Contributions made by Eman Momin, Summer Intern
As many of our clients approach retirement, social security is a valuable tool that we consider with every financial plan we build. It can provide a fixed source of income for retirees, offering monthly payments to cover living expenses that can increase with a Cost-of-Living Adjustment (COLA).
Before taking Social Security, there are a few key points to consider: your life expectancy, spousal benefits, and tax planning strategies. Today we’ll go over the basics of social security, and what considerations are most important.
Who is eligible?
There are three main types of social security benefits: Retirement, Disability, and Survivors. This blog will primarily focus on the retirement benefits portion of the program.
RetirementWhat is Full Retirement Age?
Your full retirement age is the age at which you receive the full calculated retirement benefit. Depending on your birth year, your full retirement age, or FRA for short, will range from 66-67 years old. For anyone born in the year 1960 or later, their FRA is 67.
If you claim social security’s retirement benefit prior to reaching your full retirement age, the amount you receive monthly is reduced. Conversely, if you wait past your full retirement age to collect benefits, the amount you receive will increase by 8% per year until you reach age 70.
When To Start Receiving Social Security
As mentioned above, when you start taking social security benefits, impacts how much you receive. Depending on what your circumstances are you can start as early as 62 or delay your benefits to age 70. While the greatest lifetime benefit can be achieved by delaying benefits until age 70, there is a certain breakeven component to social security. For example, if someone waited until age 70 to collect benefits, and they passed away after 2 years, they would have been better off collecting a smaller monthly amount from when they first became eligible at 62. For retirees that wait until their full retirement age to collect benefits (as opposed to taking the benefits as soon as eligible at age 62), the breakeven is about 78 years and 8 months old. For those that wait until they are 70 to collect benefits, the breakeven is about 82 years and 6 months old.
Breakeven Analysis:While helpful, breakeven math is only one piece of the puzzle. Health, family longevity, spousal needs, investment returns, and taxes all influence the right timing.
Another consideration for when to begin collecting your benefits is if you are still working. For those who elect to receive their benefits prior to their full retirement age, social security can be reduced if they are also earning wages. For 2025, if you're under your full retirement age, benefits are reduced by $1 for every $2 earned above $23,400. In the year you reach full retirement age, the reduction is $1 for every $3 over a different limit of $62,160. Once you reach your full retirement age, there is no limit to how much you can earn, and your benefits will not be reduced due to work income.
Social Security for Spouses: The Rules for Couples
How does your marriage impact your social security benefits?
A spouse may be eligible to claim Social Security benefits based on either their own earnings record or their partner’s. Benefits can begin as early as age 62, or at any age if the spouse is caring for a child under 16 or a disabled child. To receive spousal benefits, however, the primary earner must already be collecting their benefit, and you must have been married for at least one year. If one spouse passes away, the surviving spouse is entitled to the higher of their own benefit or their partner’s. Because age and income differences can significantly affect outcomes, couples often benefit from coordinating their claiming strategy to maximize household income.
In cases of divorce, you may collect spousal benefits if you were married for at least 10 years, and you have not remarried.
Tax Planning Considerations
Up to 85% of Social Security benefits may be taxable, depending on your income. Effective planning can reduce taxes over your lifetime. Examples of some approaches we help clients with are:
Integrating tax planning with your Social Security strategy often makes a significant difference in retirement outcomes.
What does this mean for young people?
If you are in your 20s or 30s, social security seems like a distant concern, but it plays an important role in long-term retirement planning. While you may not start receiving benefits until decades into the future, you are still contributing to social security through payroll taxes which helps you earn future credits.
Some young people have voiced concerns about Social Security being exhausted by the time they are in their 60s. Addressing this problem would mean either bringing in more money or cutting costs by raising the retirement age, increasing taxes, or changing how the cost-of-living adjustments (COLAs) are calculated. That’s why we stress-test financial plans by assuming reduced Social Security benefits, so our clients are prepared for a range of scenarios.
To stay flexible, we encourage younger individuals to focus on building strong retirement, investment, and savings accounts. This foundation ensures security regardless of how Social Security evolves.
Social Security is a complex but essential part of retirement planning. When and how you claim impacts not just your income, but also your taxes and long-term financial security.
We help clients weigh these factors to help make the decision that best supports their goals.
If you found this information helpful, share it with your friends, colleagues, or family—Social Security decisions affect us all, and a well-timed conversation can make a big difference.
PAST PERFORMANCE IS NOT A GUARANTEE OF CURRENT OR FUTURE RESULTS. Examples of historical information included in this presentation do not, nor are they intended to, constitute a promise of similar future results. Specific client portfolio allocations, risks and returns can and may deviate from these examples depending on accounts and types of investments available through each account. Future market views by WJ Interests, LLC may vary significantly from the historical examples presented herein and no one receiving this summary should assume that WJ Interests, LLC will be able to replicate successful views in the future.