4 Ways You Could Accidentally Reduce Your Social Security Income

If you rely on Social Security as many seniors do, you don't want to suddenly be surprised by the fact that your benefits are smaller. Unfortunately, this can and does happen to retirees all the time. That's because certain decisions you make, or certain milestones you reach, could result in your benefit shrinking.

To ensure you're prepared for changes and make informed choices, here are four specific situations you need to know about that could cause your Social Security benefit to shrink.

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1. Claiming before 70

Claiming before 70 is one of the decisions that could have the biggest impact on the size of your Social Security benefits. That's because:

• Each month you claim Social Security before your full retirement age shrinks your benefit by 5/9 of 1% for the first 36 months and 5/12 of 1% for any prior month.
• Each month you wait to claim beyond FRA increases your benefit by 2/3 of 1% until age 70.

These minor increases or decreases to your Social Security check can make a surprising impact. Claiming at 62 with an FRA of 67 would shrink your standard benefit by 30%, while claiming at 70 would increase it by 24%. If your standard benefit is around $2,000, a claim at 62 would give you just $1,400 per month, while a claim at 70 would result in a monthly payment of $2,480.

While not everyone can delay their claim until 70, you may want to make waiting as long as possible a goal in your retirement planning if you don't want to shrink the checks Social Security provides you.

2. Not working for 35 years

Your Social Security benefits could also shrink because of a short work history. Your benefits are based on average wages in your 35 highest-earning years, after adjusting for inflation. If you have a work history that doesn't span a full 35 years, some years with $0 earnings will be included in your benefit calculation. Those $0 earning years reduce your payments.

If you want to avoid lowering your retirement income, try to get at least 35 years of work on the books before retiring. You may even want to work longer than 35 years if you are earning more money late in your career and want some extra high-earning years instead of lower-earning earlier years included in your benefits calculation.

3. Working before full retirement age

If you work before FRA, you will also see your Social Security benefits shrink -- although this is a temporary reduction.

In 2026, once you earn more than $24,480 if you won't hit FRA all year, or more than $65,160 if you will hit FRA at some point during the year, you start seeing a reduction to your benefits. The SSA can even withhold entire checks if your earnings are too high.

You do get your benefit amount recalculated at your FRA if you miss out on monthly checks or see your income reduced due to excess earnings. But not everyone lives long enough to make up for all the missed benefits. Plus, this can hurt your finances if you were hoping to get a paycheck and Social Security at the same time, and that doesn't happen.

4. Crossing the threshold where benefits are taxed

Finally, if your income gets too high because of Social Security cost-of-living adjustments (COLAs) or because you take large distributions from your retirement plans, you could reduce the amount of your benefits that you get to keep. This could happen because you cross the earnings threshold when benefits become taxable.

If provisional income (half of Social Security plus all taxable and some non-taxable income) tops $25,000 as a single tax filer or $32,000 as a married joint filer, then you start to owe tax on part of your benefits.

You should be aware of these four potential ways your Social Security payments could shrink, so you can adjust your financial expectations accordingly and aren't caught off guard by a payment that's smaller than you expected.

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