7 Ways You Can Lose Some, or All, of Your Social Security Benefit

For most retirees, Social Security income is a necessity to make ends meet. Even though the average retired-worker benefit in May was only $1,916.63 (about $23,000 on an annualized basis), no social program pulls more seniors out of poverty each year than Social Security.

Moreover, 23 years of annual surveys conducted by national pollster Gallup have found that 80% to 90% of retirees rely on their monthly Social Security check to cover at least some portion of their expenses.

Considering how vital Social Security income is to retirees, getting as much as possible out of America’s top retirement program is imperative. But something that can be equally important is understanding and/or avoiding the numerous ways your Social Security benefit can be reduced or terminated.

Here are seven ways you can lose some, or all, of your Social Security benefit.

1. Collecting benefits prior to reaching your full retirement age

Among the four factors used to determine how much you’ll receive each month from Social Security — work history, earnings history, full retirement age, and claiming age — none swings the payout pendulum more than the age at which you choose to begin collecting benefits.

Although retired-worker beneficiaries have the option of collecting their payout as early as age 62, the program strongly incentivizes patience. For every year a worker waits to claim their benefit, beginning at age 62 and continuing until age 70, their payout can grow by as much as 8%.

If you begin collecting your benefit prior to reaching your full retirement age (the age you’re eligible to receive 100% of your retired-worker benefit), your monthly check can be permanently reduced by as much as 30%, depending on your birth year. For persons born in or after 1960, which accounts for most of today’s workforce, any claim made prior to age 67 will result in a reduced payout.

2. You earn too much as an early filer

In addition to permanently reduced benefits, the Social Security Administration (SSA) can withhold some or all of your payout if you earn above preset income thresholds.

Early filers are subjected to what’s known as the “retirement earnings test.” For retired-worker beneficiaries who won’t reach their full retirement age in 2024, $1 in benefits can be withheld by the SSA for every $2 in earned income (wages and salary, but not investment income) above $22,320, which equates to $1,860/month.

Meanwhile, early filers who will reach their full retirement age in the current year can have $1 in benefits held back by the SSA for every $3 in earned income beyond $59,520, which works out to $4,960/month.

The retirement earnings test no longer applies once a beneficiary reaches their full retirement age. Furthermore, withheld benefits are eventually paid back to retirees in the form of a higher monthly payout after reaching full retirement age.

3. Extended incarceration

Another way eligible workers can completely lose their benefit is if they’re incarcerated.

According to the SSA, benefits are discontinued to otherwise eligible recipients if they’re “confined in a jail, prison, or other penal institution for more than 30 continuous days due to the conviction of a crime.” This also means the SSA may terminate payments if you’re incarcerated while awaiting trial.

Social Security benefits can be reinstated in the month following an individual’s release from confinement.

4. Federal and/or state taxation

Whether or not you realize it, Social Security benefits may be taxable at the federal level and in select states. Though Kansas recently did away with taxation on Social Security benefits, nine states still tax Social Security income to some varying degree.

The Social Security Amendments of 1983 led to the gradual lifting of the full retirement age over many decades, steadily increased the payroll tax on earned income, and introduced the taxation of Social Security benefits above certain income thresholds at the federal level.

If your provisional income — gross income, plus tax-free interest, plus one-half of your Social Security benefits — surpasses $25,000 as a single filer or $32,000 as a couple filing jointly, up to 50% of your benefits can be taxed at the federal rate.

A second tax tier was passed by the Clinton administration in 1993 that exposed up to 85% of Social Security benefits to federal taxation if an individual’s or couple’s provisional income tops $34,000 and $44,000, respectively.

Since these provisional income thresholds have never been adjusted for inflation, an increasing number of retirees have been exposed to the federal taxation of benefits over time.

5. Garnished and/or levied benefits

A fifth way your benefit can be reduced or terminated by the SSA is through a levy or garnishment.

For instance, if you have an overdue federal tax bill, the Department of the Treasury can, under Section 1024 of the Taxpayer Relief Act of 1997, levy up to 15% of your monthly payout until your tax debt is paid in full. This includes student loan debt.

Additionally, Section 459 of the Social Security Act gives the SSA permission to completely garnish your current benefit to pay alimony, restitution, and/or child support.

6. You remarry

One of Social Security’s more interesting quirks is that, under a select set of circumstances, divorcees can qualify for spousal benefits based on the earnings history of their former partner. As long as the marriage lasted for at least 10 years, a divorced spouse who’s at least 62 and unmarried may be eligible to receive ex-spouse benefits.

The SSA will pay the higher of the following two amounts:

• The benefit you’d be entitled to depending on your own work and earnings history.
• The ex-spouse benefit you’d receive based on your former partner’s earnings record.

But there’s a potential catch to ex-spouse benefits that could result in them disappearing. If the divorced individual receiving spousal benefits were to remarry, they would lose their ex-spouse benefit that was based on their former partner’s earnings history. The only exception that would allow for this prior ex-spouse benefit to be reinstated is if this later marriage ends in an annulment, divorce, or death.

7. SSA-521 (the “do-over clause”)

Last but not least, you can choose to lose your Social Security benefit on purpose with Form SSA-521, which is officially known as “Request for Withdrawal of Application.”

SSA-521 is effectively a do-over clause for retired workers who regret an early claim or who’ve seen their financial situation change. If approved by the SSA, this mulligan undoes your Social Security benefit claim and allows your payout to grow by up to 8% annually, once again.

However, this redo clause comes with a number of limitations. For instance, every cent in benefits you’ve been paid, including benefits received by your spouse and/or children based on your earnings history, would need to be paid back.

Furthermore, SSA-521 is only available to retired workers in the 12 months after their initial claim was approved. If you’ve been receiving benefits for 15 months or multiple years, this mulligan isn’t for you.

With a comprehensive study from United Income showing that patience pays off handsomely, halting and repaying benefits with SSA-521, then reclaiming them at a later date, can be a smart move.