Social Security

Social Security?

You’ve spent decades contributing to your Social Security benefits. As you approach retirement, you’ll likely face a host of decisions that could significantly impact your financial future. One of the critical decisions you’ll make is filing for Social Security this plays an important role in your broader retirement income plan.

For many Americans, Social Security is the “bread-and-butter” of their income during retirement. Your Social Security decision will no doubt impact the amount of essential and discretionary income you’ll have during retirement. And the decision you make is largely permanent (although you have 12 months to change your decision).

Understanding Your Benefits

For many years, 65 was the default age for retirement because that’s when full Social Security benefits used to begin. Today, full Social Security benefits start between age 66 and 67 for most Americans. Plus, you now have the option to get reduced benefits as early as age 62 or delay your benefits up to age 70 to increase your monthly Social Security income.

Filling Options and Other Considerations

All the opportunities Social Security offered to retirees and their families are great. But the many rules make it complicated for individuals to find the right opportunities for them. The filing rules are just one aspect of Social Security you should know. There are a few more topics that can influence your filing decision.

Paying Taxes and Social Security
Paying Taxes on Money That You’ve Already Paid Taxes On
The following information is not intended as tax advice. You should consult with your accounting or tax professional for guidance about your specific financial situation.

It’s important to consider how various income sources are taxed as it can affect how much money you’ll actually have for retirement expenses. For many Americans, their social security benefit will be taxed (again). Why?

By the end of 1983, the Social Security Trust Fund was getting low on cash. While the program could not go bankrupt, but it was very close to a point where measures had to be taken to maintain its solvency. It would need broad benefit cuts and other measures. But, benefit cuts we’re not viewed as a viable solvency option.

The last major bipartisan Social Security overhaul was the Amendments of 1983. Long-term changes included increasing the full retirement from age 65 to age 67 which would peak in 2022. Other changes included provisions designed to boost revenue collection, including a gradual increase to the payroll tax of all working Americans.

The Controversy Around Taxing Social Security Benefits

In 1984 the taxation of Social Security benefits was implemented. Singles and couples filing jointly whose modified adjusted gross income plus one-half of their social security benefits that exceeded $25,000 and $32,000 respectively are subject to having 50% of the Social Security benefits being taxed.

In 1993, second-tier taxation was introduced under the Clinton administration. Using the same formula as above, single filers and couples filing jointly with more than $34,000 and $44,000, respectively, are subjected to this second-tier. This new tier allows up to 85% of Social Security benefits to be taxed at the federal ordinary income tax rate.

The fact that the income thresholds have never been adjusted for inflation is a big reason why more and more seniors will be subjected to this tax, and at some point in the future, could pay back some of their benefits to the Social Security Administration.

Other Considerations-Working In Retirement

Many retirees may want to work part-time to reach a desirable income during retirement. If you plan to work while collecting Social Security benefits, some of your benefits may be withheld if you start collecting before full retirement age or in the year you reach full retirement age.

That money can be recouped at full retirement age when you begin receiving these withheld benefits. Once you pass your full retirement age, the Social Security Administration no longer limits the number of earnings you can receive.

Maximizing Your Social Security Benefits

Remember, Social Security is a choice of a lifetime that can impact the quality of your retirement. You can file for social security benefits as early as age 62, but would that be your best choice? Would you need the income starting at 62, or would you want the maximum amount of Social Security income?

Have you considered the impact on your decision subject to some of life’s issues like death, disability, or divorce? Once the choice is made, you are locked in for life and the results of that decision (however, you are given a 12-month window to change that decision, after that it is permanent).

One of The Most Important Decisions of A Lifetime

Calling the Social Security Administration is not the answer to getting a comprehensive understanding of all of your Social Security options and benefits.  We suggest getting your Social Security options analyzed by one of the largest retirement institutes in America. The service and analysis are free (no obligation or sales pitch attached).

Feel Good Knowing That You Made the Right Decision

Find out more here.

Successful Retirement Panning is all about minimizing and managing these risks.


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