Navigating Social Security Benefits: What You Need to Know

Retirement. It’s a word that carries a lot of weight, doesn’t it? For some, it’s a long-awaited dream of travel and relaxation. For others, it’s a chapter filled with a mix of excitement and uncertainty, especially when it comes to finances. At the heart of many retirement financial plans sits Social Security. It’s a cornerstone, a promise, and sometimes, a bit of a puzzle.

If you’re nearing or over 50, you’ve likely started thinking seriously about Social Security. You might be wondering, “How much will I get?” or “When should I claim?” or even, “Am I making the right decisions?” You’re not alone. These are common questions, and today, we will demystify the process together, as much as possible.

Video Summary

In this video, the host discusses the new rules regarding working while receiving Social Security benefits in 2025, particularly focusing on the earnings limit. Important topics include how the earnings limit applies before reaching full retirement age, the implications of exceeding this limit, and how withheld benefits are treated. The host also addresses frequently asked questions about income classification by the Social Security Administration, including the distinction between individual and joint income, and what constitutes countable earnings.

Video Credit to Devin Carroll, CFP® We highly recommend subscibing to Devins Youtube channel https://www.youtube.com/@DevinCarroll

Understanding the Basics: What is Social Security?

Let’s start with the fundamentals. Social Security is a federal program that provides benefits to retired workers, their families, and people with disabilities. It’s funded by payroll taxes, which you’ve likely been paying throughout your working life. Think of it as a form of insurance, a safety net designed to provide a steady income stream in your later years

Eligibility: Earning Those Credits

To qualify for Social Security retirement benefits, you need to earn “credits.” In 2023, you earn one credit for every $1,640 in earnings, up to a maximum of four credits per year. Most people need 40 credits ¹ (10 years of work) to qualify. 

• Key Takeaway: Even part-time work can help you accumulate credits. So, if you’re planning a second career or a side hustle, those earnings can contribute to your future benefits.

Calculating Your Benefits: It’s Not a Simple Formula

Now, the million-dollar question: How much will you get? Social Security benefits are based on your average indexed monthly earnings (AIME), which is calculated from your 35 highest-earning years.

• The AIME Calculation: They take your highest 35 years of earnings, adjust them for inflation, and then calculate the average monthly amount. This number is then used to determine your Primary Insurance Amount (PIA), which is the base amount you’ll receive at your full retirement age.
• The Importance of 35 Years: If you’ve worked fewer than 35 years, zeros are factored into the calculation, which can lower your benefit amount.

A service like StepWise can be a very useful tool during this process, most of us feel a bit overwhelmed ( or lets faced it underwhelmed) when we start down this path so using something like StepWise is a pretty good place to start

Claiming Strategies: When Should You Start?

This is where things get interesting. You can start receiving benefits as early as age 62, but your benefits will be reduced. You can also wait until your full retirement age (FRA), which varies depending on your birth year. If you were born between 1943 and 1954, your FRA is 66. For those born after 1960, it’s 67.

• Early Claiming (Age 62): Reduced benefits, but you receive payments for a longer period.
• Full Retirement Age (FRA): You receive 100% of your PIA.
• Delayed Claiming (Age 70): You receive delayed retirement credits, increasing your benefits by 8% each year you delay, up to age 70.

Personal Story: I remember my uncle, John, who decided to claim at 62. He wanted the extra income to enjoy his early retirement. While he enjoyed those extra years of income, he did comment that he wished he had waited a few more years to get a larger monthly payment.

Potential Pitfalls and Considerations

• Taxes: Social Security benefits may be taxable, depending on your other income. Up to 85% of your benefits could be subject to federal income tax, though given the current political landscape this may actually go away which would be a huge win for someone looking to retire or already retired and struggling a bit
• Spousal Benefits: If you’re married, your spouse may be eligible for benefits based on your earnings record.
• Divorce Benefits: If you were married for at least 10 years, you may be eligible for benefits based on your ex-spouse’s earnings, even if they’ve remarried.
• Government Pension Offset (GPO) and Windfall Elimination Provision (WEP): If you receive a pension from a government job where you didn’t pay Social Security taxes, the GPO and WEP could reduce your benefits.
• The Future of Social Security: There are concerns about the long-term solvency of Social Security. While it’s unlikely the program will disappear entirely, benefit adjustments or tax increases are possible.

Actionable Advice: Taking Control of Your Social Security Planning

1. Create a My Social Security Account: Visit the Social Security Administration’s website (ssa.gov) and create an account. You can view your earnings record, estimate your future benefits, and apply for benefits online.
2. Estimate Your Benefits: Use the Social Security Administration’s calculators to estimate your benefits at different claiming ages.
3. Consider Your Overall Financial Plan: Don’t make Social Security decisions in isolation. Consider your other retirement income sources, such as pensions, 401(k)s, and IRAs.
4. Consult a Financial Advisor: If you’re unsure about the best claiming strategy, seek advice from a qualified financial advisor.
5. Stay Informed: Social Security laws and regulations can change. Stay up-to-date by visiting the SSA’s website and subscribing to their newsletters.
6. Ask yourself: What does my retirement look like? Do I need the money now, or can I wait for larger payments later? What are my health concerns?

A Personal Reflection:

Navigating Social Security can feel like trying to solve a complex puzzle. But it’s a puzzle worth solving. It’s about securing your financial future and ensuring you can enjoy your retirement years with peace of mind.

Don’t let Social Security be a source of anxiety. Take control of your retirement planning today. Create your My Social Security account, estimate your benefits, and consult with a financial advisor if needed. Share your experiences and questions in the comments below. Let’s support each other on this journey.

Remember, you’ve worked hard for your retirement. Take the time to understand your Social Security benefits and make informed decisions that align with your goals. Your future self will thank you.