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Maximizing Social Security Program Recap

Home Maximizing Social Security Program Recap

Thank you to Larry Metzler from Apogee Financial Services, Inc. for a deep dive into the complexities of Social Security and how that income stream can be incorporated into your overall retirement plans.  There are up to 9,000 potential combinations of claiming Social Security benefits based on your unique situation so it is important to speak with a financial planner to determine the best outcome for you.  However, a good first step is knowing the basics and educating yourself.  So let’s take a deep breath, take a long sip, and start unraveling the mystery of Social Security retirement benefits.

6 Fundamental Financial Planning Considerations

Since Social Security should be part of a larger and more comprehensive retirement strategy, let’s first look at 6 fundamental financial planning considerations that may influence when someone should start receiving their Social Security benefits.

  1. Longevity – As individuals are living longer, their money needs to be able to meet those needs, especially long-term care.  The costs of long-term care continue to rise and whether someone wants to pay for that themselves or have Medicaid pay for it, those considerations can significantly impact their retirement plans.
  2. Liquidity – How much of your assets, currently and in retirement, are liquid?  Do you have the ability to meet unexpected financial needs by being able to pull money out without tax implications?
  3. Inflation – Is your retirement plan able to match or outpace inflation?  Your dollar today will be less tomorrow so are you prepared?
  4. Market – The market is volatile and unpredictable.  A 5% withdrawal of your total investments may turn into a 20, 30, or 40% withdrawal if the market crashes; can you recover effectively?
  5. Mortality – A spouse or partner may die before you.  Are you able to withstand a potential drop in retirement income with their passing?
  6. Taxes – One of the many things guaranteed in life to increase; are you financially secure to deal with a rise in taxes?  Is it better to pay taxes on your contributions now or wait until later?  Similar to inflation, a rise in taxes means that you dollar now is not worth as much later.

While Social Security is an important part of your retirement income, there are many other options that you should consider to meet your needs, including pensions, Individual Retirement Accounts (IRAs), employer contribution accounts (401k, 403b), annuities, and real estate.  Speak with a financial advisor to determine what financial strategy is right for you.


What is Social Security?

Social Security is a government sponsored financial benefit program aimed to support those that are disabled or retired.  Working individuals pay into Social Security through taxes on their income, which is then used to pay all eligible individuals who qualify for the government program.  To be eligible for Social Security in retirement, you must have earned 40 work credits, or 10 years of working that paid Social Security taxes.  You can also claim Social Security retirement benefits if your spouse met the work eligibility criteria.  The amount of your Social Security benefit is based off of the highest 35 years of earning for you and/or your spouse.  Social Security retirement benefits can be claimed starting at age 62, or survivor benefits earlier if you are caring for a child under the age of 16.  When determining when to take Social Security, be advised that the Social Security Administration cannot give you advice and that rules and laws can change from year to year.


Important Definitions

There are few terms that are common when it comes to discussing Social Security that you should be aware of:

  • Full Retirement Age (FRA)- The age at wish you can start claiming your full Social Security retirement benefit amount.  This age is dependent upon your birthday and can range from 65-67 at this time.
  • Primary Insurance Amount (PIA) – The amount of benefit that you can collect at your full retirement age.
  • Cost of Living Adjustment (COLA) – Periodically, Social Security will increase the PIA based off the Consumer Price Index.  This is referred to as a Cost of Living Adjustment.

5 Common Decision Scenarios

Early vs. Later

When to claim Social Security benefits is one of the most common questions and is different for each person.  If you decide to claim your Social Security benefits before your full retirement age, you will receive a reduced amount, up to 25% if you take your benefits at age 62.  If you decide to wait and claim your benefits at age 70, you will receive a boost of 32% to your PIA.  If you claim your benefits early, you cannot suspend those benefits at a later date to try and increase your benefit amount.  However, there are some reasons to claim your benefits early and reduce your amount, including:

  • Immediate need for money
  • Poor health
  • Earn less than the annual income cap
  • Makes sense for spouse and children

Spousal Benefits

A spouse can claim Social Security benefits based off of their spouse’s earnings.  The spouse must first file for Social Security benefits, but does not need to claim them.  The claiming spouse must be nonworking and will receive no more than 50% of the other spouse’s PIA, including a reduced amount if claimed before FRA.  The claiming spouse’s PIA is substracted from the spousal benefit to determine the spousal add-on amount; a spouse cannot collect the higher of the two amounts and cannot collection more than their PIA.  If the nonworking spouse has already claimed their Social Security retirement benefit early, then the spousal benefit will be reflected as an add-on to their current benefits, up to the claiming spouse’s PIA.  For example, if Judy claimed her benefit at age 62 and has a PIA of $1,000, her monthly benefit will be $750.  If she also files for a spousal benefit ($1,200), her PIA of $1,000 is subtracted from $1,200, leaving Judy with a spousal add-on amount of $200.  Since she claimed the spousal benefit before FRA, that amount is reduced from $200 to $140, leaving Judy with a total monthly benefit amount of $890.

Divorced Spousal Benefits

A divorced spouse can claim on their ex-spouses benefits provided that they are 62 years of age or older, marriage lasted at least 10 years and they have not remarried.  The divorced spousal benefit is still a maximum of 50% of the ex-spouses PIA and must be higher than the claimants benefit amount.  As with other benefits, if you claim before your FTA, the amount will be reduced.

Surviving Spousal Benefits

A surviving spouse or ex-spouse may be eligible for surviving spousal benefits if the deceased spouse was the higher income earner.  The deceased spouse need not have already applied for Social Security benefits, but the surviving spouse must be at least age 60 (age 50 if disabled or until a dependent child reaches age 16) or a divorced spouse must be age 62, married for at least 10 years, and have not remarried after divorce.  If claimed at FRA, the benefit will be 100%; if claimed earlier, the benefit will be reduced.  In addition, dependent children can receive a survivor benefit until they turn 18 or 19 if they are enrolled full-time in school.

Guardianship (Grandparent) Benefits

Guardians, including grandparents, are also entitled to special Social Security benefits if both parents are deceased or disabled or the grandparent(s) legally adopted the child(ren).  The child must have been living with the grandparent(s) before the age of 18.  The grandparent must be providing at least half of the financial support for the child the month before the grandparent became entitled for Social Security retirement benefits.  If the parents are alive, they cannot be making regular contributions to child support and if the grandparent is already receiving Social Security retirement benefits, they must adopt the child to qualify for additional benefits.

Taxation of Benefits

Yes, your Social Security benefits may be liable for federal income tax; NJ does not tax Social Security benefits.  The IRS determines your Social Security tax amount based off of your Provisional Income, which is your Adjusted Gross Income + any tax-free municipal bonds + 50% of your Social Security benefit amount.  If your tax filing status is  “Single”, you will pay no taxes on your Social Security benefits if your Provisional Income is less than $25,000, taxable up to 50% if your PI is between $25,000 and $34,000, and 85% if your PI is above $34,000.  If your tax filing status is “Married filing Jointly”, you will pay no taxes on your Social Security benefits if your PI is less than $32,000, up to 50% if your PI is between $32,000 and $44,000, and 85% if your PI is above $44,000.  Please contact the Social Security Administration for any help determining what your tax liability may be.

Key Changes

Not all of someone’s earnings are taxed for Social Security.  In 2024, that amount increased to $168,600; any income above that amount will not have Social Security taxes withheld.  In 2024, the maximum monthly benefit amount is $3,822 and the surviving spousal benefit increased to $1,773.  Even with the rises in these benefits, Medicare premiums also increased, which can offset the gains made in Social Security benefits.  While receiving Social Security retirement benefits, you can still work an earn an annual income up to $22,320; if you make more than that, then your Social Security benefit is reduced by $1 for every $2 you earn over the annual income limit.


More Information

If you have questions regarding your Social Security benefits, please contact the Social Security Administration – https://www.ssa.gov/agency/contact/. If you would like to discuss your personal financial situation, you can schedule an appointment with Larry Metzler at https://calendly.com/lmetzler-1/60min or contact him at lmetzler@apogeefinancial.net. You can view recordings of the webinars at our YouTube channel:

You can download a copy of the workbook below:

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