Why Your New Social Security Check May Be Less Than You Thought
Watch out, because these three supposed “rules” about Social Security benefits may not actually apply to you.
Some retirees on Social Security may be disappointed by the deposit amount they see on the first bank statement of 2022. Others who are just starting their Social Security benefits for the first time may also be in for an unwelcome surprise. The amount they’re seeing may not measure up to what they had been expecting.
Why? Perhaps they were counting on some common rules for Social Security benefits … rules that ultimately turned out not to apply to them.
Don’t let this be a surprise for you. Let’s take some of these so-called Social Security “rules” and see if they actually apply to your particular circumstances.
Rule 1: You will receive 50% of your spouse’s Social Security benefit once he/she files
Not exactly. Fifty percent is actually the maximum benefit a spouse can get, but there are several reasons why you might not qualify for the full amount. First, it’s not enough that your spouse has reached full retirement age (FRA) for filing. Age 67 is the FRA for workers born in 1960 or later, so we’ll just assume this age is the FRA for our examples. If you’re younger than your spouse (meaning not yet full retirement age yourself), and plan to claim your spousal benefit at the same time, you’ll get a haircut in the amount you receive.
For example, if your husband files for Social Security at age 67, and you’re age 62 at the time you file for your spousal benefit, you receive only 32.5% of his benefit. To get the full 50%, you’d have to wait until your own FRA before claiming.
There’s another way you might be surprised with a less than 50% spousal benefit. Say you and your wife are the same age, and you are both waiting until age 70 to file. She will file for her worker’s benefit, and you’ll file for the 50% spousal benefit. Because she is age 70, she gets delayed credits for holding off on filing past her FRA. You don’t. Even though her benefit will be 124% of what she’d receive had she filed at her FRA, you don’t get 50% of that additional income boost. You just receive 50% of what she would have received at her FRA. Granted, your combined benefit will be higher by waiting, but you also missed out on three years of benefit payments.
Rule 2: You can receive Social Security while you’re still working
This is correct, but the devil is in the details. Those who have reached their FRA and are still working qualify to receive both Social Security retirement benefits and wages. The surprise comes to those workers who file for benefits before their FRA. For these individuals, the Social Security system imposes an involuntary, but partial, deferral of benefits. The rules are complicated, but in general once you’ve earned at least $19,560 the government will hold back $1 of benefits for every $2 of wages you earn above this amount. The rule is less harsh if you reach your FRA in that year, but be ready for a reduction in benefits in the meantime. (For more on this, please read Social Security Earnings Tests: 5 Things You Must Know.)
Recently, this rule has caught many seniors off guard. Say you lost your job during the pandemic and you filed for Social Security even though you hadn’t reached your FRA. If you get your job back this year, you could see your Social Security benefits decrease until you reach your FRA. Again, the government doesn’t so much take away benefits as suspend part of them temporarily, but you’ll want to factor this reduction into your budget.
Rule 3: The cost-of-living increase means your Social Security check will go up
This one is insidious. Yes, your Social Security benefit went up with the 5.9% COLA benefit from last year. But that doesn’t necessarily mean you’ll see a larger monthly deposit in your account. Why? Because most retirees have their Medicare Parts B and D premiums deducted from their monthly Social Security check. This can surprise people in two ways. First, Medicare premiums went up in general for 2022, so more will be taken out. The standard monthly Part B premium for 2022 is $170.10, which is a 14.5% increase from 2021, according to the Centers for Medicare & Medicaid Services. Second, there is an increase in Medicare premiums for those who have higher incomes (the so-called income-related monthly adjustment amount, or “IRMAA”).
Rather than go through all the rules, consider this real-life example. A 68-year-old woman has seen her Social Security deposit fall from $1,248.50 a month in 2021 to $1,179.20 in 2022. The culprit is her husband’s successful year in business — which caused their joint income to go up in 2019. (Remember, Medicare premiums are based on your modified adjusted gross income from two years before.) With the good fortune of increased income comes the penalty of higher Medicare premiums. Through no fault of her own, she was hit with the IRMAA surcharge. And in her case, the increase in Medicare premiums not only wiped out the 5.9% Social Security COLA, but actually dropped her overall monthly payment by $69.30!
Rules aren’t rules if they don’t apply to you. Check to make sure you know what you’ll really get in Social Security benefits.
About the Author
Co-Director, Retirement Income Center, The American College of Financial Services
Steve Parrish, JD, RICP®, CLU®, ChFC®, RHU®, AEP®, is an Adjunct Professor of Advanced Planning and Co-Director of the Retirement Income Center at The American College of Financial Services. His career includes years spent as a financial adviser, attorney and financial service company executive. He focuses on law, estate planning, taxes and financial strategies that can help enable a successful retirement.