Your Social Security Might Be Smaller Than You Think - Here's What's Cutting Into It

"The amount of your Social Security benefit is determined based on your average wages over 35 years and based on how old you are when you claim your benefit. If you have to retire sooner than planned, it's possible you won't have 35 good years of earnings on your record. Many people make more money as their career advances, and retiring while you're at your peak earning potential means that more early low-earning years are part of your benefits calculation."

"Retiring sooner than expected could also mean you have to claim your Social Security benefit at a younger age than you anticipated. Since benefits shrink for each month you claim them before 70, and your standard benefit could be reduced by as much as 30% if you claim at at 62 instead of at your full retirement age, you could end up with much less money coming from Social Security than you planned if you can't work as long as you'd have liked."

"On the federal level, you start to owe taxes on at least part of your benefits once your income hits $25,000 as a single tax filer or $32,000 as a married joint filer. The threshold at which taxes begin is not indexed to inflation, so a growing number of retirees are hit with a tax bill every year, even though when taxes were initially imposed on benefits, they were meant to be paid only by the country's highest earners."

Social Security benefits are calculated from average wages over 35 years and based on the age at which benefits are claimed. Retiring earlier than planned may leave fewer than 35 high-earning years on record and can force claiming at a younger age, which reduces monthly benefits. Benefits are permanently reduced for each month claimed before age 70 and can be up to about 30% lower if claimed at age 62 versus full retirement age. Federal taxes apply to part of benefits once combined income exceeds $25,000 (single) or $32,000 (married filing jointly). The tax thresholds are not indexed to inflation, increasing the number of beneficiaries who pay taxes.

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