Your Social Security Might Be Smaller Than You Think: Here’s What’s Cutting Into It

Most retirees rely on Social Security to help cover their expenses, but many are surprised to find their benefits don’t stretch nearly as far as they planned. Before you finalize your retirement budget, it’s worth understanding the key forces that can quietly shrink your monthly check.

1. You may have to retire sooner than planned

Your Social Security benefit is calculated using your average wages over 35 years, weighted by the age at which you claim. Both variables matter more than most people realize.

If you have to leave the workforce earlier than expected, there’s a real chance you won’t have 35 strong earning years on your record. Because earnings typically peak in the final decade of a career, an early exit means that lower-wage years from early in your working life get folded into the average, dragging the benefit calculation down.

Claiming earlier than planned compounds the problem. Benefits shrink for every month you claim before age 70, and claiming at 62 rather than at your full retirement age can reduce your standard benefit by as much as 30%. If health issues, a layoff, or caregiving responsibilities force you out of the workforce ahead of schedule, the financial impact can be severe and permanent.

2. You may be taxed on your Social Security income

Even after you start collecting, you may not get to keep everything. Both the federal government and some states can take a cut, and the rules have shifted meaningfully in recent years.

On the federal level, taxes on Social Security benefits kick in once your combined income reaches $25,000 as a single filer or $32,000 as a married joint filer. Up to 50% of benefits can be taxed within those lower income bands, and up to 85% once income climbs high enough. Crucially, those thresholds have never been adjusted for inflation, so a growing share of retirees have crossed them over time, even though the tax was originally designed to affect only the country’s highest earners.

The landscape shifted in mid-2025 when Congress passed the One Big Beautiful Bill Act. The law did not eliminate the tax on Social Security benefits, but it did introduce a new $6,000 per-person deduction for taxpayers aged 65 and older, available for tax years 2025 through 2028. According to a White House Council of Economic Advisors analysis, this deduction means only about 12% of seniors will owe federal taxes on their Social Security benefits, a sharp drop from the roughly half who were previously on the hook. The deduction phases out at a 6% rate for incomes above $75,000 for single filers and $150,000 for joint filers, so higher-earning retirees will see a smaller benefit from the change.

State-level taxation is a separate matter. As of 2026, eight states still tax Social Security income to some degree: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont. West Virginia fully phased out its Social Security tax in 2026, trimming the list from nine states in 2025. Most of the remaining states offer income-based exemptions, so not every resident in those states will owe, but it’s important to check the rules where you live.

3. The buying power of your benefits may erode

Perhaps the most insidious threat to Social Security income is one that unfolds gradually: inflation steadily outpacing the cost-of-living adjustments that are supposed to protect benefits.

According to the Senior Citizens League’s 2026 Loss of Buying Power report, the average Social Security payment has lost approximately 13.7% of its purchasing power since 2010, even after accounting for annual COLAs. The 2026 COLA came in at 3.9%, a step up from the 2.5% adjustment that took effect at the start of 2025, but critics argue that even the larger increase does little to offset cumulative losses. The problem is structural: COLAs are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a benchmark that tracks the spending habits of younger, working-age Americans rather than retirees. Since seniors spend a disproportionate share of their budgets on healthcare and housing, costs that tend to rise faster than the broader index, the CPI-W consistently underestimates the inflation they actually face.

Medicare Part B premiums add another layer of drag. Most beneficiaries over 65 have those premiums deducted directly from their Social Security checks. The standard premium was $185 per month in 2025, and for 2026 it is expected to reach $206.50, an increase of roughly 11.6%. That kind of jump can swallow a significant portion of any COLA before retirees ever see the extra money.

Taken together, these three factors mean that Social Security is likely to provide less financial support than many people count on. Building a retirement income plan with diversified sources beyond Social Security, and revisiting that plan regularly as the rules change, remains one of the most important steps you can take to protect your standard of living in later years.

Editor’s note: This article has been updated to reflect the One Big Beautiful Bill Act’s new $6,000 senior deduction (available 2025-2028), the revised White House CEA estimate that about 12% of seniors will now owe federal tax on Social Security benefits, the reduction to eight states taxing Social Security following West Virginia’s full phase-out in 2026, the Senior Citizens League’s revised 13.7% buying power loss figure from its 2026 report, the 2026 COLA of 3.9%, and the expected 2026 Medicare Part B premium of $206.50 per month.