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There’s a lot of noise surrounding Social Security these days. Given the uncertainty about the program’s future, the volume has been turned up even higher than before. But the conversations would be more productive if they were focused on a bigger issue at hand: Many pre-retirees will depend on a system they know very little about for their livelihood.


Why Are Clients in the Dark About Social Security?

One potential reason for this low level of understanding: just slightly more than a third of older Americans have a financial professional providing advice on Social Security.* Many are left to figure out the complexities of Social Security on their own, making them vulnerable to making mistakes. A whopping 75% say they would switch to a financial professional who knows how to help them maximize their benefits.* Are you educating your own clients? If so, great—but there could be an opportunity to help more.

Here are three key factors to discuss with your clients as they begin making decisions about their Social Security benefits: timing, work, and taxes.


  1. Timing: Age Isn't Just a Number

In 2021, more than half of retirees claimed Social Security benefits before reaching their full retirement age (FRA), and one-quarter claimed benefits at 62, which is the earliest most Americans are eligible.1 However, this is considered early filing. By doing so, they may lock in a lower-than-expected benefit for the remainder of their lives.

Suppose the Social Security benefit for an individual at their full retirement age of 67 is expected to be $2,291 per month. But instead of waiting, they file for Social Security early at age 62. This would reduce their monthly benefit to $1,487. That's a $804 per month difference, or $9,648 annually. Coupled with the fact that life expectancy has been steadily increasing, many retirees who file early find themselves having much less financial flexibility than they’d hoped for.


Filing at Age of Eligibility vs. Full Retirement Age Reduces Benefits


  1. Working in Retirement: Extra Income Can Come at a Cost

A survey found 42% of respondents not only plan on filing for Social Security early but continuing to work.3 But prior to full retirement age, their benefit may be reduced further depending on their income.

For clients who are thinking about a phased retirement or working part-time, it may make sense. For those who are remaining at the same compensation level, they need to consider that their benefit may be dramatically reduced—up to a dollar for every $2 in earned income over a certain limit. The limit today is $21,240 in earned income.4 (See "Receiving Benefits While Working" at ssa.gov for an explanation.)

If your clients wait until after their full retirement age to begin taking Social Security income, work won’t come into play at all—there would be no reduction in benefits.


  1. Taxes: Beware of the Bite

If income is received from sources other than Social Security, your clients may have to pay taxes on a portion of their benefits. Taxation really isn’t determined by a person’s age, but by their income level and tax bracket. For example, if a married couple file jointly, and their income is above $44,000, up to 85% of their Social Security benefits could be subject to taxation.5 (See "Income Taxes And Your Social Security Benefit" at ssa.gov for more information.) A qualified tax professional can provide additional guidance on tax-related issues.


Start Social Security Conversations Now

Social Security was never intended to be a retirement plan on its own. Relying on it without independent savings can be extremely risky. Generally, clients will need about 70% of their pre-retirement earnings to maintain their pre-retirement standard of living. With average earnings, Social Security retirement benefits will replace only about 40%.6

If your clients don’t understand the factors that can significantly detract from their Social Security income, they could be in for a rude awakening. There's no perfect time to begin taking Social Security benefits, but knowing the potential effects of timing, work, and taxes can help your clients make the most informed decisions. 


Author Headshot
Managing Director, Applied Insights

Mike educates financial professionals and their clients on a variety of financial topics. He translates the expertise of our various partnering experts—such as psychologists, physiologists, and practice-management specialists—into practical, actionable ideas and tools to make sense of a rapidly evolving financial and demographic landscape.


Encourage clients to visit ssa.gov and view their retirement benefit estimates.

* Nationwide’s 2022 Social Security Consumer Survey, nationwide.com. Generational groups surveyed were Millennials (26-41 years old), Gen X (42-57 years old), and Boomers+ (58+ years old).

1 1 Common Social Security Mistake Could Cost Retirees $182,000, msn.com, 5/23

2 Social Security Quick Calculator, ssa.gov, 6/21

3 More Americans plan to tap Social Security retirement benefits early and continue working amid economic uncertainty, survey finds, cnbc.com, 7/22

4 Retirement Benefits, Receiving Benefits While Working, ssa.gov, 6/21

5 Retirement Benefits, Income Taxes And Your Social Security Benefit, ssa.gov, 6/21

6 Retirement Benefits, Learn About Retirement Benefits, ssa.gov, 6/21


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