As you plan for retirement, your focus may be on aligning your investments with your retirement goals, maintaining your lifestyle, and enjoying the freedom you’ve worked hard to achieve. As you get closer to retirement, though, it’s possible you haven’t thought about how Social Security will fit into your larger financial plan.
Social Security benefits may not be the crux of your retirement strategy, but making the right decisions about how and when you claim your benefits can make a difference to your retirement plan.
Below, you’ll find strategies to maximize your benefits, efficiently manage tax implications, and see to it that Social Security compliments your other retirement assets.
Getting Started With Social Security
How can I maximize my Social Security benefits?
Collect benefits when you reach Full Retirement Age (FRA) or after.
Work for at least 35 years.
Double-check your Social Security statement for errors.
Claim survivor benefits if you have a deceased spouse and didn’t remarry before the age of 60.
Can I work after I retire and still receive Social Security benefits?
Yes, but be cautious of earning limits.
If you claim benefits before your Full Retirement Age (FRA) and continue to work, the max amount you can earn is $22,320 before your benefits are reduced.
If you claim during the year of your FRA, your earning limit is $59,520.
If you claim at FRA or delay your claim past FRA, there is no earning limit.
If your earnings are reduced because you claimed before FRA and continued working, the Social Security Administration will increase your benefits beginning at FRA to account for the money withheld.
Can I claim survivor benefits if I remarry?
If you remarry after age 60 (50 if disabled), you are eligible to claim survivor benefits from your deceased spouse.
You are not eligible for survivor benefits if you remarry before you turn 60 (50 if disabled).
Social Security: Key Considerations For Your Retirement Plan
For many Americans, Social Security is one of the few, if not only, guaranteed sources of steady income until you die. Social Security is designed to be a safety net and will not replace your full income.
That said, benefits often amount to 30% to 50% of your earned income prior to retirement, which is a pretty good foundation to build your retirement plan on.
Estimating Your Retirement Income
Start planning for your retirement by estimating how much income you’ll have and where it will come from. Sources of retirement income often include:
- Social Security Benefits: These offer a predictable monthly payment adjusted each year for inflation.
- Investment Withdrawals: Sourced from accounts like IRAs, 401(k)s, or other investment portfolios. Using a 4% withdrawal rate is a good starting point, but the actual amount you should withdraw is up for debate and depends on your specific circumstances.
- Other Income Streams: These may include pensions, rental income, or part-time work.
Add your income sources together to get an idea of your estimated retirement income. If Social Security will cover a third of your expenses, you can look to your other investments to cover the remaining two-thirds.
Tax Implications of Social Security Benefits
Social Security is reliable, sure, but it’s not without complications. It’s important to understand that you may be responsible for income tax on up to 85% of your Social Security benefits. This number is determined by your total combined income which includes your adjusted gross income (AGI), half of your Social Security Benefits, and any non-taxable interest.
Additionally, your Social Security benefits may also be taxed on the state level depending on where you live. Know how your other income sources could affect the taxation of your benefits and work with a financial advisor or tax professional to minimize the shock-value of your tax bill come retirement.
Key Strategies for Maximizing Social Security Benefits
Work for 35 years.
35 years of work history is the first way to maximize your retirement benefit amount because your benefits are calculated based on the 35 years you earned the most income.
If you have fewer than 35 years of employment history, the gaps will be filled in with zeros. Just as a zero in school has a major effect on your grade average, so too do zeros in your employment history. Your monthly benefit will be much lower than if you worked part-time or for less pay for some of those years.
For those with more than 35 years of employment, the lowest-earning years will be dropped.
Collect benefits when you reach Full Retirement Age.
Social Security benefits can be claimed between the ages of 62–70, assuming you aren’t eligible for disability. It is generally advisable to wait until your Full Retirement Age (FRA) so you can collect your full Social Security benefit. For most of us, FRA is between 66 and 67 years old.
Understanding the timing of your claim is very important because claiming early will reduce the total amount of your benefit, and that reduction is permanent. If you don’t have other income sources set aside retirement, this can be even more detrimental. However, sometimes it is necessary to claim early due to medical issues or other pressing financial needs.
Delaying your claim can increase your monthly benefit payments about 8% for each year past your FRA that you wait. Social Security benefits must be claimed by age 70. If you can afford to delay, your total monthly benefit could be increased by 24-32%.
Determine if you qualify for survivor benefits.
Survivor benefits offer extra support for widows and widowers, and in some cases, deceased ex-spouses. It’s helpful to understand your eligibility so you can make the right decisions about your financial plan and increase your overall income throughout your retirement.
-
The Rules
-
The amount you can receive in survivor benefits is based on the lifetime earnings of your deceased spouse or, in some cases, ex-spouse. You can receive 100% of their benefit once you have reached your FRA. The earliest you can claim survivor benefits is age 60, and 50 years old if you’re disabled. However, just as with your own Social Security benefits, claiming early will permanently reduce the total amount you receive.
-
If you are caring for a minor (under 16) or a disabled child, you’re eligible for survivor benefits at any age.
-
For those who are divorced, you can claim survivor benefits from your ex-spouse if you are currently unmarried and your marriage lasted ten years or more.
-
-
Remarriage and Eligibility
-
Remarrying prior to age 60 (50 if disabled) will render you ineligible to claim survivor benefits from your deceased spouse.
-
If you remarry after age 60 (50 if disabled), your eligibility to receive survivor benefits remains unchanged. You have the right to claim based on the age determinants listed above.
-
-
Delayed Claiming
-
You may receive a greater survivor benefit if your spouse delayed claiming their own Social Security benefits beyond their FRA. Any delayed retirement credits that they earned will be passed to you, meaning your overall survivor benefit will be greater than if they had claimed at or before their FRA.
-
Monitor earnings if you work part-time during retirement.
Retirement isn’t for everyone, making it fairly common for folks to go back to work, either to stay busy and socially connected, or to try something they never had the time for. Working during retirement is also a good way to supplement retirement income. But earnings made during retirement do affect your Social Security benefits to some degree or another.
-
Earnings Limits
-
Claiming your benefits prior to your Full Retirement Age (FRA) while you continue to work will render your benefits subject to deductions based on the Social Security Administration’s (SSA) earning limits. Benefit reductions aren’t forever. At your FRA, the SSA will increase your benefit to account for the months benefits were withheld, so your monthly payments will be greater moving forward.
-
In 2024, the earnings limit for those who claimed Social Security benefits before their FRA is $22,320. For every two dollars you earn over the limit, one dollar will be deducted from your benefit amount.
-
The earnings limit in the year you reach FRA is $59,520, with a deduction of one of every three dollars over the limit.
-
Beyond your FRA, there are no earnings limits. You can work and earn as little or as much as you want without affecting your Social Security benefit amount.
-
If you plan to work during retirement and expect to earn over the earnings limit, you can wait to claim your benefits until your FRA or later.
-
Double-check your Social Security statement.
You may be shocked to know that the Social Security Administration does make mistakes. Your benefit is based on lifetime income, so any error in your earnings record can influence how much you receive and when you decide to begin collecting.
Take time to carefully go through your Social Security statement to be sure that the summary of your earnings is accurate. You certainly don’t want one of your highest-earning years to be incorrect or missing.
To correct an error, you’ll have to provide documentation to prove your real earnings, such as tax returns, W-2s, or pay stubs. The sooner you catch a mistake the better, so it’s smart to check your statement regularly.
Consult with a trusted advisor.
There are many factors at play when planning to maximize your Social Security benefits, such as timing, earnings history, survivor benefits, and tax implications. It can get pretty complex pretty quickly, but a financial advisor can guide you through the decision-making process and develop an overall retirement plan that includes the maximum possible Social Security benefit.
Final Thoughts
Understanding how Social Security benefits work paired with thoughtful, strategic planning will help you make the right decisions for your specific retirement situation. Knowing how your Social Security benefits fit into your overall financial plan will help you make informed decisions along the way that will serve you throughout your retirement.
Professional guidance can help simplify retirement planning, and help to place your Social Security benefit at the foundation of your overall financial plan. Early planning puts you in a better position for a more secure, comfortable retirement and saves you a lot of decision-making later on.
For the last quarter-century, the professionals at SK Wealth have approached all our clients with empathy and understanding. We’ve perfected The Integrated Financial Advantage™, a unique financial planning approach crafted to provide our clients with personalized guidance so they can live with intention both tomorrow and today.