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.
When a worker leaves the workforce earlier than expected, there’s a real chance they won’t have 35 strong earning years on record. Because earnings typically peak in the final decade of a career, an early exit means that lower-wage years from early in working life get folded into the average, pulling the benefit calculation down.
Claiming early 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. Those thresholds have never been adjusted for inflation, so a growing share of retirees has 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, signed into law on July 4, 2025. The law did not eliminate the tax on Social Security benefits, but it introduced a new $6,000 per-person deduction for taxpayers aged 65 and older, available for tax years 2025 through 2028. Married couples where both spouses qualify can claim up to $12,000 combined. 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 40% 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, and disappears entirely at $175,000 for singles and $250,000 for joint filers, so higher-earning retirees will see a smaller benefit from the change. The provision is also temporary: without further congressional action, it expires after 2028.
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 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 2016, even after accounting for annual COLAs. In practical terms, benefits in 2026 are worth roughly 83.6 cents on the dollar compared to their 2016 value. The 2026 COLA came in at 2.8%, a modest step up from the 2.5% adjustment that took effect at the start of 2025, but advocates argue that even combined increases do 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, two categories 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 $185.00 per month in 2025, and the official 2026 rate is $202.90, an increase of $17.90 (roughly 9.7%). That jump swallowed a meaningful portion of the 2026 COLA before many retirees ever saw the extra money hit their accounts.
Taken together, these three factors mean 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 as the rules evolve, remains one of the most important steps toward protecting your standard of living in later years.
Editor’s note: This article corrects the 2026 Social Security COLA to 2.8% (confirmed by the SSA), updates the 2026 Medicare Part B standard premium to $202.90 per month (confirmed by CMS), corrects the Senior Citizens League’s buying power loss figure to approximately 13.7% since 2016 (not since 2010), and adds detail on the One Big Beautiful Bill Act’s $6,000 senior deduction including the $12,000 married couple benefit, the full phase-out thresholds of $175,000 and $250,000, and the provision’s 2028 expiration.
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