January 23, 2022

Why Your New Social Security Check May Be Less Than You Thought

Some Social Security retirees may be disappointed by the down payment amount they see on the first 2022 bank statement. Others just starting their Social Security benefits for the first time may also be in for an unwelcome surprise. The amount they see may not match what they expected.

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 come as a surprise to you. Let’s take some of these so-called Social Security rules and see if they really apply to your particular circumstances.

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Rule 1: You will receive 50% of your spouse’s Social Security benefits once he/she has applied

A stack of $100 bills is chopped in half by a cleaver.

Not exactly. Fifty percent is actually the maximum benefit a spouse can get, but there are several reasons why you may not qualify for the full amount. First, it’s not enough that your partner has achieved full retirement age (FRA) before submitting. Age 67 is the FRA for employees born in 1960 or later, so we assume this age is the FRA for our examples. If you are younger than your spouse (ie not yet of full retirement age yourself), and plan to claim your partner’s benefit at the same time, you will get a haircut for the amount you receive.

For example, if your husband applies for Social Security at age 67, and you are 62 at the time you apply for your partner’s benefit, you will only receive 32.5% of his benefit. To get the full 50%, you must wait for your own FRA before claiming.

There is another way you can be surprised with a partner pay of less than 50%. Suppose you and your wife are the same age and you both wait until the age of 70 to file a tax return. She will apply for her employee’s benefit, and you will apply for the 50% partner’s benefit. Since she’s 70, she gets deferred credits for not filing her FRA. Not you. While her benefit will be 124% of what she would receive if she filed with her FRA, you won’t get 50% of that extra income increase. You just get 50% of what she would have gotten at her FRA. Admittedly, your joint benefit increases by waiting, but you also miss out on benefits for three years.

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Rule 2: You Can Get Social Security While You’re Still Working

An elderly woman stands in an office with arms crossed.

That’s right, but the devil is in the details. Those who have reached their FRA and are still working are eligible for both Social Security benefits and wages. The surprise comes for those workers who apply for benefits from their FRA. For these individuals, the social security system imposes an involuntary, but partial, deferral of benefits. The rules are complicated, but generally, once you earn at least $19,560, the government will withhold $1 in benefits for every $2 in wages you earn above this amount. The rule is less harsh if you reach your FRA in that year, but be prepared for a reduction in benefit in the meantime. (For more on this, please read Social Security Income Testing: 5 Things You Need to Know.)

Recently, this rule has caught many seniors by surprise. Suppose you lost your job during the pandemic and 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 drop until you reach your FRA. Again, the government isn’t so much taking the benefits as it temporarily suspends some of it, but you want to factor this cut into your budget.

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Rule 3: The rise in the cost of living means your Social Security check goes up

Dollar signs float above arrows pointing up, on a spreadsheet and coins background.

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 bigger monthly deposit in your account. Why? Because most retirees deduct their Medicare Parts B and D premiums from their monthly Social Security check. This can surprise people in two ways. First, Medicare premiums went up generally for 2022, so more will be removed. 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 with higher incomes (the so-called means-tested monthly adjustment amount or “IRMAA”).

Consider this real-life example instead of going through all the rules. A 68-year-old woman has seen her Social Security deposit drop from $1,248.50 a month in 2021 to $1,179.20 in 2022. The culprit is her husband’s successful year in business – boosting their combined income in 2019 (Remember not, Medicare premiums are based on your modified adjusted gross income from two years earlier.) With the happiness of higher income comes the penalty of higher Medicare premiums. She was hit by the IRMAA surcharge through no fault of her own. And in her case, the increase in Medicare premiums not only wiped out Social Security’s 5.9% COLA, but actually cut her total monthly payment by $69.30!

Rules aren’t rules if they don’t apply to you. Check to make sure you know what you’re actually getting in Social Security benefits.

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 spans years as a financial advisor, attorney and director of financial services firms. He focuses on law, estate planning, tax and financial strategies that can contribute to a successful retirement.


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