How much do you expect to receive in monthly Social Security benefits when you retire? Calculators are available online to help you estimate your anticipated benefits, including one on the Social Security website. These calculators only provide estimates; your actual benefit amount cannot be fully calculated until you apply for benefits.
A recent survey from Nationwide Financial suggests that too many people are either not assessing their future benefits correctly or are not even bothering to check them. The 2016 Consumer Social Security PR Study released by the Nationwide Retirement Institute found that only 42% of future retirees used an online calculator to estimate their future benefits. Another 16% contacted the Social Security Administration for help determining their likely benefits, while 22% simply guessed.
As a result, quite a few retirees are unpleasantly surprised to find that their actual Social Security benefits are short of expectations. 24% of recent retirees and 33% of those retired ten years or more found that their benefits were less or much less than they expected to receive.
Aside from poor estimation skills, misunderstanding of the rules and certain actions can lead retirees to a lower benefit. Here are 6 ways to receive an unpleasant Social Security surprise.
1. Incorrect Records – If there are errors in your earnings record, your Social Security benefits will be incorrectly calculated. Make sure to check your Social Security statement to verify that the earnings are correctly reported, and that any pertinent changes that could cause errors are reported to both your employer and the Social Security Administration — for example, a name change after marriage.
2. Claiming Benefits Early – You may need to claim benefits before you reach your full retirement age (67 for most working people today), but understand that by doing so, your monthly payments will be lower — potentially as much as 30%. Conversely, by delaying your retirement until age 70, you can increase your monthly Social Security benefits by 8% per year of delay.
3. Working in Retirement – Once you reach full retirement age, you can work all you want, and there is no penalty. However, if you claim benefits early, your Social Security benefits are reduced by $1 for every $2 you claim over the earnings threshold ($15,720 for 2016), and in the year prior to full retirement age, the penalty changes to $1 withheld for every $3 earned over a higher threshold ($41,880 in 2016).
4. Medicare Premiums – The amount of Medicare premiums withheld for part B and D can catch seniors by surprise. For example, Part B premium values are dependent on your modified adjusted gross income (MAGI), thus financial changes upon retirement that change your MAGI drastically in a particular tax year can affect your premiums (and consequently, your Social Security withholding).
5. Pensions – If a portion of your career was covered by public pensions that did not pay into Social Security, various provisions can be triggered that reduce the amount of Social Security benefits to which you would be entitled. Read more about it here or contact your local Social Security office for details.
6. Garnishment – Certain types of debt such as back taxes, child support, or unpaid federal student loans can be withheld from your Social Security benefits. Deal with such debts before you reach retirement age to avoid the potential re-routing of Social Security benefits to cover these debts.
You shouldn't expect Social Security to cover the majority of your retirement needs, but you should also not ignore it to the point of not assessing your future benefits properly, or understanding what affects them. Take some time now to educate yourself on your expected benefits, and your retirement surprises are more likely to be positive ones.
Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.