October 12, 2024
Allworth financial advisor Jeremy Murray, CFP®, AIF®, CRPS®, reveals three ways to get the most out of your Social Security benefits.
Recently, I came across a video of a young woman joyfully opening her first paycheck, only to be met with disappointment as she noticed the deductions for taxes. I remember my own reaction when I received my first paycheck; the realization of how much was taken out felt discouraging.
However, some of those payroll taxes, particularly for Social Security, will come back to benefit us later in life. While the strategies I’m sharing may not apply to everyone, they can be valuable tools for enhancing your future Social Security payments—helping to ease the surprise of those initial paycheck deductions.
To qualify for Social Security benefits, you need at least ten years of work experience (40 quarters), and you can begin claiming benefits as early as age 62. However, the amount you receive is based on your highest 35 years of earnings.
Here’s the catch: if you work fewer than 35 years, your benefit calculation will include zeros for those missing years. For example, if you worked for only 15 years, you’d have 20 years of zero income factored in, which could significantly lower your benefits.
Moreover, delaying your application for benefits can also boost your payout. For each year you wait after turning 62—up to age 70—you increase your benefit amount by 8%. In 2024, the maximum benefits at key ages are as follows1:
Quick Tip: Everyone’s situation is unique, so consult with your fiduciary advisor. Filling in those zero-income years, even with part-time work, can enhance your benefits.
If you are married or were previously married, you may be eligible to claim a higher benefit amount based on your spouse’s or ex-spouse’s earnings rather than your own. This could potentially increase your Social Security payout by as much as 50% of their total benefit2.
Quick Tip: Using your spouse’s work record does not affect their benefits. So, when determining which option yields a higher income, you’re effectively collaborating to maximize your combined benefits. And if you’re considering using your ex-spouse’s work record, rest assured that they won’t be notified—this process remains private.
Just keep in mind that if you have remarried, you cannot claim benefits based on your ex-spouse's earnings.
Navigating the tax landscape related to Social Security can be complex. As of 2023, about 40% of Social Security recipients may have to pay taxes on up to 85% of their benefits if their combined income exceeds certain thresholds3:
If your income exceeds these limits, the amount of Social Security benefits subject to tax can increase, impacting your overall financial picture.
Even if you have substantial non-Social Security income, it's essential to strategize around how your retirement account distributions and investments will be taxed to minimize your overall burden. Notably, while some states follow the federal guidelines for tax calculations, there are a few states that impose their own taxes on Social Security benefits.
Lastly, don’t take your Social Security statement at face value. While the Social Security Administration (SSA) claims that only a small percentage of statements contain errors4, the real number could be much higher. A seasoned advisor I know estimates that 25% of the statements he reviews have significant inaccuracies.
Managing your Social Security in conjunction with other income is crucial for effective tax planning, estate considerations, and ensuring a comfortable retirement. With over 80 distinct Social Security filing strategies for couples, applying at the right time for your specific financial situation can translate into thousands of dollars more throughout your retirement.
Conclusion: Ongoing, holistic guidance is essential to navigate the complexities of Social Security. By working together, we can create a plan that ensures your financial peace of mind for years to come.
As a self-proclaimed “numbers guy”, I truly enjoy helping people make sense of something that can feel complicated and overwhelming. Most people don’t grow up learning financial literacy and wealth management. Yet, getting your finances in order is critical as you prepare to transition to retirement—a phase in life where you’ll be entirely financially independent.
I believe money is a tool that can be leveraged to provide the freedom you what. And I always strive to meet clients where they are in life, focus on educating them about their choices, and work to build a plan that’s achievable, comforting, and aligned with their goals.
1: https://www.ssa.gov/benefits/retirement/planner/delayret.html
2: https://www.ssa.gov/oact/quickcalc/spouse.html
3: https://www-origin.ssa.gov/benefits/retirement/planner/taxes.html
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2 Retention Rate Source: Allworth Internal Data, FY 2022
3 The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey.
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5 InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience.
6 2021 Value of an Advisor Study / Russel Investments
7 Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.
8 USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.
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✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.
✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.
†Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company.
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The information presented is for educational purposes only and is not intended to be a comprehensive analysis of the topics discussed. It should not be interpreted as personalized investment advice or relied upon as such.
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