Understanding the Different Adjustments to Social Security Benefits
Social Security benefits are not static. They’re designed to adjust over time to reflect changes in a variety of situations. While many people are familiar with annual Cost-of-Living Adjustments (COLAs), several other mechanisms can cause your benefits to increase or decrease throughout retirement.
Here’s an overview of the primary adjustments that can affect Social Security benefits:
Cost-of-Living Adjustment (COLA)
COLA is an annual increase in benefits to keep pace with inflation, measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
The COLA is calculated in October of each year with the actual increase in benefits occurring in January of the following year.
Federal Tax Withholding
Social Security benefits may be subject to federal income tax, depending on your total income. To help manage your tax liability, you can voluntarily request that the Social Security Administration (SSA) withhold a portion of your benefit.
You may choose to have 7%, 10%, 12%, or 22% withheld from your monthly benefit.
This is done by submitting Form W-4V to SSA.
State tax withholding is not permitted. If you live in a state that taxes Social Security (e.g., Colorado, Utah, Kansas), you must make separate estimated payments or settle the tax when filing your return.
However, most states do not tax social security benefits.
Medicare Premiums
If you’re enrolled in Medicare, your base Part B premium is automatically deducted from your Social Security check.
Whether you choose Original Medicare with a Supplement (Medigap) or Medicare Advantage, this base premium still applies and is deducted from your Social Security benefit.
Medicare Part D provides prescription drug coverage, and premiums vary based on the plan you choose. If you’re enrolled in a standalone Part D plan (typically used with Original Medicare and a Supplement), or if your Medicare Advantage plan includes drug coverage (MAPD), you will owe a Part D premium.
You can request to have your Part D premium automatically deducted from your Social Security benefit, but it isn’t automatic by default.
Medicare IRMAA Premiums
IRMAA is not a reduction to your Social Security benefit directly, but it does reduce your net benefit if you’re enrolled in Medicare and subject to premium surcharges based on your income.
IRMAA applies to Medicare Part B and Part D premiums for higher-income beneficiaries. These surcharges are based on your Modified Adjusted Gross Income (MAGI) from two years prior.
Automatic Earnings Reappraisal Operation
AERO is the process by which the Social Security Administration (SSA) recalculates your benefit if you continue to work and earn more than a previous year used in your initial benefit calculation.
If you had low-earning years included in your original benefit calculation, new higher-earning years can replace them, resulting in a permanent increase to your monthly benefit.
Earnings Test
If you claim benefits before your Full Retirement Age (FRA) and continue working, your benefits may be temporarily reduced if your earnings exceed certain thresholds.
Withheld benefits are not lost. Once you reach FRA, SSA recalculates your benefit as if you had delayed claiming by the number of months benefits were withheld.
Spousal and Survivor Benefit Adjustments
Spousal Benefits:
If you are married (or were married for at least 10 years and are now divorced), you may be eligible to receive spousal benefits based on your spouse’s (or ex-spouse’s) work record.
- The maximum spousal benefit is 50% of your spouse’s Primary Insurance Amount (PIA) if you claim at your own Full Retirement Age (FRA).
- If you claim spousal benefits before your FRA, the benefit is permanently reduced.
- You must first claim your own benefit to receive a spousal benefit. If your own benefit is higher, you won’t receive a spousal benefit at all.
Survivor Benefits:
If your spouse (or ex-spouse) dies and was eligible for Social Security, you may qualify for survivor benefits based on their benefit amount.
- Survivor benefits can be as high as 100% of your deceased spouse’s benefit at the time of death, including any COLAs they received.
- You can claim survivor benefits as early as age 60 (or age 50 if disabled), but the amount is reduced if claimed before your FRA.
- You can switch between your own benefit and the survivor benefit if one is higher — a common strategy is to claim one early and switch to the other at FRA or age 70.
Windfall Elimination Provision (WEP) and Government Pension Offset (GPO)
WEP:
Reduces benefits for individuals who receive a pension from non-covered (i.e., no Social Security payroll taxes paid) employment and also qualify for Social Security based on other work.
GPO:
Reduces spousal or survivor benefits for people receiving a government pension from non-covered work.
Summary
Phew — there’s a lot more going on with your Social Security benefit than just when you decide to claim it. From inflation adjustments and delayed credits to Medicare premiums, IRMAA surcharges, income taxes, and even continued work after retirement — all of these can change what actually shows up in your bank account each month. Add in spousal or survivor benefits, and it becomes clear: your Social Security benefit is anything but simple.
That’s why thoughtful planning is essential. If you want help making sense of how these moving parts fit into your broader retirement income picture, let’s talk. A little strategy now can make a big difference later.