Claiming Social Security: Essential Tips Every Retiree Must Know

Claiming Social Security: Essential Tips Every Retiree Must Know

When it comes to retirement planning, few decisions carry as much weight as when and how to claim your Social Security benefits. This choice can mean the difference between thousands (or even hundreds of thousands) of dollars over your lifetime. Still, many Americans rush into this decision without understanding the long term implications.

Getting Social Security right isn’t just about maximizing monthly checks. It’s about creating a sustainable income strategy that supports your unique retirement vision. Whether you’re approaching retirement or already there, understanding the nuances of the Social Security system can help you avoid costly mistakes and maximize this crucial retirement income source. We’ll talk about what every retiree must know before making this life changing decision.

Key Takeaways:

• Understand how your claiming age dramatically impacts your lifetime benefits
• Learn strategies for married couples to maximize combined benefits
• Discover how working while collecting benefits affects your payments
• Explore tax implications that could reduce your Social Security income
• Find out how to coordinate Social Security with other retirement income sources
• Learn which life factors should influence your optimal claiming strategy

The Age Factor: When Should You Start Claiming?

The age at which you begin collecting Social Security benefits has an enormous impact on your monthly payment amount and lifetime benefits.

Full Retirement Age Explained

Your Full Retirement Age (FRA) is when you become eligible for 100% of your primary insurance amount. For those born between 1943 and 1954, FRA is 66. For those born between 1955 and 1959, it gradually increases, reaching 67 for anyone born in 1960 or later.

Many people misunderstand what “full retirement age” actually means. It’s not necessarily the optimal age to claim benefits, simply the benchmark the Social Security Administration uses to calculate your benefits. Claiming before or after this age directly affects your monthly benefit amount, potentially for the rest of your life.

Early Claiming: The Cost of Impatience

You can start receiving Social Security as early as 62, but this comes at a permanent cost. Your benefits will be reduced by about 6.67% per year for the first three years before your FRA and 5% per year for any years beyond that.

For example, if your FRA is 67 and you claim at 62, you’ll receive only 70% of your full benefit amount, permanently. This reduction might make sense if you have health concerns or immediate financial needs, but otherwise could significantly reduce your lifetime income.

Delayed Benefits: The Patience Premium

For each year you delay claiming beyond your FRA (up to age 70), your benefit increases by 8%. This means someone with an FRA of 67 who waits until 70 to claim would receive 124% of their full benefit amount for the rest of their life.

This guaranteed 8% annual increase often outperforms what many retirees could safely earn through investments, making delayed claiming an attractive option for those who can afford to wait and expect average or above average longevity.

Spousal Benefits: Strategies for Married Couples

Marriage adds another layer of complexity to Social Security claiming decisions, but also opens up additional strategies to maximize household benefits.

Understanding Spousal Benefits

A spouse can receive up to 50% of their partner’s full retirement benefit if that amount exceeds what they’d receive based on their own work record. This is particularly valuable for couples where one spouse had significantly higher earnings or where one spouse spent time out of the workforce.

To claim spousal benefits, you must be at least 62, and your spouse must have already filed for their own benefits. Claiming spousal benefits early (before your own FRA) results in a permanent reduction, just like with regular retirement benefits.

Maximizing Combined Benefits

For married couples, coordinating claiming strategies can substantially increase lifetime household benefits. Generally, the higher earning spouse should consider delaying benefits until 70, especially if they’re likely to live longer than average.

Meanwhile, the lower earning spouse might claim earlier, particularly if their own benefit is substantially lower than their spousal benefit would be. This approach provides some income while allowing the higher earner’s benefit to grow, which becomes especially important after the first spouse passes away.

Survivor Benefits Consideration

When one spouse passes away, the surviving spouse can switch to the deceased spouse’s benefit amount if it’s higher than their own. This makes it particularly important for the higher earning spouse to consider delaying benefits, as it essentially provides longevity insurance for the surviving spouse.

For example, if the higher earning spouse delays until 70, their increased benefit becomes the survivor benefit, potentially providing thousands of additional dollars to the surviving spouse over their remaining lifetime.

Working While Collecting: The Earnings Test

Many retirees plan to work part time while collecting Social Security, but this can affect your benefits depending on your age and income level.

Before Full Retirement Age

If you claim benefits before reaching your FRA and continue working, you’ll face an earnings test. In 2025, for every $2 you earn above $22,320 (this amount adjusts annually), $1 is withheld from your benefits.

In the year you reach FRA, the test becomes more lenient. Only earnings in the months before reaching FRA count, the threshold is higher, and only $1 is withheld for every $3 above the limit. Once you reach FRA, the earnings test disappears completely.

Benefit Recalculation Later

Many people don’t realize that benefits withheld due to the earnings test aren’t permanently lost. Once you reach FRA, the Social Security Administration recalculates your benefit to credit you for months when benefits were withheld.

This means your monthly benefit will increase after reaching FRA to account for the previously withheld amounts. However, it will take time to recover the total withheld amount, so the earnings test is still a significant consideration for early claimers.

Tax Implications of Working

Beyond the earnings test, working while collecting Social Security can increase the portion of your benefits subject to income tax. Up to 85% of your Social Security benefits may be taxable depending on your combined income.

This creates a potential “tax torpedo” where additional work income not only gets taxed itself but also causes more of your Social Security to become taxable, resulting in a surprisingly high marginal tax rate.

Tax Considerations for Social Security Benefits

Many retirees are surprised to learn that Social Security benefits can be subject to federal income tax, depending on your overall income level.

Combined Income Calculation

The IRS uses a specific formula to determine how much of your Social Security is taxable. They add your adjusted gross income, plus nontaxable interest, plus half of your Social Security benefits to calculate your “combined income.”

If your combined income exceeds certain thresholds ($25,000 for individuals or $32,000 for married couples filing jointly), up to 50% of your benefits may be taxable. Above higher thresholds ($34,000 for individuals or $44,000 for married couples), up to 85% of your benefits may be taxable.

State Taxation Varies

While the federal taxation rules apply nationwide, state taxation of Social Security varies widely. Currently, 12 states tax Social Security benefits to some extent, while 38 states plus the District of Columbia exempt these benefits from state income tax.

If you’re considering relocating in retirement, researching state taxation of Social Security could save you thousands of dollars annually, especially if you have substantial benefits.

Tax Planning Strategies

Several strategies can help reduce the taxation of your Social Security benefits:

• Manage withdrawals from retirement accounts to stay below tax thresholds when possible
• Consider Roth conversions in lower income years before claiming Social Security
• Coordinate Social Security with other income sources to minimize the combined income calculation
• Work with a tax professional to develop a multi year tax plan that accounts for Social Security taxation

Coordinating With Other Retirement Income Sources

Social Security typically provides only about 40% of pre retirement income for average earners, so coordinating it with other income sources is crucial for retirement success.

Creating a Withdrawal Strategy

Your Social Security claiming decision should be part of a comprehensive withdrawal strategy that considers all your retirement income sources. This includes pensions, retirement accounts, annuities, and other investments.

The timing of withdrawals from these various sources can significantly impact your tax situation and the longevity of your portfolio. Many financial experts recommend creating a detailed income plan that maps out which accounts to tap and when.

Social Security as Longevity Insurance

Because Social Security benefits are guaranteed for life and adjusted for inflation, they provide valuable protection against outliving your money. This makes delayed claiming particularly valuable for those concerned about longevity risk.

You might consider using other assets to bridge the gap between retirement and delayed Social Security claiming. This approach treats Social Security as a form of longevity insurance while potentially reducing the withdrawal pressure on your investment portfolio.

Required Minimum Distributions Consideration

For those with significant retirement account balances, Required Minimum Distributions (RMDs) beginning at age 73 can force withdrawals that impact Social Security taxation. Planning ahead for these mandatory withdrawals is essential for tax efficiency.

Some retirees benefit from starting withdrawals from tax deferred accounts before RMDs begin, potentially at lower tax rates, while delaying Social Security to maximize those benefits.

Special Claiming Situations

Certain life circumstances create unique claiming considerations that don’t apply to everyone.

Divorced Individuals

If you were married for at least 10 years and are currently unmarried, you may be eligible for benefits based on your ex spouse’s record. These divorced spouse benefits don’t affect what your ex receives and can be claimed even if they haven’t filed for their own benefits yet (as long as you’ve been divorced for at least two years).

This little known provision can provide significant additional income for divorced individuals who had lower earnings than their former spouse.

Widows and Widowers

Surviving spouses can claim survivor benefits as early as age 60 (or 50 if disabled). Unlike spousal benefits, survivor benefits can be taken independently of your own retirement benefit.

This creates a unique claiming strategy opportunity: you can take survivor benefits first and switch to your own retirement benefit later if it would be higher (or vice versa). This flexibility allows for optimization not available to other beneficiaries.

Government Pension Recipients

If you receive a pension from work where you didn’t pay Social Security taxes (typically certain government jobs), two provisions may reduce your Social Security benefits: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

These complex rules can significantly reduce expected benefits, making it essential for government pension recipients to get a personalized benefits estimate accounting for these provisions.

Work With Us

Navigating Social Security claiming decisions requires careful consideration of your unique circumstances, including your health, family longevity, financial needs, and other retirement income sources. The strategies we’ve discussed, from understanding the impact of claiming age to coordinating benefits for married couples, can potentially add thousands of dollars to your retirement income. Remember that what works for someone else may not be optimal for you, which is why personalized analysis is so valuable when making this crucial decision.At Avior, we specialize in helping retirees develop comprehensive Social Security claiming strategies that fit their overall retirement plan. Our advisors use sophisticated analysis tools to model different claiming scenarios and identify the approach most likely to maximize your lifetime benefits. We consider not just the Social Security rules but also how your benefits interact with other income sources, tax situations, and healthcare costs. Contact Avior today to schedule a conversation and take the first step toward optimizing this retirement resource. Your future self will thank you for taking the time to get this important decision right.