For most Americans, Social Security is supposed to be the safety net they’ll lean on in retirement. But here’s the inconvenient truth: you’re probably not going to get what you think you’ll get.
And no, this has nothing to do with the scary headlines about Social Security “going broke.” (Spoiler alert: it won’t. The program can’t “go broke.” But politicians love to use that fear as a fundraising tool.)
The real reason your benefit won’t look like the nice number on your statement is buried in decades of federal rules no one bothered to mention.
So let’s pull back the curtain:
1. Want to Keep Social Security? You’d Better Enroll in Medicare.
Here’s a fun fact you weren’t told: once you hit 65 and you no longer have “creditable coverage” from an employer (yours or a spouse’s), you must enroll in Medicare to keep your Social Security benefits.
Yes, you read that right — if you don’t sign up for Medicare, you lose all of your Social Security. Not just a penalty. Not a late fee. Gone.
2. Medicare Is Great Coverage… But Guess Who Pays for It?
Medicare isn’t free. Premiums for Part B (and sometimes Part D) are automatically deducted from your Social Security check.
So when Social Security tells you you’ll get $2,000 a month, don’t get too excited. After premiums, you might actually see something closer to $1,690. Surprise!
And it gets better: according to the government’s own Trustees Reports, Medicare premiums are projected to rise about 6.9% per year, while your Social Security cost-of-living adjustment (COLA) is expected to crawl along at about 2.4%. Translation: your health premiums are growing almost three times faster than your benefit increases.
In plain English: the older you get, the smaller your Social Security check feels.
To provide some detail on what to expect from your Social Security benefit due to Medicare here is a graph showing a retiree today receiving $2,500 a month from Social Security:
3. Oh, and Social Security Can Be Taxed Too.
Here’s another gem no one tells you: if you earn “too much” in retirement, up to 85% of your Social Security benefit is taxable.
What counts as “income”? Not just wages. Withdrawals from your Traditional 401(k) or IRA count against you, added on top of half your Social Security. If that total is above $34,000 for singles or $44,000 for couples, Uncle Sam will happily tax up to 85% of your benefit.
Translation: that 401(k) you were told to max out? It can boomerang back at you in retirement — lowering your Social Security benefit through taxation.
To highlight the impact of what taxation may look like to your benefit below is a graph showing that person who makes $2,500 a month in Social Security but also has $500k saved in a Traditional 401(k) – remember you must make a required minimum distribution at some point.
The Bottom Line
You paid into Social Security your entire working life, and yet the system is designed so you never get the full benefit you think you will. Between Medicare premiums and taxes, the government makes sure to take a healthy bite first.
So, no, Social Security won’t go broke — but it may break your expectations.
Dan McGrath
The Integrity Life Brokerage
📞 617-894-8043 (text preferred)
✉️ dan@theintegritylb.com
