Social Security plays a crucial role in providing financial support to Americans through the various programs that they run. Although it is widely recognized for supplementing the income of retirees, its scope extends further, offering support through three distinct programs: Old-Age/Retirement Social Security, Survivors Social Security, and Social Security Disability Insurance (SSDI). However, despite its significance, Social Security benefits are not always guaranteed for life. There are certain circumstances where these benefits may be reduced or even terminated.
Old-Age/Retirement Social Security
Retirement benefits under Social Security are typically provided as a monthly payment that replaces part of a person’s income once they reduce their working hours or retire completely. Eligibility for full retirement benefits depends on reaching a specific age, known as the full retirement age, which varies based on the year of birth. For example, those born between 1943 and 1954 have a full retirement age of 66, while those born in 1960 or later must wait until 67. Although benefits can be claimed as early as age 62, doing so results in a permanent reduction in the monthly payment.
If benefits are claimed before reaching the full retirement age, they are reduced by 5/9ths of 1% for each month before reaching that age, up to 36 months. If benefits are claimed even earlier, an additional reduction of 5/12ths of 1% per month applies. This means that a person who starts receiving benefits at age 62 when their full retirement age is 67 will see a 30% reduction in their monthly payment. On the other hand, delaying retirement beyond the full retirement age results in increased benefits through delayed retirement credits, with the increase ceasing at age 70.
Impact of Earnings on Social Security Benefits
For those who choose to work while receiving retirement benefits before reaching full retirement age, there are limits on how much they can earn without affecting their Social Security payments. In 2024, for example, those who are under full retirement age for the entire year will have $1 in benefits withheld for every $2 earned over $22,320. For those who reach full retirement age in 2024, $1 in benefits will be withheld for every $3 earned over $59,520.
However, there is a special rule for individuals who retire mid-year. If their earnings for the remainder of the year fall below a specific monthly threshold, they will receive full Social Security payments for each month below that threshold. If more benefits are withheld than necessary, the excess is refunded the following year after earnings are verified.
Earnings are calculated differently based on employment status. Wages count toward the earnings limit for employees, while only net earnings count for self-employed individuals. Investment income, government benefits, pensions, and other non-work-related income do not count toward these limits. However, contributions to retirement plans included in gross wages do count.
Survivors Social Security
Survivors benefits are provided to the widows, widowers, and dependents of eligible workers. The amount is based on the earnings of the deceased worker, with eligibility extending to various family members, including surviving spouses, divorced spouses (if the marriage lasted at least 10 years), and unmarried children under 18, or under 19 if still in school.
There are, however, circumstances that can lead to the loss of survivors benefits. For example, if a surviving spouse remarries before the age of 60 (or 50 if disabled), they become ineligible for survivors benefits while married. Children without disabilities lose their benefits upon turning 18, unless they are still in school, in which case the benefits continue until age 19. However, children with disabilities that began before age 22 continue to receive benefits for life.
Social Security Disability Insurance (SSDI)
SSDI provides financial assistance to individuals who are unable to work due to a disability. To qualify, the individual must have sufficient work history and a disability that prevents substantial gainful activity. However, SSDI benefits can be lost under certain conditions. For instance, if the individual earns more than the allowable limit during a trial work period or an extended period of eligibility, their benefits may be suspended or terminated. SSDI recipients must also undergo periodic reviews to ensure they still qualify for benefits, with the frequency of these reviews depending on the likelihood of medical improvement.
Additionally, once an SSDI recipient reaches full retirement age, their disability benefits automatically convert to retirement benefits, as a person cannot receive both simultaneously. Incarceration can also result in the loss of SSDI benefits, although they can be reinstated after release.
