premiums are frequently deducted from monthly Social Security benefits,” says Scott Maibor, Medicare advisor at Senior Benefits Boston.
He adds that Part D benefits are also subject to late enrollment penalties and the income-related monthly adjustment amount, which applies to some higher-income beneficiaries.
Tax Withholding
Americans who have sources of income in addition to Social Security, such as retirement account withdrawals, rental income or a pension, may have to pay taxes on Social Security.
Eleven states consider Social Security income taxable, as does the federal government. On the federal level, recipients whose total income is less than $25,000 for an individual or $32,000 for a married couple filing jointly will not face taxation.
It’s also important to note that only 85% of the benefit is deemed taxable, not 100%.
You can elect to have federal income tax withheld from your Social Security benefits if you think you’ll owe taxes on some portion of them. You can file Form W-4V with the Social Security Administration to request that 7%, 10%, 12% or 22% of your monthly benefit be withheld for taxes.
[READ: When You Pay Taxes on Social Security]
Working After Starting Benefits
Social Security recipients who claim their benefit before full retirement age and continue to work after claiming their benefit will typically have a portion of that benefit withheld. However, you’ll get those withholdings back after you reach full retirement age.
If you’re younger than full retirement age, the IRS deducts $1 from your benefit for each $2 you earn above $21,240.
Beginning the month you reach full retirement age, your earnings will no longer reduce your Social Security benefit, no matter how much you earn.
The Social Security Administration will recalculate your benefit amount to give you credit for the months it was reduced due to your excess earnings. The recalculation takes into account the months in which your benefit was withheld.
More from U.S. News
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What Happens if You Work While Receiving Social Security?
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6 Reasons You’re Getting a Smaller Social Security Check originally appeared on usnews.com
Update 09/22/23: This story was previously published at an earlier date and has been updated with new information.
