Hi, my name is Mary Grace Graniero, and today we’ll be discussing current Social Security benefits.
Social Security is a federal benefits program that provides retirement, disability, and survivor income to eligible Americans. While it may be a modest part of the overall retirement income picture for many individuals, understanding how it’s calculated and indexed is essential for effective planning.
Social Security benefits are based on your highest 35 years of earnings. Your benefit amount is adjusted for inflation each year using the national wage index. These annual increases are designed so that your benefit amount will keep pace with inflation throughout the years.
The age at which you can collect your full benefit amount is referred to as your Full Retirement Age. For those born in 1960 or later, their full retirement age is 67. The Social Security Administration refers to your benefit amount at full retirement age as your Primary Insurance Amount (PIA).
For each month before your full retirement age that you start collecting, your benefit will be reduced. The earliest you can claim Social Security retirement benefits is age 62. Your benefit reduction is calculated by multiplying the number of months you started collecting before your full retirement age by 5/9 of 1%, up to 36 months. If you started collecting your benefits more than 36 months before your full retirement age, then you would multiply 5/12 of 1% for each month that exceeds 36. Now let’s talk through an example. Barry is retired and would like to start collecting his Social Security benefits at age 62. His primary insurance amount is $2,000 a month. Since he will be collecting 60 months before his full retirement age, his benefit would be reduced by 30%. This equates to an average reduction of 6% for each year he collected his benefits before reaching his full retirement age.
Another consideration when choosing to collect Social Security benefits before reaching your full retirement age is if you plan to keep working. The Social Security Administration imposes an earnings limit of $23,400 on anyone collecting benefits before their full retirement age. The earnings limit only applies to earned income; it does not include investment income. For every $2 that you exceed the earnings limit, your benefits will be reduced by $1. If you will reach your full retirement age in 2025, you can earn a maximum of $62,160 during the months leading up to your full retirement age. For every $3 you exceed the earnings limit during those months, your benefits will be reduced by $1. Once you reach your full retirement age, your monthly benefit will be recalculated to account for any benefits that were withheld due to the earnings limit.
For each month you delay your benefits past your full retirement age, your benefit amount will increase by .67% (8% per year). Your benefit amount maxes out once you reach age 70.
There are three options for filing for your Social Security benefits: visit SSA.gov, call the Social Security Administration, or make an appointment at your local office. Filing online is typically the quickest and easiest way to file for your benefits.
When you decide to file, you will need your Social Security number and birth certificate. Other forms may be necessary depending on your situation, such as citizenship proof, tax forms, and bank information. A complete checklist can be found on the Social Security website. It is also crucial to verify that the work history in your Social Security is accurate.
Once you have filed, it typically takes the Administration 6-8 weeks to process your information. Social Security benefits are generally paid one month in arrears. This means that the benefits owed to you for May will not be paid until June. The specific day of the month that you receive your benefits is dependent on your birth date. Benefits are typically paid on the second, third, or fourth Wednesday of the month.
Another piece of information they will ask you for when you apply for benefits is your marriage information. This is due to the fact that you, your spouse, or ex-spouse, may be eligible to collect spousal benefits. The maximum spousal benefit is 50% of the worker’s primary insurance amount.
To qualify for spousal benefits, the spouse must be at least 62 years old or caring for a qualifying child. If the spouse and worker are still married, they have to be married for at least a year before the spouse can collect on the worker’s record. The spouse cannot start collecting spousal benefits before the worker files for their own benefits. The age that the worker starts collecting their benefits will not affect the benefit their spouse receives. The maximum spousal will be received when the spouse reaches their full retirement age. Similar to standard Social Security benefits, the amount received will be reduced for each month the spouse starts to collect before their full retirement age. The benefit reduction formula is slightly different for spousal benefits. For the first 36 months before FRA, the monthly benefit is reduced by 25/36 of 1%. For each additional month, the benefit is reduced by 5/12.
Ex-spouses are only eligible to collect on the worker’s record if the marriage lasted at least 10 years and they are currently unmarried. While the worker must be eligible to collect their benefits before the ex-spouse can collect on their record, the ex-spouse can start collecting even if the worker has not yet filed for their benefits. It’s also important to note that they must have been divorced for at least two years before the ex-spouse is eligible to collect spousal benefits. However, if the worker is already collecting their benefits, then this condition is waived.
If the worker has passed away since the divorce took place, then the ex-spouse may be able to collect divorced survivor benefits as early as 60 years old, or as early as 50 years old if they have a disability. Additionally, you have the option to start collecting your survivor benefits and switch to your own benefit amount later, if it results in a higher payment.
If you were still married to your spouse when they passed away, you would also be entitled to survivor benefits on their record. The marriage only has to have lasted for 9 months for a current spouse to collect survivor benefits, as opposed to the 10 year requirement that divorcees have.
It is important for surviving spouses to be mindful of their changing filing status. In the year your spouse dies, you are still eligible to use the married filing jointly status. However, most individuals will be required to file as single taxpayers in each of the years following the year of death. In most cases, this will result in a higher marginal tax rate. It is recommended that you work with a financial professional to determine the appropriate amount to have withheld from your monthly benefits.
Social Security Disability Insurance payments are another option for anyone that meets the Social Security Administration’s definition of disability. Individuals can start collecting disability benefits as early as age 18. However, in order to collect disability benefits, you must have a sufficient work history. The Social Security Administration uses the “20/40 Rule”, meaning that you need 40 work credits and 20 of those need to be earned in the 10 years before your disability began. Filing for disability benefits can be more complex than filing for the standard retirement benefit, but you still have the option to apply online, over the phone, or at a local office. The application process typically involves providing your medical records and may require you to file appeals. Once you reach your full retirement age, your disability benefit will automatically convert to standard retirement benefits.
The biggest question we get from clients surrounding Social Security is when they should start collecting and whether or not it makes sense to wait and let their benefit amount increase. Delaying your benefits can serve as a powerful hedge against longevity and inflation risk. However, if delaying your benefits results in a faster drawdown of your investment accounts, then this is something that needs to be considered within the scope of your overall financial plan. It’s important to coordinate the timing of your Social Security benefits with other income sources that may be available to you such as pensions and annuities.
There are a number of mistakes we see with clients in regard to Social Security benefits. The first is when clients choose to collect Social Security even though there is not a cash flow need, or they have excess cash available to fund their expenses with, while letting their benefit amount accrue. Second, is when spousal or survivor benefits are ignored. Many individuals are not aware that spousal benefits do not increase past the spouse’s FRA, or that they can begin collecting survivor benefits before age 62 and switch to their own benefit amount later on. This can result in large sums of money being left on the table and can have a significant effect on your financial well-being. Another common mistake is the failure to consider the tax impact of collecting Social Security. You have the option to elect 7, 10, 12, or 22% federal withholding from your benefits. If you’re unsure which amount is most appropriate for your situation, work with a financial professional to help you make the appropriate selection. If you do not have enough withheld throughout the year, it can result in underpayment penalties when you file your taxes. Fortunately, 41 of the 50 states (including NY) does not tax Social Security benefits, but it’s important to determine if you live in 1 of the 9 states that does impose a tax on Social Security benefits. If you do, it may be necessary to make estimated tax payments throughout the year to avoid state penalties. In addition to considering the tax impact of Social Security benefits, I will reiterate the importance of coordinating your Social Security strategy with your overall investment and financial plan.
Understanding Social Security’s rules and strategies can help high-net-worth individuals extract the most value possible from a system they’ve paid into for decades. We suggest taking the following steps when you are approaching the age where you can begin collecting your benefits:
- Review your Social Security statement and earnings history at SSA.gov.
- Assess your break-even point for claiming early vs. delaying.
- Evaluate spousal, survivor, and divorce-related options.
- Integrate Social Security timing into your broader financial and tax strategy by contacting your financial advisor for a cohesive retirement income plan and specific guidance related to Social Security benefits.
While the numbers are critical, this is rarely just a mathematical exercise. For many, it’s also an emotional milestone—one that represents decades of hard work, paycheck deductions, and contributions to the system.
Some individuals feel a strong urge to begin collecting benefits as soon as they’re eligible, driven by a sense of wanting to “get the money owed to them” after a lifetime of work, and the fear surrounding the future of Social Security. Others find reassurance in waiting, and viewing Social Security as a reliable income stream to hedge against market volatility or longevity risks.
Acknowledging these personal feelings is just as important as analyzing the financial data. A successful claiming strategy balances financial optimization with peace of mind. Our role is to guide clients through both the rational and emotional sides of the decision, ensuring the choice supports both their financial goals and personal values.
At Howe & Rusling, our comprehensive financial planning process helps you evaluate the ideal time to claim Social Security by incorporating your full financial picture through the use of cash flow modeling, break-even analysis, tax coordination, and custom scenarios. Claiming your benefits at the wrong time can have a negative effect on your financial security in your retirement. With our tools, you’ll have the clarity to make a confident, data-driven decision.
Disclosures: The information presented is for educational and informational purposes only and should not be construed as personalized investment, tax, legal, or Social Security advice. This material is not intended to provide, and should not be relied upon for, accounting, legal, or tax advice. You are encouraged to consult with your personal financial advisor, tax professional, or legal counsel regarding your individual situation. Howe & Rusling is not affiliated with or endorsed by the Social Security Administration (SSA) or any other government agency. Social Security rules and benefit formulas are subject to change at any time. For the most accurate and up-to-date information, please visit www.ssa.gov. Any hypothetical examples provided (e.g., “Barry”) are for illustrative purposes only and do not represent actual clients or outcomes. They are intended to demonstrate potential Social Security claiming considerations and do not guarantee results. Certain statements contained herein may be forward-looking and based on assumptions and current expectations. Actual outcomes may differ materially due to legislative changes or individual financial circumstances. Investment advisory services are offered through Howe & Rusling, Inc., a registered investment adviser with the SEC. Registration does not imply
