Social Security Planning

Maximize Your Social Security Benefits and Minimize Taxes

Effective Social Security planning can help prevent you from running out of assets during your lifetime, maximize your heirs’ inheritance, and bring in tens of thousands of dollars more in benefits throughout retirement.

Read on for answers to some of your most pressing questions about maximizing social security benefits for you and your heirs, minimizing taxes on Social Security income, and creating a financial plan that considers all potential income sources. 

If you’d like help building an effective retirement income plan that incorporates social security maximization and protection strategies for you and your family, please contact us to set up a meeting.

Maximize Social Security Retirement Benefits

What is my Full Retirement Age?

Your Full Retirement Age (FRA) changes based on the year you were born. FRA is 66 for those born between 1943 and 1954 and increases by two months for every year after you were born until it settles at 67 for those born in 1960 or later. If you wait until you reach Full Retirement Age to begin collecting your Social Security benefits, you will receive the full benefit you have earned.

If you where born in:	Your full retirement age is:
1943-1954	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 and later	67

At what age should I start receiving my Social Security retirement benefits?

Your monthly retirement benefit will be higher if you delay claiming it.

You can start receiving your retirement benefit as early as age 62, or as late as age 70. If you claim it before reaching your Full Retirement Age (FRA), your monthly amount will be reduced. On the other hand, if you delay claiming your benefit, your monthly amount will be increased for each month of delay. These adjustments are permanent for the rest of your life.

The increases from delaying your benefit can be large. For example, a $3,000 monthly benefit at your full retirement age of 66 would be reduced to $2,250 a month if you decide to start taking benefits at age 62 or increased to $3,960 a month if you hold off until age 70. Married couples have two lives to plan for. If you are the higher earner, a delay in starting your retirement benefit means higher monthly benefits for the rest of your life and higher survivor protection for your spouse if you die first.

Deciding when to start receiving your retirement benefit is a personal decision based on many factors that are unique to each individual. For example, in addition to the monthly benefit amount, you may want to consider personal and family circumstances, including whether you are working or plan to work, current and future financial resources and obligations, and current and anticipated health and longevity.

How does working affect Social Security benefits?

Working does not affect your benefits once you reach full retirement age (FRA), but it does before that. Only earned income, such as wages and self-employment earnings, affects your Social Security benefits. Income from investments, pensions, and annuities does not affect Social Security benefits. 

When you are under FRA for the whole year, your Social Security benefit is reduced by $1 for every $2 you earn over $19,560. In the year that you reach FRA, your benefit is reduced by $1 for every $3 you earn over $51,960. Once you reach FRA, your benefit is no longer reduced no matter how much you earn. These thresholds adjust each year, so your benefit may change accordingly.

What are the benefits of delaying Social Security payments until age 70?

You will increase your payments if you delay claiming Social Security past your Full Retirement Age. You will accumulate deferred retirement credits that will increase your monthly benefit by 8% for every year you delay claiming from your Full Retirement Age until age 70. There is no benefit in deferring past the age of 70. For those born between 1943 & 1954, this strategy will result in a benefit increase of approximately 32%. For those born in and after 1955, it will boost their benefits from approximately 24% to 30%.

What are the Government Pension Offset and the Windfall Elimination Provisions?

The Government Pension Offset and Windfall Elimination are two provisions that may affect your Social Security benefit if you receive a pension from a government job where you did not pay Social Security taxes.

Government Pension Offset

Who does it impact?

If you receive a retirement or disability pension from a federal, state, or local government, based on your own work, for which you didn’t pay Social Security taxes, your Social Security spousal or widow or widower benefits may be reduced.

How much will my benefits be reduced?

Your benefit will be reduced by two-thirds of your government pension. If, for instance, you are receiving a monthly civil service pension of $1,800, two-thirds of that, or $1,200, will be deducted from your Social Security benefits. For example, if you are eligible for a $1,500 spousal or widow or widower Social Security benefit, you will receive $300 a month from Social Security ($1,500 – $1,200 = $300). If two-thirds of your government pension is more than your Social Security benefit, your benefit could be reduced to zero.

Windfall Elimination Provision

The Windfall Elimination Provision reduces the Social Security benefit you receive based on your own work record if you are also eligible for a federal, state, or local pension from employment that was not covered by Social Security.

The Social Security Administration uses a modified formula to compute your Social Security benefits, resulting in a lower benefit. The structure of the modified formula can be especially harsh for low-paid workers.

Windfall Elimination does not affect a Social Security survivor’s benefit unless the survivor (often the widow) is also a retired government employee.

Social Security Income Taxes

Will I pay income taxes on my Social Security benefits?

It is possible to owe federal income taxes on your Social Security benefits. This usually happens only if you have other substantial income in addition to your benefits (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return).

You may pay tax on up to 85% of your Social Security benefits, based on Internal Revenue Service (IRS) rules.

• If you file a federal tax return as an “individual” and your combined income is
  • between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits.
  • more than $34,000, up to 85% of your benefits may be taxable.

• If you file a joint return, and you and your spouse have a combined income that is
  • between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits.
  • more than $44,000, up to 85% of your benefits may be taxable.

Combined Income  =  Adjusted Gross Income + ½ of your Social Security benefits

Each January, you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received in the previous year. 

Social Security Spousal Benefits

Will my spouse qualify for Social Security benefits?

Even if they have never worked under Social Security, your spouse may be eligible for benefits if they are at least 62 years of age and you are receiving retirement or disability benefits. Your spouse can also qualify for Medicare at age 65.

How much will my spouse receive in Social Security benefits?

If your spouse qualifies for benefits on their own record, that amount will be paid first. If, however, the benefit on your record is higher, they will get an additional amount based on your record so that the combination of benefits equals that higher amount.

The benefits for your spouse will not include any deferred retirement credits you may receive.

If they begin receiving benefits:

• Between age 62 and their (FRA), the amount is permanently reduced by a percentage based on the number of months until you reach your (FRA).
  If your spouse is under full retirement age and continues to work while receiving benefits, the retirement earnings test may affect their benefits. If they also qualify on their own record, their application will include both benefits.
• At their full retirement age, the spouse’s benefit cannot exceed one-half of your full retirement amount.

If your spouse was born before January 2, 1954, and has already reached full retirement age, they can choose to receive only the spouse’s benefit and delay receiving their own retirement benefit until a later date. If your spouse is at full retirement age and applying for spousal benefits only, they can apply online by using the retirement application.

If your spouse’s birthday is January 2, 1954 or later, the option to take only one benefit at full retirement age no longer exists. If your spouse files for one benefit, they will be effectively filing for all retirement or spousal benefits.

If your spouse will receive a pension for work not covered by Social Security such as government employment, the amount of their Social Security benefits on your record may be reduced.

Benefits paid to your spouse will not decrease your retirement benefit. In fact, the value of the benefits they may receive, added to your own, may help you decide if taking your benefits sooner may be more advantageous.

Social Security Survivor Benefits

If my spouse passes away, will I continue to receive their full Social Security benefit in addition to my own full benefit amount?

The Social Security Administration will not combine your late spouse’s benefit with your own and pay you both of them. When you are eligible for a survivor benefit and a retirement benefit, Social Security will pay the retirement benefit first and increase that amount, if necessary, to match the amount of the survivor benefit.

Whether your (Widow or Widower) survivor benefit exceeds your own Social Security retirement benefit will be contingent on the amount of your late spouse’s benefit, your age, and the family structure. As a surviving spouse, you are entitled to the following benefits:

1. 100% of the deceased’s benefit if you are at Full Retirement Age (FRA). Full retirement age is between age 66 and 67 depending on your year of birth.
2. 71.5% to 99% if you are between 60 and your Full Retirement Age.
3. 75% if you are caring for a child from your marriage, who is under 16 or disabled, regardless of your age.

Survivor Benefits for a Divorced Spouse

If you are the divorced spouse of a worker who dies, you are entitled to receive the same benefit amount as a widow or widower, provided that your marriage lasted more than 10 years.

Any benefits paid to you, as a surviving spouse, will not impact the benefit amount for other survivors getting benefits off the worker’s record.

If you remarry before age 60, you cannot receive benefits as a surviving spouse while you are married.

If you remarry after age 60, you will continue to qualify for benefits based on your deceased spouse’s Social Security record.

As with widow or widower benefits, if you are a surviving divorced spouse you can switch to your own retirement benefit as early as age 62. This would assume your personal retirement benefit would be higher than your benefit as a surviving divorced spouse.

Survivor Benefits If You Have Children

If your spouse dies and you had children together that are currently under the age of 16, you can receive up to 75% of your deceased spouse’s benefit. In addition, if you have children under 16 from a previous marriage, that spouse is also entitled to receive up to 75% of your deceased spouse’s benefit. Also, each child, up to the age of 18 (or 19 if still in secondary school or disabled), may receive up to 75%. 

The maximum a family can receive, however, is 180% of the worker’s Primary Insurance Amount (PIA). If an ex-spouse is receiving benefits it will not impact the amount a current spouse will receive and vice versa. If you qualify because you have the deceased spouse’s child in your care, your benefit will impact the amount others are receiving on the deceased’s record.

Social Security Statement

An important document that you will reference during the decision-making process is your Social Security statement. The Social Security Administration mails statements to workers age 60 and over who aren’t receiving Social Security benefits and do not yet have a “mySocial Security” account. These statements will be mailed out three months prior to your birthday, but you can also access the same information by setting up an account on their website.  

The statement will tell you your:

• Estimated benefit if taken at age 62
• Estimated benefit if taken at FRA
• Estimated benefit if taken at age 70
• Estimated disability benefit
• Estimated family and survivor benefits
• Medicare information
• Earnings history

All benefit amounts listed are estimates and subject to change. They are calculated based on your date of birth and future estimated taxable earnings.

How do I establish a mySocial Security Account?

1. Go to www.ssa.gov/myaccount.
2. Agree to Terms of Service.
3. Verify your identity.