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5 Things To Know About Social Security Before You Retire

5 Things To Know About Social Security Before You Retire

March 21, 2024

As retirement approaches, financial security often inspires a blend of anticipation and apprehension. It's a chapter of life that many of us look forward to, yet the myriad of decisions surrounding it can feel daunting. One of the pillars of retirement planning is Social Security, a benefit that, while universal, is often shrouded in complexities. At Price Financial Management, we work with clients every day to demystify Social Security. 

Here are a few things to know as you consider its role in your retirement: 

1. What is your FRA?

Your Full Retirement Age (FRA) is the age at which you are entitled to receive your full Social Security retirement benefits. It varies depending on your birth year, ranging from 65 to 67. Claiming benefits before reaching your FRA results in a reduced monthly benefit, whereas delaying benefits beyond your FRA can increase your monthly benefits. Understanding your FRA is crucial in strategizing when to start receiving Social Security benefits to maximize your retirement income.

2. The Impact of Working on Social Security Benefits

Many individuals choose to work while receiving Social Security benefits before reaching their FRA. It's important to know that if you do this, your benefits may be temporarily reduced based on your earnings. The Social Security Administration (SSA) applies an earnings test and deducts a portion of your benefits if your earnings exceed a certain threshold. However, once you reach your FRA, these deductions cease, and your benefit may be recalculated to account for months in which benefits were withheld.

3. Taxation of Social Security Benefits

Yes, your Social Security benefits may be subject to federal income taxes, depending on your combined income. Combined income is defined as your adjusted gross income, nontaxable interest, and half of your Social Security benefits. If your combined income exceeds certain limits, up to 85% of your Social Security benefits may be taxable. Planning for this can help manage your tax liability in retirement.

4. Spousal and Survivor Benefits

Social Security also provides for spouses and survivors. Spousal benefits allow a lower-earning spouse to receive up to 50% of the higher-earning spouse's benefit at FRA. Survivor benefits, on the other hand, are paid to widows and widowers, and under certain conditions, can be a significant aspect of your retirement planning. Understanding these benefits can help couples maximize their total Social Security income.

5. The Importance of Personalized Advice

While these guidelines offer a foundation, the reality is that Social Security planning is not one-size-fits-all. Your financial situation, marital status, health, and retirement goals all play a role in determining the best strategy for you. This is where personalized financial advice comes into play. At Price Financial Management, we help clients navigate these waters, tailoring our advice to their unique circumstances to ensure that they are positioned to make the most of their retirement years.

It's never too early or too late to start planning

Social Security may seem complex, but in the end, you contributed to the system and deserve to maximize your benefits. We can help you gain a thorough understanding of the nuances of Social Security that can significantly impact your retirement readiness. 

If you have questions, please reach out, and we’d be happy to discuss your unique situation. Together, we can chart a course that ensures your retirement is not just comfortable but enriching and fulfilling.