How You're Reducing Your Social Security Benefit

Your career and Social Security sign-up decisions can dramatically alter your monthly payments.

USA Treasury social security check
Getty ImagesFailing to consider the consequences of your decisions can result in a smaller Social Security check.
By Emily Brandon

The career and finance decisions you make while working will ultimately determine your future Social Security benefit. While there may be valid reasons for choosing a lower-paying job or spending a few years out of the workforce, those decisions will eventually result in a lower Social Security check in retirement. Here are some of the ways you may be inadvertently reducing your future Social Security benefit:

Don't work at least 35 years. The 35 years in which you earn the most are used to calculate your Social Security benefit. If you work for more than 35 years, each higher-earning year cancels out a year when you earned less in the calculation. However, if you don't work for at least 35 years, zeros are averaged in, which lowers your benefit in retirement. "If you have gaps because you have been laid off or a housewife or someone who stayed home to raise children or you're an entrepreneur, filling up your earnings history will add to your benefits in the formula," says William Meyer, founder and managing principal of Social Security Solutions, a company that analyzes Social Security claiming strategies.

Fail to maximize your earnings. Most workers pay 6.2 percent of each paycheck into the Social Security system up to $117,000, and employers contribute a matching 6.2 percent. If you can boost your salary by asking for a raise or switching to a more lucrative job, you will pay more taxes into the system and subsequently get a bigger payout in retirement. However, once you earn more than $117,000 in 2014, you will no longer pay Social Security taxes on that income or have that portion of your salary factored into your retirement benefit. The tax cap is adjusted each year to keep up with inflation.

Sign up before full retirement age. You are eligible to collect the entire Social Security benefit you have earned at your full retirement age, which it typically age 66 or 67, depending on your birth year. If you claim a benefit before your full retirement age, it will be reduced for early claiming, depending on how much earlier you sign up. For example, a worker with a full retirement age of 67 will receive 30 percent smaller monthly payments if he signs up at age 62 or 13.3 percent smaller payments if he signs up at 65. Conversely, you can also increase your benefit for each month you delay claiming Social Security up until age 70.

Forget to coordinate benefits with your spouse. Members of married couples are eligible for spousal payments that can be worth as much as 50 percent of the higher earner's benefit. However, spousal payments are reduced if you first claim them before full retirement age. Spouses can also claim strategically to maximize their benefits as a couple. For example, members of married couples who are full retirement age or older can claim a spousal benefit and then later switch to payments based on their own work history, which will have increased due to delayed claiming. Divorced individuals are also eligible to claim spousal payments if the marriage lasted at least 10 years.

Don't factor in survivor's benefits. When one member of a married couple dies, the surviving spouse is entitled to receive the higher earner's payments. The higher-earning spouse can increase the amount his or her surviving spouse will receive by delaying claiming. Consider a 68-year-old doctor who is diagnosed with terminal cancer and thinks he only has a year or two to live. If he is single, he might want to sign up for Social Security as soon as possible so that he gets some money from the system before he passes away. However, if he is married, signing up for Social Security at age 68 will reduce his wife's future widow's benefit by 16 percent, according to calculations by Laurence Kotlikoff, a professor of economics at Boston University and a co-developer of the retirement planning software ESPlanner. But he could also boost the amount of money his wife will receive after he passes away if he continues to delay claiming, as long as he can up until age 70. "The delayed retirement credits the doctor would accrue between ages 68 and 70 would extend to the wife in the form of a higher widow's benefit," Kotlikoff says.

Continue to work after signing up for benefits. If you work and claim benefits at the same time when you are younger than your full retirement age, part or all of your Social Security payments will be temporarily withheld. Social Security beneficiaries age 65 and younger in 2014 who earn more than $15,480 will see $1 deducted from their Social Security payments for every $2 earned above the limit. For people who will turn 66 in 2014, the earnings limit jumps to $41,400 and the amount withheld declines to $1 for every $3 earned above the higher limit. However, once you turn your full retirement age, the earnings limit no longer applies and your payments will be increased to reflect the withheld benefits. "At the full retirement age, Social Security not only stops withholding benefits but increases monthly benefits to replace those taken by the earnings test," says Andrew Biggs, a resident scholar at the American Enterprise Institute and a former deputy commissioner of the Social Security Administration. "The earnings test delays benefits but does not tax them away."

Paying tax on your Social Security benefit. Some people have to pay taxes on part of their Social Security payments. "The worst case is 85 percent of your Social Security benefit is taxable," says Andy Landis, author of "Social Security: The Inside Story." "Social Security taxation is triggered by having certain kinds of income over the threshold." If the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefit is more than $34,000 ($44,000 for couples), as much as 85 percent of your Social Security benefits could be taxable. If those sources of income total between $25,000 and $34,000 ($32,000 and $44,000 for couples), up to half of your benefit may be taxable. Some people are able to avoid paying tax on their Social Security benefits by keeping their taxable retirement income below those thresholds. "If I am living on my IRA and Social Security and I have a Roth, if I pull out thousands of dollars in IRA withdrawals, half of my Social Security benefits are going to be taxed, but if I pulled out a few thousand from my Roth instead, then none of my Social Security would be taxed," Landis says. "If I can tune my income to keep it under those thresholds, then I can tune which years I have to pay income tax on my Social Security."

Emily Brandon is the senior editor for Retirement at U.S. News. You can contact her on Twitter @aiming2retire, circle her on Google Plus or email her at

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Holes in the story...
The highest 35 years are adjusted for inflation. So if a person takes a lower-paying job toward the end of earnings, it may not add to the benefits, even if it's more than a job 20 years ago.

BIG hole - the strategy under which you claim needs to be considered for two things; longevity and need. if you NEED the money, take it. And if your life expectancy is short, there is no reason to wait.

August 12 2014 at 1:18 AM Report abuse +1 rate up rate down Reply

We need to let tax paying working citizens have a choice between the current system or the option to let their contributions be privatized.

August 11 2014 at 9:46 PM Report abuse -3 rate up rate down Reply
1 reply to populux's comment

I interpret your comment to read "let the responsible people independently plan for their comfortable retirement and allow the others, the same ones who now overextended and living pay-check to pay-check, enter their golden years penniless".

August 12 2014 at 8:30 AM Report abuse +2 rate up rate down Reply

Quite simply, the bottom line is to think ahead, establish an intelligent budget and stick to it. Do you need to go to the movies, out to eat, get a new car every few years, phones, tablets, and every new technology as it comes out (to impress people you either barely or do not know) ? I can count dozens I know who have never saved or contributed to a matching 401K, but they do stop by a fancy coffee place on their way to work for $12. of coffee and a muffin, go out to lunch every day, then drive home from their receptionist job in a new Audi or giant Hemi truck .

August 11 2014 at 5:53 PM Report abuse +4 rate up rate down Reply
1 reply to jpfmtka's comment

They must be Dems.

August 11 2014 at 6:48 PM Report abuse -8 rate up rate down Reply
1 reply to beth_brock's comment

Actually, they are all card carrying, ultra conservative, deep south Republicans . Did I mention they also rely upon the ER for their healthcare? Coverage is available through their employer but that extra premium seems unnecessary to them. Caught ya!

August 11 2014 at 9:07 PM Report abuse +4 rate up rate down
Marvin Harrison

There should be no cap on earnings but benefit cap remains the same (only cost of living adjustments). Right now it is cheaper to hire someone at $200,000 than two at $100,000.
This will cure the problem quickly at the expense of those who make much more than the average American.

August 11 2014 at 5:29 PM Report abuse +7 rate up rate down Reply
1 reply to Marvin Harrison's comment

You believe a person who makes 200k a year, has the same expertise as a person making 100k? You don't vote for Hillary ( if she runs for President) because she's on record being against raising the cap on SS, not indexed for inflation.
Furthermore, Clinton's reasoning for not lifting the cap, is , she didn't want middle-class people to have a tax hike on their wages.
Its progressive in nature. meaning by 2027, the cap will be indexed on a salary of around 165k.
Sorry, but I don't believe you understand the impact over all.

August 11 2014 at 7:04 PM Report abuse rate up rate down Reply
1 reply to theycallmeroy3's comment
Marvin Harrison

Salary and expertise only correlate in a perfect world. Indexing to 165k by 2017 is not going to be enough.
The average social security check is about half the maximum. If we don't protect the poorest then we will be paying for it in many other ways.

August 11 2014 at 10:18 PM Report abuse +1 rate up rate down

The 150,000 will not hurt anyone, for the more you pay in the larger your monthly check will be. Now if you are on social security or soon to be thank a democrat. If you want to end these 2 fine programs vote republican.

August 11 2014 at 4:54 PM Report abuse rate up rate down Reply
3 replies to toosmart4u's comment

Taken out of your social security check is money to pay for your health insurance, medicare. The 117,000 should be raised to 150,000 for indivuals and leave the percentage the present rate for companies. This will salvage social security. As of now there is a 25% deduction on all s.s. checks in 2034. Now when the republicans presidents took out money from the s.s. trust fund they replaced the money with treasury notes at a very low interest rate, which really hurts the fund. Now they want to forgive the dept to s.s. and say they could use the funds in better areas.

August 11 2014 at 4:52 PM Report abuse +2 rate up rate down Reply
Marvin Harrison

If the employment situation improved, especially for those people in their 80s, instead of begging for minimum wage part time jobs, maybe people could wait until 66. Unemployment was cut off at 26 weeks, how else do you expect them to live? An able bodied man 55 years old has little hope of getting a decent job. By the time he reaches 62 his retirement savings are decimated. There is nothing left except getting social security early and food stamps.

August 11 2014 at 4:08 PM Report abuse +7 rate up rate down Reply
2 replies to Marvin Harrison's comment
Marvin Harrison

that was people in their 60s, not 80s

August 11 2014 at 5:31 PM Report abuse +3 rate up rate down Reply

That's me soon.

August 11 2014 at 6:07 PM Report abuse +2 rate up rate down Reply


August 11 2014 at 3:44 PM Report abuse rate up rate down Reply

The government wants you to not take your benefits at age 62. They are counting on a large number of people to die before a person reaches 67 years of age. Also, do the math. What if you take your SS at 62 and get around $2,000 a month or around $24,000 a year? If you wait to age 67 means that you will miss out on 60 monthly payments of $2,000 which equals $120,000 minus taxes. If you get 30% more at 67 for waiting to collect that would mean $600 more a month or $2,600 a month. It would take nearly 16 years to break even. You would be 83 before you come out ahead. Also, if you think that the government will not raise taxes on your SS in the future, you are crazy. Tax rates will go up.

August 11 2014 at 2:57 PM Report abuse +3 rate up rate down Reply

Bla, bla, bla. Government will get everything you have sooner or later.

August 11 2014 at 2:29 PM Report abuse -9 rate up rate down Reply