Millions of seniors today rely on Social Security to pay the bills, which is why it’s important to file for benefits strategically.

In fact, recipients are often advised not to claim Social Security ahead of full retirement age to avoid reducing their benefits.

Not only that, but workers are encouraged to check their annual earnings statements from the Social Security Administration to ensure that they’re accurate, since mistakes can result in a reduction in benefits as well.

But here’s one lesser-known way you might reduce your benefits on a temporary basis: fail to keep up with your financial obligations.

Depending on the nature of your debt, you could find yourself in the dreaded scenario of having some of your Social Security income garnished.

When you might lose benefits

If you owe money to the IRS in the form of unpaid taxes, the agency can garnish up to 15% of your benefits and apply that money to your outstanding debt. Now that may not seem like a huge chunk of money, but if those benefits constitute your primary or sole source of retirement income, that loss can be catastrophic.

Furthermore, if you default on federal student loan payments, the government can come after your Social Security income as well. And while you wouldn’t think student debt would be a problem for most seniors, keep in mind that many older Americans borrow money on their children’s behalf, and then struggle to pay it back later in life, thereby putting their benefits at risk. And if you fail to make your federal loan payments, you risk losing up to 15% of your benefits.

Keep in mind that if you’re behind on student debt, your Social Security income can’t be garnished to the point where you’re left with less than $750 a month. But the rules are different with tax debt — the IRS can go after its money even if your benefits dip below $750.

But it’s not just government agencies you need to scorn to lose out on benefits. If you fail to make child support or alimony payments to a former spouse, you risk having a portion of your Social Security income garnished as well. The extent of that garnishment, however, will be dictated by the laws of the state you live in,

Don’t put your benefits at risk

Seniors who rely on Social Security to cover their basic living expenses can’t afford to lose a chunk of their benefits to garnishment. If that’s your situation, keep tabs on your outstanding obligations, and if you see that you’re likely to fall behind, reach out to the parties or agencies in question and explore your options for relief.

For example, the IRS will usually allow you to get on an installment plan if you can’t pay your entire tax bill outright. As long as you’re current on your payments under that plan, your benefits are safe from garnishment — even if you still have a chunk of tax debt outstanding.

Similarly, if you can’t make your student loan payments, reach out to your debt servicer and see what options you have available. Federal loan borrowers can apply for income-driven repayment plans, which might lower your monthly loan payments. It’s also possible to defer federal student loans for a period of time. If you can prove that you’re struggling financially, you may get the option to hit pause on your payments without risking your Social Security benefits.

The last thing you want to do is lose out on Social Security income you otherwise depend on heavily. Be aware of the circumstances that can lead to having your benefits garnished, and take steps to avoid them at all costs. Otherwise, you could end up digging yourself into a very deep hole.

— Maurie Backman

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Source: The Motley Fool