Five Ways to Lose Social Security Benefits
Many Americans consider their future Social Security benefits to be critical to their retirement plans , while for many people who have little or nothing saved for retirement, their Social Security benefit is their retirement plan. While the average monthly income is only $1,907 —or about $23,000 per year—it’s certainly better than having no income at all in later years.
As important as Social Security is to your personal retirement plans, you can’t take it for granted. Yes, there is always the possibility that Social Security will “ run out of money ” at some point if our elected officials cannot find a solution to its funding problems. But while there’s nothing you can do about it, it’s worth being aware of how you could be compromising some of your benefits—or all of them—in some specific scenarios.
Here are four ways you could lose some or all of your Social Security benefits, even if you’re eligible to claim them.
You end up in jail or prison
If for any reason you find yourself incarcerated for more than 30 days, Social Security will assume that the government is now paying your bills and will suspend your benefits while you’re enjoying your stay in the facility. The good news is that anyone receiving benefits during your employment history (such as a spouse) will continue to receive their benefits, and you can resume receiving yours a month after your release. However, if you work somewhere for five years, you’ll lose, on average, about $115,000 that could have ended up in your bank account. And if you end up in prison for the rest of your life, you may never see a dime of Social Security.
You are over your income limit
Social Security benefits depend on your retirement age . For most of us, that’s age 66 or 67, but you can start receiving benefits earlier (age 62) or later (age 70). If you wait until you reach full retirement age to retire, you can actually work as long as you want—your earnings won’t affect your benefits. But if you retire “early,” you’ll have to be careful until you reach full retirement age.
Retiring early gives you smaller benefits (up to 30%, depending on your age) – and the Social Security Administration knows that some crafty people “retire” at 62 to collect Social Security and then continue working. That’s why they have this thing called the earnings test, or income limit, where if you make too much money, your benefits are reduced accordingly. The income limit changes annually (currently it is $22,320, next year it will be $23,400 ). For every $2 you earn over this limit during the year, $1 will be deducted from your benefits. It’s possible to earn so much that you lose your benefit entirely, although if you earn that much money you might not care. And technically you don’t “lose” that money, it’s just put aside – you’ll get higher benefits later when you reach full retirement age. But if you’re relying on that money to pay your bills each month, be very careful about how much extra income you earn.
You owe taxes or a refund.
Some people are surprised to learn that the Social Security benefits we fund by paying FICA taxes from our pre-retirement income are actually taxable . Fun fact: If you don’t pay your federal taxes and end up owing money to the IRS, they can—and most likely will— take 15% of your Social Security payment to get that money back. Your Social Security payments may also be used to pay court orders such as alimony, alimony, or restitution. If your life gets very messy after retirement, you may see a significant portion of your benefit diverted to other accounts.
You are remarrying
This is a bit of a niche, but if you receive benefits based on your spouse’s work history, you can continue to receive those benefits even if you get divorced (as long as the marriage lasted at least 10 years). There is one way to lose these benefits: get married again. If you marry someone new, you will lose your ex-spouse’s benefits.
Plot twist: If your new marriage also ends in divorce (or annulment, or death), you can restore your benefits to your previous ex-spouse.
You refuse them on purpose
Finally, there is a voluntary way to lose benefits: You can withdraw your claim . If you applied for Social Security benefits before age 70, you can change your mind within 12 months and file Form SSA-521 to request that your application be withdrawn. You will have to pay back any money you received this year, but your payments will be suspended.
Why would you do this? If you decide to return to work and know you’ll be over the income limit, you can avoid a lot of hassle by applying for a Social Security recheck. And since early retirement means reduced benefits, resetting the clock means your potential benefit will continue to increase until you’re 70, so you’ll receive larger benefits later.