Social Security is a major source of income for many older adults, and more than 20% of U.S. adults age 50 and older have no other retirement income outside of their benefits, according to a 2023 survey from the Nationwide Retirement Institute.
But thanks to a few lesser-known rules, there's a chance you may receive less than you expect. You can check your benefit amount online through your my Social Security account, but that's not necessarily how much you'll actually collect when you file.
Before you begin claiming, it's wise to make sure you're aware of these three factors that could potentially shrink your monthly payments.
1. State and federal taxes
Even in retirement, you may still be subject to income taxes -- including state and federal taxes on your Social Security benefits.
State taxes will depend on where you live, and fortunately, there are already 38 states that don't tax benefits. As of Jan. 1, 2024, two more states -- Nebraska and Missouri -- are now included on that list as well. More states could go the tax-free route in the future, so if you live in one of the handful of places that still taxes benefits, keep an eye on your local laws to see if anything changes.
Federal tax law isn't quite as forgiving, however, and these taxes will affect all beneficiaries regardless of location. Whether or not you owe federal taxes on your benefits will depend on your provisional income, which is your adjusted gross income plus half of your annual benefit amount and any nontaxable interest.
So, for example, if you're withdrawing $40,000 per year from your 401(k) and are earning $20,000 per year from Social Security, your provisional income would be $50,000 per year.
| Percentage of Your Benefits Subject to Federal Taxes | Provisional Income for Individual Filers | Provisional Income for Married Couples Filing Jointly |
|---|---|---|
| 0% | Under $25,000 per year | Under $32,000 per year |
| Up to 50% | $25,000 to $34,000 per year | $32,000 to $44,000 per year |
| Up to 85% | More than $34,000 per year | More than $44,000 per year |
Data source: Social Security Administration.
The good news is that no matter how much you're earning, you won't owe federal taxes on more than 85% of your benefit amount. But because these income limits are so low, most retirees will face federal taxes on at least a portion of their monthly checks.
2. Working after taking benefits
It is possible to continue working after you file for Social Security, but depending on your income, it could reduce your benefit amount substantially.
If you haven't yet reached your full retirement age (FRA) -- which is age 67 for anyone born in 1960 or later -- you'll be subject to the retirement earnings test income limit. There are two different limits depending on whether or not you'll reach your FRA in 2024, and the more you earn over the limit, the more your benefits will be reduced.