As someone in retirement, you will likely rely on Social Security to help with some of your expenses. Since Social Security payments are permanent and adjust with inflation, maximizing your benefits is important due to its reliability.

However, you might accidentally make several mistakes that can lower the amount you receive from the Social Security Administration. These errors can happen without you realizing their impact, leading to financial difficulties in the future. To avoid this, be aware of these three key actions that may inadvertently decrease your Social Security payments.

1. Retiring Before Working 35 Years

The first potential error involves retiring prematurely.

To qualify for Social Security retirement benefits, you need to accumulate 40 work credits, which you can earn at a rate of up to four credits per year. Thus, a minimum of 10 years of work is necessary. Yet, being eligible for benefits after only a brief working period does not mean that leaving your career early is without its downsides.

Your Social Security benefits are determined by a percentage of your average wages over a 35-year span. In particular, the formula accounts for your highest-earning 35 years (adjusted for wage increases). If you have not worked the full 35 years, the same formula applies, leading to some of the years in your calculation being years when your income was $0.

Including instances of $0 income in your average will lower your overall average. Consequently, retiring before completing 35 years of work can diminish your Social Security benefits. It’s advisable to remain employed for at least this duration.

If you have increased your income over time, consider working beyond 35 years so that lower-earning years can be replaced with higher-earning years in your benefit formula.

2. Earning Money While Collecting Benefits Before Full Retirement Age

In 2024, if you haven’t reached FRA within the year and earn more than $22,320, you will lose $1 in benefits for every $2 you exceed that amount. If you reach FRA at some point during the year, the threshold rises to $59,520, beyond which you lose $1 for every $3 earned above that limit. This could result in receiving far less from Social Security than anticipated.

Eventually, any withheld benefits due to excessive earnings will be restored. Your monthly benefit amount will be recalculated at FRA to reflect the months you were not paid due to surpassing the earning limits. However, it can take quite a while for the adjusted amount to compensate for the income you missed out on during those months. Moreover, if you’re unprepared for your benefits to be reduced due to returning to work, this surprise can lead to financial instability.

After reaching FRA, you can earn any amount without affecting your benefits.

3. Relocating to a State That Taxes Your Benefits

Finally, you might unintentionally lose some of your Social Security benefits if you move to a state that imposes taxes on them. In many areas of the U.S., this is typically not an issue. However, nine states do apply taxes to Social Security under certain conditions. If you move to one of these states and your income is high enough for your retirement benefits to be taxed, it could create a considerable financial burden — especially if you didn’t anticipate this tax impact.

Being informed about these three actions that could reduce your Social Security benefits can enable you to make wiser choices while receiving support. Avoiding these errors is crucial to protect your finances.

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