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3 Things That Can Reduce Your Clients' Social Security Benefits

June 8, 2021
By Mike Lynch

Only 7% of older adults know which factors determine their maximum Social Security 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: less than half of older Americans have a financial professional 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 74% say they would switch to a financial professional 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

    More than a third of American workers claim Social Security benefits at 62, which is the earliest most Americans are eligible.2 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

    Nearly 20% of those age 65 and older haven’t retired, and that number is expected to increase.4 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 $18,960 in earned income.5 (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.


  3. 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 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.6 (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%.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

Financial Professionals: This article is based on our popular Social Security: Unlock Its Potential module. Click here to access additional content to share.

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Mike Lynch
Mike is a managing director of the Hartford Funds Applied Insights Team. The team translates the expertise of the psychologists, physiologists, professors, and practice-management experts we partner with into practical, actionable ideas and tools to make sense of a rapidly evolving market and demographic landscape.


1 Boomers+ – age 56+, Nationwide’s 2020 Social Security Consumer Survey, nationwide.com

2 How to Help Americans Claim Social Security at the Right Age, Bipartisan Policy Center, 8/20

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

4 BLS Beta Labs, BLS Data Viewer, 5/21

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

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

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