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How to Maximize Social Security: 3 Crucial Facts Pre-retirees Need to Know

How to Maximize Social Security: 3 Crucial Facts Pre-retirees Need to Know

August 26, 2021

More than 69 million Americans (21% of the U.S. population) receive some form of Social Security.1,2 Based on the size of those numbers, you’d think that Americans would have a pretty good idea of their future benefits. 

As it turns out, most Americans don't have a good understanding of Social Security. The average person overestimates their monthly Social Security check by more than $300.3 If you plan based on unassured future earnings or don’t factor in the decreased benefits you get when you claim early, you may be financially unprepared for retirement. We wrote a list of 3 crucial facts that pre-retirees should know for an accurate look into their SS benefits:

1. Your benefit amount depends on your retirement age

Your benefit amount varies depending on when you apply for benefits. The full retirement age (FRA) is when recipients will be able to receive their full benefits (or 100% of their calculated benefits). You may file to claim benefits before your full retirement age, but there are benefits to waiting until FRA or longer.

The earliest you can claim is at 62. If you claim prior to reaching your full retirement age, the SSA reduces your benefit amount by a percentage for each month prior to your full retirement age. For example, if you were born in 1960 and retire at 62 (2022), you’ll get 70% of your monthly benefits. If you retire at 65, you’ll get 86.7%.1

Claiming early can be costly. If you claim Social Security at age 62, rather than wait until your full retirement age (FRA), you can expect up to a 30% reduction in monthly benefits.The longer you wait, the higher your monthly benefit. Note that you will not receive any additional benefits delaying past the age of 70.1 

2. Your Social Security benefits are subject to income taxes

Many pre-retirees don't know that their Social Security benefits are taxed. Fortunately, taxes are capped at 85% of benefits.1

Here are the specifics:

For an individual, up to 85% of your benefits are taxable (if you file as an individual) and your combined income exceeds $34,000. If you file a return as an individual, and your combined income is $25,000-$34,000, you may have to pay income tax on up to 50% of your Social Security benefits. You calculate your combined income by adding together your adjusted gross income, nontaxable interest, and half of your Social Security benefits.1

Joint filers (who are married) are required to pay taxes if their combined income is more than $32,000. Married Social Security recipients who file separate returns may still have to pay taxes on their benefits. For joint filers who are married, up to 50% of their benefits are taxed if their combined income is $32,000-$44,000 or 85% of their benefits if their combined income is more than $44,000. 2

For more in-depth information, consider working with a financial professional that does tax planning (like us) or has partnered with a CPA. 

3. Social Security is a major source of retirement income for most retirees

It's no surprise that workers' expectations of retirement don't always match up with the reality of retirement. The 2021 Retirement Confidence survey revealed that, while few workers (33%) expect Social Security to be a significant source of retirement income, most retirees (62%) say that SS is a major source of their retirement income.5

The Facts:

The truth is that Social Security benefits represent on average a third of retiree's income. About half of married couples and 70% of unmarried people on Social Security rely on the benefits for at least 50% of their incomes. Twenty-one percent of married couples and about 45% of unmarried people rely on Social Security for at least 90% of their income.1

Given that your future SS benefits play a large role in your future financial security, it is more important than ever to understand Social Security benefits.  

We hope that some of the principles and statistics outlined in this blog post can help you make the most out of your SS benefits. Developing a strategy with an understanding of how to optimize your Social Security may put you in a better position when you start to draw your benefits.

We can help you analyze your financial situation and develop a strategy for pursuing your retirement vision. Click here to get started today! 


1. SSA.gov, 2021

2. Census.gov, 2021

3. Forbes,  July 2021

4. Fidelity, July 2021

5. Employee Benefit Research Institute, 2021 Retirement Confidence Survey