15 Exasperating Ways Your Social Security Benefits Can Shrink

RETIREMENT - SOCIAL SECURITY
If your Social Security payment decreases, it may be due to one of these situations.
Updated May 15, 2024
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You might think that once you qualify for Social Security benefits, you'll continue to receive them month after month without fail. However, there are many reasons why you may lose your benefits.

Whether through your own actions or those of others, Social Security benefits might be curtailed for you. You’ve been planning for a stress-free retirement, so you need to know how your Social Security benefits might be affected.

Here are the steps you need to take to avoid losing your full benefit.

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Claim benefits early

gunnar3000/Adobe glasses on social security benefits form

You can begin receiving Social Security benefits at age 62, but if you choose to do that, you need to understand the lifelong consequences.

By taking Social Security before your full retirement age, you'll be receiving as much as 30% less each month. Over the course of your lifetime, that could make a big difference in the quality of your retirement.

Defaulting on student loans

mnirat/Adobe piggy bank With Graduation Cap

If you still have student loans, defaulting on them by not making your payments on time could lead to losing your Social Security benefits.

If they're federally backed loans, the government will collect payments for your student loans from your Social Security check, meaning you’ll receive less until you’re caught up.

Identity theft

weerapat1003/Adobe credit card phishing card with hook

Someone stole your identity and diverted your Social Security benefits to their account, or there's a reason the Social Security Administration believes your identity was compromised. In that situation, they may not send your payments until the situation is clarified.

Social Security fraud is a serious offense. If you suspect identity theft, report it immediately.

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Selling high-value asset

Daniel/Adobe senior couple holding new house keys

If you start collecting benefits before your full retirement age and your income increases, that could reduce your Social Security benefits until you reach full retirement age. For example, you might sell a large asset or earn a lot of money as a consultant.

For 2024, people who receive benefits before their full retirement age can earn up to $22,320. Beyond that, your monthly benefits will be reduced $1 for every $2 you earn above the limit.

Working too much

bnenin/Adobe senior business woman working from home

As noted, taking Social Security early means you must make under a certain amount for the year or you could see your benefits eliminated or reduced.

If you put in too many hours at your part-time job or earned extra through a side hustle during retirement, that could impact your benefits.

Serving a jail or prison term

methaphum/Adobe man in prison holding steel bars

Those convicted of a crime and sent to prison or jail may lose their Social Security benefits. Typically, this means you could lose your benefits if you spend more than 30 days incarcerated.

Once you are released, you can apply to have your benefits restored in most situations.

Early spousal benefits

digitalskillet1/Adobe romantic african american couple holding hands

If one spouse has significantly lower earnings than the other, they can earn up to 50% of the monthly benefit that the other spouse receives at full retirement.

However, retiring early means that the amount is likely to be much less than what you could expect if you waited until full retirement age.

Medicare costs went up

Drazen/Adobe senior couple reviewing insurance with doctor

You pay Medicare costs out of your Social Security benefits. Each year, the cost of Medicare is likely to rise especially with inflation.

When Medicare costs go up, your Social Security check may go down. Sometimes, the cost of living adjustment awarded on benefits isn’t enough to cover the Medicare cost increase.

Defaulting on a VA home loan

Dzmitry/Adobe miniature house keys on us flag

VA home loans are federally backed mortgage loans. That means the government has the right to withhold your Social Security benefits if you default on these home loans.

If you're behind on your VA home loan, it’s wise to work with the lender right away to minimize this risk. Otherwise, Social Security could apply some of your benefits check to what you owe.

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Taxes

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Paying taxes on your Social Security income is a big factor for retirees. If you file taxes jointly, you can earn up to $32,000 without paying tax on your benefits. For a single filer, that amount is $25,000. Above those limits, Uncle Sam may tax up to 85% of benefits.

Also, note that there are a dozen states that tax your Social Security benefits as if they are income from a job. That could cost you, too.

Receiving too many food stamps

Tada Images/Adobe SNAP welcomed here sign at store

Another government benefit that could cause you to shrink your benefits is receiving too much financial support from the government’s programs, such as food stamps.

If they deem that you were overpaid in food stamps, the government will hold back some of your Social Security payment to cover that overage.

Going back to work

Halfpoint/Adobe senior male warehouse worker working

If you’re receiving Social Security benefits before your full retirement age and decide to go back to work, that may impact your Social Security benefits.

Retirees earning up to $22,320 in 2024 will have their monthly payment reduced by $1 for every $2 they earn beyond the threshold. When you reach full retirement age, you can earn as much money as you want without decreasing your monthly benefit.

Improved condition

Nicholas Felix/peopleimages.com/Adobe senior woman eating healthy in kitchen

If you're receiving Social Security Disability Insurance (SSDI), your eligibility to continue receiving it is dependent specifically on your health condition.

If your health improves, make you no longer eligible for Social Security Disability Insurance. The administration will make you verify this over time.

Starting a profitable business

pikselstock/Adobe senior female pottery artist at studio

Early retirement may have provided an opportunity to start your own business, and it’s doing well. But it could cost you.

By increasing your income, you may no longer be eligible for the full amount of benefits you were receiving.

A well-paying consultancy position

okrasiuk/Adobe senior business woman posing at work

If you become a consultant in your industry and begin taking Social Security benefits before your full retirement age, your benefit may be reduced until you reach your FRA.

Before you take that fee for your services, make sure you know what the potential implications could be.

Bottom line

JohnKwan/Adobe Social Security and retirement income bonds

Most of these situations apply to people who have chosen to retire early, before their full retirement age. If at all possible, try not to apply for benefits until then.

If your Social Security benefits are reduced suddenly, don’t wait to find out what occurred. That’s especially true if you think someone took your funds. Instead, contact the Office of the Inspector General by reporting a claim online or call 1-800-269-0271.

If your Social Security benefits have been reduced for any other reason, contact the agency directly to find out what happened.

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Author Details

Sandy Baker Sandy Baker is a has over 17 years of experience in the financial sector. Her experience includes website content, blogs, and social media. She’s worked with companies such as Realtor.com, Bankrate, TransUnion, Equifax, and Consumer Affairs.

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