3 Ways You Could Reduce Your Social Security Check By Mistake

As a retiree, you’ll probably depend on Social Security to cover at least some of your expenses. Social Security is guaranteed for life, and it’s protected against inflation, so you’ll likely want to earn as much as you can from it since it’s such a reliable funding source.

Unfortunately, there are a few mistakes you could end up making that reduce the amount of money the Social Security Administration will provide to you. You could make these errors without realizing the implications, and that could have long-term financial consequences. You don’t want that to happen, so be on the lookout for these three potential actions that could inadvertently reduce your Social Security checks.

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1. Retiring before 35 years of work history

The first mistake could come from retiring too soon.

You become eligible for Social Security retirement benefits after earning 40 work credits. You can earn up to four per year, so you would need to work for at least 10 years. However, just because you are eligible to get retirement checks after working for a relatively short time doesn’t mean that cutting your career short doesn’t have consequences.

When your Social Security benefits are calculated, the amount you receive is based on a percentage of average wages over a 35-year period. Specifically, your 35 highest-earning years (after adjusting for wage growth) are included in your benefits formula. If you work for less than 35 years, this formula doesn’t change. You still get average benefits based on a 35-year work history. The problem is that if you didn’t work for long enough, some of the years counted in your formula will be years when your wage was $0.

Obviously, when you include the number $0 in any average, it brings your average down. As a result, working less than 35 years before retiring is going to shrink your Social Security benefits check. You should try to stay on the job for at least that long.

If you have increased your earnings over time, it can be a good idea to work longer than 35 years, so some early low-earning years can be replaced in your formula by later years when your salary was higher.

2. Working while on Social Security and under full retirement age

If you are already retired, you can also make some moves that will shrink your checks. Specifically, if you claimed Social Security benefits prior to your full retirement age (FRA), you are at risk of losing some benefits if you earn too much money.

In 2024, if you won’t reach FRA at any time during the year and you earn more than $22,320, you lose $1 in benefits for every $2 extra earned. If you’ll reach FRA sometime during the year, you can earn up to $59,520. After that you’ll lose $1 in benefits for every $3 extra earned. Unfortunately, this can mean you end up getting a lot less money from Social Security than you might have expected.

You do eventually get back the benefits you forfeited by working too much. Your monthly benefit is recalculated at FRA to account for months you missed payments as a result of exceeding the earnings limits. However, it can take a lot of time for the small extra amount added to each check to make up for the income you passed up when your earnings from work got too high. Plus, if you aren’t expecting to lose your benefits just because you go back to work, this can come as a huge shock that destabilizes your finances.

Double-dipping and earning income while collecting benefits is allowed after full retirement age, though, and you can earn as much as you want at that time without consequence.

3. Moving to a state that taxes benefits

Finally, you could end up losing Social Security benefits by mistake if you move to a state that taxes benefits. In most parts of the U.S., this isn’t a concern. However, nine states impose taxes on Social Security under at least some circumstances. If you relocate to one of them and your income is high enough that your state will tax your retirement benefits, this could be a major financial setback — especially if you weren’t expecting the tax hit.

Understanding all three of these moves that could potentially shrink your benefits can help you to make more informed choices about what actions you take while collecting Social Security. You don’t want to make an error that costs you.