3 Surprising Ways You Could Lose Some Social Security Benefits - The Motley Fool

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If you're like most people, you'll count on Social Security as an important income source in retirement -- especially since these benefits last throughout your lifetime. That's why it's important to understand what circumstances could result in losing some of them.

Here are three situations when you could end up with less money than you expect from the Social Security Administration, so you can prepare and avoid facing a potential financial shock.

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1. Earning too much 

One of the most surprising ways you could end up losing some Social Security benefits is by working too much.

This affects you only if you have claimed your retirement benefits and you are working before your full retirement age (FRA). In these circumstances, you will forfeit $1 in benefits for every $2 earned above $19,560 if you won't reach FRA at any point during the year. If you're working before FRA but will hit that target age later in the same year, then you forfeit $1 in benefits for each $3 earned above $51,960. These limits adjust each year for inflation. 

If you miss out on benefits, your check is recalculated at full retirement age. Your payment will go up a small amount each month and you will break even over time if you live long enough. But not everyone does, so working before FRA could cost you both monthly and lifetime benefits.

The table below shows what your FRA is so you can determine if this is an issue that could affect you. 

Birth Year	Full Retirement Age
1943-1954	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 or later	67

Table created by author. Table source: Social Security Administration.

2. Having an income above the threshold at which benefits are taxed on the federal level 

Surprisingly, you could lose some of your retirement benefits to Uncle Sam. This comes as a shock to many people, since your Social Security benefits are earned over your career when you pay taxes. But, it's a reality for a growing number of retirees.

See, there's a threshold at which benefits become at least partly taxable -- and the amount of income when this happens is not indexed to inflation. It has not changed for decades and isn't likely to, even as wages, benefits, and costs have risen. 

To determine if your income exceeds these unchanging thresholds, you must figure out your provisional income since not everything you earn counts. Add up half your Social Security benefit, all of your taxable income, and some non-taxable income, such as MUNI bond interest, and that will give you the magic number. If your provisional income exceeds the amount shown in the tables below, some of your benefits will be lost to the IRS. 

Tax Filing Status	Provisional Income	Percent of Taxable Social Security Benefits
Single or head of household	$25,000-$34,000	Up to 50%
	Above $34,000	Up to 85%
Joint filers	$32,000-$44,000	Up to 50%
	Above $44,000	Up to 85%

 Table created by author. Source IRS.

3. Living in a state that taxes benefits

Finally, if you are unlucky enough to live in one of the minority of states that tax Social Security, you could lose even more of your benefits -- this time to your local government. State rules differ on when taxes on benefits kick in, though, so if you live in one of these 12 locations, check with your Department of Revenue to find out if you'll end up losing some of your retirement payments for this reason. 

Colorado	Connecticut	Kansas	Minnesota
Missouri	Montana	Nebraska	New Mexico
Rhode Island	Utah	Vermont	West Virginia

Table created by author.

Now you know three of the most common reasons you could end up losing some of your Social Security. If you end up in this position, you can be more prepared by having extra supplementary income from savings.

 

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