3 Ways You Could Slash Your Social Security Benefits Without Even Realizing It

Once you retire, you’ll probably depend heavily on Social Security to cover your costs. Even if you have savings, your money could eventually run out, whereas Social Security is guaranteed to pay you a monthly benefit for life. So it’s important to do what you can to snag the largest checks you can.

You may be aware that filing for Social Security before reaching full retirement age (FRA) will result in reduced benefits. But that’s not the only reason your monthly checks could end up being smaller than expected. Here are a few ways you might end up slashing your Social Security benefits without even realizing what you’re doing.

1. Working for less than 35 years

Your Social Security benefits are based on your personal income history. The Social Security Administration (SSA) takes your 35 highest-paid years of income into account when coming up with your monthly benefit amount.

What this means, though, is that if you don’t work for a full 35 years, you risk having a $0 factored into your benefits formula for every year you do not have an income on file. Even a single $0 income year could result in smaller monthly checks during retirement.

For this reason, it could pay to delay retirement and work a bit longer if you don’t have a full 35-year work history. And even if you do, you may want to continue working if you’re earning a great salary now, as it could replace a year of lower earnings and lead to larger monthly benefits.

2. Not checking your earnings record

Since your Social Security benefits are based on your specific wage history, underreported income could lead to smaller monthly payments. That’s why it’s important to make sure the SSA has the right wage information for you on record.

The best way to find out is to create an account on the SSA’s website and review your earnings statements. If you see incorrect information, you should be able to contact the SSA and get your record updated. You may need to provide pay stubs, tax returns, W-2 forms, or other such financial information to back up your claim.

3. Working while collecting Social Security

You’re allowed to work while receiving Social Security benefits, but if you do so prior to reaching FRA, you’ll be subject to an earnings test. Exceeding the limit of the earnings test could result in withheld benefits that whittle down your monthly checks.

Now the good news is that if you lose out on benefits for earning too much income, that money is only withheld temporarily. Once you reach FRA, the SSA should recalculate your monthly benefits and pay that money back to you in the form of larger checks.

But in the near term, your Social Security checks could shrink, causing cash flow problems. So it’s important to understand the repercussions of earning too much money when you’re getting Social Security.

Thankfully, the earnings test goes away once you reach FRA. So it’s something you may only have to worry about for a handful of years.