Social Security Tips

Air Date: November 19th, 2020

Social Security was signed into law over 85 (1935) years ago by President Franklin D. Roosevelt. It was a “new” social program that would provide income for retired workers. This social insurance concept wasn’t created by the US, but merely adopted from other nations already implementing these programs. The idea was to care for the elderly via “credits” paid into the system. These credits are earned through your annual income, up to 4 credits a year. Despite the long history of this program, clients are always asking the questions we will review today. While Social Security for clients isn’t the only source of income, it isn’t one to be neglected.

  1. Should I always wait until age 70?
    1. No! We look at several factors to determine when you should start taking social security. As we mentioned, it’s most often not the only source of income for our clients. Social Security was is only designed to supplement 40% (not as good as it sounds) of your pre-retirement income stream.
    2. We are seeing longer life spans which ultimately leads to later dates of retirement. For those who continue working, earnings limits might affect (reduce) the benefit you receive prior to full retirement age.
      1. Guidelines for 2020 are that you lose $1 in benefits for every $2 earned over $18,240 if you are younger than FRA.
      2. In the year you turn FRA, (in 2020) you can earn $48,600.
  • FRA or full retirement age is when you qualify to collect the maximum benefit earned. Age 67 for those born 1960 or later. Beyond FRA, you can earn unlimited income.
  1. For accurate planning purposes, we recommend clients go to the SSA website where a personalized analysis of your benefits can be provided.
  2. Early retirement – you are eligible to start taking social security at age 62 up to age 70. Your benefit increases each year where you earn 100% of your monthly benefit at FRA and an even more so increased amount at 70. The issue with the mindset of “wait until 70” is all the years of funding (8 years from age 62) you are missing out on. Especially if this income is invested.
  1. Are there ways to maximize the funds?
    1. One strategy we see as beneficial in some situations is the spousal benefit. As long as your spouse is over 62 OR has a qualifying child your spousal benefit can be as much as half of the benefit amount.
  2. How am I taxed on Social Security?
    1. First, you will receive a Form SSA-1099 in January with the amount of benefits received in the previous year. ½ of this amount will be added to the following:
    2. wages, self-employment, dividends, and interest. The sum of these amounts determine your “provisional income”. Individuals and couples who exceed the current limits of provisional income will pay income tax on up to 85% of social security benefits.
    3. Ex: You have $54,800k in total income – $1800 per month of your total income is from Social Security benefits- 85% of the $21,600 will be subject to ordinary income tax ($18,360).