Social Security benefits serve as the financial backbone for millions of American retirees, with the average monthly benefit sitting at just under $2,000 currently. For millions of senior households, these payments represent a significant portion of their total retirement income, making every dollar crucial for maintaining their standard of living. And, with inflation remaining high right now, these funds may be even more crucial for retirees, who are facing higher costs at the grocery store, the fuel pump and just about everywhere else. 

Despite its importance, though, Social Security remains one of the most misunderstood aspects of retirement planning. Your Social Security benefits aren’t set in stone once you start receiving them, and while most people know that claiming benefits early results in a permanent reduction, what many don’t understand is that there are several other ways your Social Security check can shrink. 

These reductions can amount to hundreds of dollars per month, which is money that a lot of retirees are counting on to cover essential expenses. So, it’s important to understand these potential pitfalls before they affect your income and derail your retirement budget. 

Find out how a reverse mortgage could help you cover your expenses in retirement.

3 things that can reduce your Social Security benefits now

Here are three key situations that could shrink your Social Security check:

Working while receiving benefits can trigger the earnings test

If you’re receiving Social Security benefits before your full retirement age and continue working, your benefits may be temporarily reduced through what’s called the earnings test. If you’re under full retirement age for the entire year, Social Security deducts $1 from your benefits for every $2 you earn above $23,400 (based on the 2025 guidelines). The year you reach full retirement age, the limit increases to $62,160, with $1 deducted for every $3 earned above that threshold.

This reduction isn’t permanent, though. Your benefits will be recalculated at full retirement age to account for months when benefits were withheld. However, the temporary reduction can create significant cash flow challenges for retirees who need that income immediately. Still, many people are surprised to discover that their part-time job or consulting work triggers this reduction, especially since the income limits haven’t kept pace with inflation over the years.

Learn more about using a reverse mortgage loan as part of your retirement plan.

Medicare premiums can chip away at your Social Security check

Most Social Security recipients have their Medicare Part B premiums automatically deducted from their monthly benefits, which can significantly reduce your actual payment. The standard Part B premium is under $200 per month currently, but high-income earners generally face much steeper costs through Income-Related Monthly Adjustment Amounts (IRMAA).

If your modified adjusted gross income exceeds certain thresholds, you’ll pay additional IRMAA surcharges that can push your total Medicare premiums to over $500 per month. These premiums are based on your income from two years prior, so a large retirement account withdrawal or Roth conversion could trigger higher premiums years later, running the risk of catching you off guard when your Medicare costs suddenly spike.

Federal income taxes can eat into your retirement benefits

Many retirees don’t realize that Social Security benefits can be subject to federal income tax, potentially reducing their spendable income. If your combined income, which includes your adjusted gross income, nontaxable interest and half of your Social Security benefits, exceeds certain thresholds, up to 85% of your benefits become taxable. This tax burden often surprises retirees who assumed their Social Security would be tax-free, especially when combined with other retirement income sources like traditional IRA distributions or pension payments.

Options to consider if you need more income in retirement

If your Social Security checks fall short of covering your expenses, several strategies can help supplement your income:

• Reverse mortgages: Homeowners 62 and older can use a reverse mortgage to tap into their home equity while continuing to live in the house (and without adding monthly payment obligations to their budgets). This can provide a steady stream of income to offset smaller Social Security payments.
• Part-time work: Even a modest side job can help bridge the gap and may even increase your future Social Security benefits if it raises your lifetime earnings.
• Annuities or other retirement investments: Structured payouts from annuities can create a predictable income stream, similar to Social Security, and help smooth over fluctuations in monthly cash flow.

Each option carries its own risks and costs, of course, so consulting a financial planner before making decisions can help you choose the best fit for your situation.

The bottom line

Social Security benefits can be reduced by factors many retirees don’t anticipate, from continuing to work to Medicare premium deductions to federal income taxes. Understanding these potential reductions before they occur allows you to plan accordingly and explore alternative income sources if needed. And, while Social Security remains a crucial foundation for retirement security, it’s essential to view it as one piece of a comprehensive retirement income strategy rather than a guaranteed fixed payment that will never change.