For most Americans, Social Security is an important source of retirement income. In fact, the Social Security Administration (SSA) reports that Social Security benefits make up about 33% of a retiree’s income. *
Many people see when to start taking Social Security as an easy decision — and unsurprisingly, many choose to enroll as soon as possible. But strategic Social Security enrollment can help you maximize your future payments and gain peace of mind.
As a financial advisor, I help my clients think strategically about how Social Security fits into their overall retirement planning. Here are the most frequently asked questions by my clients about Social Security:
When can I collect Social Security benefits? To obtain it, you must be at least 62 years old and have contributed to Social Security by salary deduction for at least 10 years.
But just because you can get paid instantly doesn’t mean you should. Your personal strategy for getting the most out of Social Security should depend on a number of factors, which we’ll discuss in more detail later.
How much is the social contribution?
Your benefits are based on the payroll taxes paid by you and your employer. This tax comes from your income, so the higher your income, the greater your benefit.
However, even for high earners, the benefits are relatively limited. As of 2022, the maximum Social Security benefit at “full retirement age”* is approximately $3,345 per month – more details below.
I advise my clients to get an estimate of their benefits before applying so we can start planning how to get the most out of them.
Many people see when to start taking Social Security as an easy decision — and unsurprisingly, many choose to enroll as soon as possible. But strategic Social Security enrollment can help you optimize your future payments and gain peace of mind.
—Ed Campagna, CFP®, Senior Financial Advisor
Factors that can affect your strategy
You should carefully consider the following factors to determine your best social security strategy:
your health
How many years do you think you will receive benefits?
Your savings
Can you spend your savings while increasing your benefits?
your marital status
Can you claim benefits below your spouse’s or ex-spouse’s income?
other retirement income
What other sources of cost-of-living-adjusted guaranteed income do you have? your retirement age
How long do you intend to work and how much will you earn?
Need help with your social security strategy? Our advisors are always at your service.
How can I increase my Social Security benefits?
The easiest way to increase your monthly payments is to defer collections. You do not receive 100% of your benefits unless you wait until “full retirement age” to claim them. After full retirement age, your benefits continue to increase by 8% each year until you turn 70.
The full retirement age depends on your date of birth. For example, if you were born in 1960 or later, your full retirement age is 67.
But there are also other ways to increase your benefits. If you are married. You and your spouse should coordinate your claims to maximize benefits. Whether you claim at the same time or at different ages using a splitting strategy, it often makes sense for people with higher incomes to wait longer to apply. Over time, high earners receive more money for raises.
If you are divorced and have not remarried. If you’ve been married for at least 10 years, you may be eligible to apply for benefits depending on your ex’s income.
If you are a surviving spouse. If your spouse’s income qualifies for Social Security, you can apply for survivor benefits as early as age 60. You also have the option of switching to your own advantage at age 62 or older if this strategy is right for you.
If you start Social Security before full retirement age. Maybe you realize that it would be better to increase your income. Or, maybe you’ve decided to go back to work, or you don’t need the money for some other reason. You can somewhat reconsider your decision in two ways:
Withdraw your claim and repay any monies you received. You can do this if less than a year has passed since you applied for benefits.
Suspend your benefits once you reach full retirement age. If it’s been over a year since you filed your application, that’s your choice. Your benefit amount increases each year until you reach age 70 or start receiving benefits again.
Some of these strategies can be complicated, while others (like withdrawing your candidacy) can only be done once, so you need to make sure you’re doing it right. A financial advisor can run different scenarios to help you understand the potential impact.
What else will affect my Social Security payment? When planning ways to increase your benefits, keep in mind the following things that could reduce your benefits:
tax:
Middle- and upper-income retirees may end up paying federal taxes on some of their benefits. According to the SSA, about 40% of people who receive benefits pay taxes on them. *Some states also tax Social Security benefits.
Medical insurance deduction:
If you apply for Social Security and apply for traditional health insurance at the same time, the Medicare Plan B premium will be deducted from your Social Security payment.
Some retreats:
If you receive a pension from a government entity or other organization that does not withhold Social Security contributions, your benefits may be reduced. It may also affect any spousal benefits you may be entitled to. Continuous work income:
Depending on your age, if you work and receive Social Security, your benefits may be reduced if your income exceeds a fixed ceiling.
How much money can I earn while I’m on Social Security?
Once you reach full retirement age, you can earn as much as you want without penalty.
You can earn up to $19,560 per year (until 2022) without reducing your Social Security contributions until you fully retire. bad news:
If your income exceeds this limit, your benefits will be reduced. good news:
When you reach full retirement age, the withheld benefits are returned to you in the form of higher monthly payments.
The earnings limits are much higher if you are in the calendar year in which you reach full retirement age but have not yet reached your birthday month:
$51,960 in 2022.
You can visit our Retirement Planning section to learn more about maximizing your Social Security benefits.
