What is Social Security and How Does it Affect Your Retirement?
Social Security is a federal program that provides benefits to eligible individuals and their families in the event of retirement, disability, or death. These benefits are intended to provide financial security for individuals during their retirement years, but there are certain circumstances in which an individual may lose their benefits.
Four Common Reasons You Could Lose Your Social Security Benefits
Taxes on Social Security: Depending on your income, a portion of your Social Security benefits may be subject to federal taxes. This can reduce the amount of money you receive each month. For example, if you have other sources of income, such as a pension or rental income, up to 85% of your Social Security benefits may be subject to taxes. However, if you have a low income and no other sources of income, your benefits may not be subject to taxes.
Social Security Earned Income Limits: If you continue to work while receiving Social Security benefits, your benefits may be reduced if your earned income exceeds certain limits. For example, if you are under your full retirement age (FRA) and earn more than $18,960 in 2021, $1 in benefits will be withheld for every $2 in earnings above the limit. If you reach your FRA in 2021 and earn more than $50,520, $1 in benefits will be withheld for every $3 in earnings above the limit.
Garnishment of Social Security benefits: Social Security benefits can be garnished to pay certain debts such as child support, alimony, and taxes. However, there are limits on how much of your benefits can be garnished. The government can garnish up to 15% of your benefits to pay delinquent taxes, and up to 65% of your benefits to pay child support or alimony. It’s important to keep track of your debts and make payments on time to avoid having your benefits garnished.
Taking benefits at the wrong time: If you start receiving benefits before your full retirement age, your benefits will be permanently reduced. For example, if your FRA is 67 and you start receiving benefits at age 62, your benefits will be reduced by 30%. This reduction can have a significant impact on your retirement income, so it’s important to consider when to start receiving benefits and how it will affect your overall retirement plan.
The Impact of Early Retirement on Your Social Security Benefits
Retiring early can also have an impact on your Social Security benefits. The earlier you start receiving benefits, the lower they will be. For example, if you begin receiving benefits at age 62, they will be 25% lower than if you wait until your full retirement age (FRA) of 67.
What are the Different Ways You Can Protect and Increase Your Social Security Benefits?
Save for retirement with a 401(k) or other retirement account: Building your own nest egg can help supplement your Social Security benefits and provide an additional source of income during retirement.
Delay retirement: Waiting until your FRA to start receiving benefits will increase the amount you receive each month.
Work with a financial advisor: A financial advisor can help you understand the best strategies for protecting and increasing your Social Security benefits and how to maximize your retirement income.
Conclusion: Make Smart Decisions About Your Social Security Benefits To Secure a Comfortable Retirement
Social Security benefits can play a crucial role in ensuring a comfortable retirement, but there are certain circumstances that can cause an individual to lose their benefits. Understanding the reasons why benefits may be lost and taking steps to protect them can help ensure a stable financial future during retirement. It’s important to consult with a financial advisor to understand how to protect and maximize your Social Security benefits.