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3 Things Can Reduce Your Clients' Social Security Benefits

March 1,2020

In a recent survey, only 8% of older adults were able to identify the factors that determine a maximum benefit.1 Help your clients overcome social "insecurity" by explaining three key factors that can impact their Social Security income.

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 15% of older Americans have a financial advisor providing advice on Social Security.1 Many are left to figure out the complexities of Social Security on their own, making them vulnerable to making mistakes. A whopping 76% say they would switch to a financial advisor who knows how to help them maximize their benefits.1 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

    One-third of American workers claim Social Security benefits at 62. This isn’t full retirement age, but the earliest age at which they’re eligible. Nearly 60% of workers claim benefits before their full retirement age.2 By doing so, they lock in a lower-than-expected benefit for the remainder of their lives.

    In 2018, the maximum Social Security benefit for a worker retiring at full retirement age was $2,788 per month,3 but retirees reported an average monthly benefit of only $1,4614—a $1,327 difference. Coupled with the fact that the cost of living in retirement is often drastically underestimated, many retirees 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

    Twenty percent of those age 65 and older haven’t retired.5 But prior to full retirement age, their benefit may actually be reduced depending on their income.

    For clients who are thinking about winding down work 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 $18,240 in earned income.6 (See Getting Benefits While Working for an explanation.)

    If your clients wait until 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.


  3. Taxes: Beware Of The Bite

    If income is received from other 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 income level and tax bracket. For example, if a married couple file jointly, and their income is $44,000 or above, up to 85% of their Social Security benefits could be taxed.6 (See Income Taxes And Your Social Security Benefit for more information.) A client’s tax bracket cannot be changed of course, but there may be ways to possibly reduce tax percentages. If additional income is needed, he or she may be able to draw non-taxable income from other sources to close the gap. A tax professional can pinpoint potential opportunities for controlling some of these numbers.


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%.7

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. Our Social Security Client Worksheet, below, can help them prepare.

Next Steps

  1. Download or order the Social Security Client Worksheet below
  2. Encourage clients to download their Social Security statement at ssa.gov/myaccount
  3. Use the worksheet to help clients to estimate their monthly income needs in retirement

*More Than Half of Advisers Say Clients Ask Them About Social Security, planadviser.com, 6/14/18

1Refers to those 50+ who are retired or plan to retire in the next 10 years. Social Security 6th Annual Consumer Survey,

April 2019, nationwidefinancial.com

2What's the most popular age to take Social Security? A Foolish Take, usatoday.com, 6/18

3Fast Facts & Figures About Social Security, 2018

4Fast Facts & Figures About Social Security, 2019

5America’s Elderly Are Twice as Likely to Work Now Than in 1985, bloomberg.com, 4/19

6How Work Affects Your Benefits 2020, ssa.gov

7Benefits Planner: Retirement, ssa.gov