For many Americans, Social Security (SS) is an important piece of their retirement income plan. With many myths out there regarding Social Security and its solvency, it’s important to understand how Social Security benefits work, when to claim, and what factors to consider. That way, you can make more confident decisions.
What Is Social Security?
Here’s a fun fact: Social Security is more than just retirement. 1/5th of U.S. residents collect Social Security benefits. 84% of beneficiaries are retired workers, dependents, and aged widows, but 13% disabled workers and dependents, and 3% are young survivors.
Social Security replaces a percentage of your income based on your lifetime earnings. It’s important to note that SS benefits are progressive. Social Security benefits represent a higher percentage of pre-retirement income for lower wage earners compared to higher wage earners.
In 2025, you earn one SS and Medicare credit for every $1,810 in covered earnings each year. You must earn $7,240 to get the maximum four credits for the year. When you earn 40 credits (10 years of work), you qualify for a Social Security Retirement Benefit.
Social Security Puzzle Pieces
The variables you should consider when it comes to Social Security are your current age, life expectancy, claim age, primary insurance amount, and full retirement age. You can claim benefits at different ages, but the timing affects how much you receive:
- Age 62: The earliest you can claim benefits, but with a reduced monthly amount.
- Full Retirement Age: Age when you can receive 100% of your benefit (based on your birth year). There is a reduction if you take benefits prior to your full retirement age.
- Age 70: Benefits do not increase beyond age 70.
Why Timing Matters
- When you file for Social Security has a lasting impact on your retirement income.
- Claiming early can help if you need income to cover expenses or have health concerns.
- Delaying benefits can increase your monthly income for life.
- Timing your benefits strategically can also help maximize survivor benefits for your spouse.
- There is no single right answer. Your decision should reflect your health, financial needs, and goals.
Common Mistakes to Avoid
- Many retirees make costly errors when claiming Social Security. Common pitfalls include:
- Claiming too early without a clear plan.
- Not coordinating with a spouse, which can reduce total household income.
- Overlooking potential taxes, up to 85% of your benefit may be taxable. Thresholds do not adjust for inflation. Keep in mind that for tax years 2025-2028, there is a temporary increase in the standard deduction for taxpayers 65 or older.
- Beneficiaries who are also on Medicare will not receive their full benefit. Some Medicare expenses are directly deducted from the Social Security check.
Smart Strategies to Maximize Your Benefits
A thoughtful claiming strategy can help increase your total income over time. Consider:
- Delaying benefits beyond your Full Retirement Age to increase your monthly amount.
- Coordinating with your spouse to maximize household benefits.
- Even if they have never worked under Social Security, your spouse may be eligible for benefits if they are at least 62 and you are receiving retirement or disability benefits. Your spouse can also qualify for Medicare at age 65.
- If your spouse qualifies for benefits on their own record, that amount will be paid first.
- Spousal benefits do not include any delayed retirement credits.
- Between 62 and their full retirement age, benefits are reduced.
- Be aware of ex-spousal benefits. You may qualify if you are unmarried, age 62 or older, have been divorced for at least two years, and the marriage lasted ten years or longer.
- Understanding your breakeven point to weigh the pros and cons of claiming early vs. waiting.
- Integrating Social Security into your broader retirement income plan.
- Most importantly, know that when you should claim SS is different for everyone. Use the variables mentioned above to make your smartest decision.
Key Takeaways
- SS is funded from the taxes of the current workforce.
- Social Security plays a critical role in retirement income for many Americans.
- The amount you receive depends on your earnings history and when you file.
- Strategic timing, tax planning, and spousal coordination can make a big difference in lifetime benefits.
- A personalized claiming strategy can help align your benefits with your overall financial plan.
- It’s not meant to be your sole source of income during retirement!
Talk With a Professional
Social Security decisions can have a lasting impact on your financial future. Our team at Accel Wealth Management can help you build a claiming strategy that aligns with your retirement goals.
Schedule a conversation with us today.
Disclosures: Not associated with or endorsed by the Social Security Administration, Medicare, or any other government agency.
Maximizing your Social Security Benefits assumes foreknowledge of your date of death. If, as an example, you wait to claim and pass away early, you may receive fewer benefits over your lifetime than if you claimed earlier.
Accel Wealth Management does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.