In the past, there was a general thought that when you turn 65, you retire and begin taking your Social Security benefits. This is because, for most of Social Security’s existence, the Full Retirement Age (FRA) was set at 65.  But, based on rising longevity, that changed in 1983 when the FRA moved to 67 if you were born in 1960 or later.   

You can begin taking your Social Security benefits as early as age 62. However, you only receive 70% of your Full Retirement Age benefit. If you wait until your FRA, you receive the full benefit, and if you delay benefits until you are 70, you receive your maximum benefit. Whatever age you select, there are incremental adjustments between these age ranges every month.  

So, when is the right time to begin receiving your Social Security benefits, and what is the financial impact when you start taking them? That’s what we’ll discuss in this blog.  As financial planners in St. Louis, MO, our team of CFP® professionals helps successful individuals like you sort through these retirement-related questions.  

Social Security Benefit Considerations

Deciding when you’ll begin taking Social Security benefits should be essential to your retirement planning process. Although many people underestimate the importance of this decision, the timing of your Social Security claims can have a significant impact on your financial well-being.

Following are four common factors, in addition to your age, that should be considered when making your decision:

1. Financial Need: If you have sufficient income or savings, you might delay receiving benefits until later, producing a more significant benefit for the rest of your life. If you need income sooner, you should start the benefits earlier.

2. Health and Life Expectancy: If you and your spouse are in good health and have longer life expectancies, delaying benefits could lead to a higher lifetime payout. Conversely, starting earlier might be more beneficial if you have health concerns.

3. Employment: If you’re working full or part-time and have yet to reach FRA, your benefits may be reduced based on your earnings. It’s important to consider the impact of continued employment on your Social Security benefits.

4. Spousal and Survivor Benefits: Your decision can affect the benefits your spouse or survivors may receive. Coordinating with your spouse on when to take benefits can optimize your combined benefits (more on this below).

Impact on Spousal Benefits

Your timing decision not only affects you but could also affect your spouse’s entitlement to benefits after you pass. Here are two examples:  

Example 1: Starting Benefits Early

Let’s say you begin taking your Social Security benefits at 62. Your spouse’s benefit, up to 50% of your total retirement amount at your full retirement age, would also be less if they claim it based on your earnings record.

Example 2: Delaying Benefits

If you delay your benefits until 70, your larger benefit can be an advantage to both you and your spouse at the time it starts and in particular for the longer living spouse.  Only the higher of your two benefits is kept for the surviving spouse. So, if that benefit is the maximum possible, it can be a great benefit to whichever of the spouses lives the longest.  This strategy could provide your spouse with greater financial security later in life.

Understanding Penalties for Earnings While Receiving Benefits

If you plan to work while receiving Social Security, be aware that your earnings may be subject to penalties, which vary based on your current age in relation to your full retirement age (FRA).

Your Social Security benefits may be reduced if you’re still working and have yet to reach your full retirement age. This reduction is based on the earnings test. In 2024, for every $2 earned over the annual limit of $22,320, $1 in benefits would be withheld from your benefits. 

For example, let’s say you are 65 and do some part-time consulting for your former employer. In 2024, you earn $32,000, which would be $9,680 over the annual earning limit. Consequently, your Social Security benefits would be reduced by $4,840 for that year. It’s important to note that these numbers can change annually based on adjustments in average wages.

The good news: Once you reach your full retirement age, the earnings limit no longer applies, and your benefits are recalculated to credit you for any part of your benefit that was withheld due to past earnings.

Tax Implications of Taking Social Security Benefits

Once you begin taking Social Security benefits, there are potential tax implications based on your total income and marital status. You should consider how this new income will interact with other retirement income you receive and the impact this may have on your tax bracket. 

While many people assume they will be in a lower tax bracket upon retirement, that often is not the case between Federal and State tax increases and also excellent savers with other retirement income sources such as:  

• Income that has Required Minimum Distributions (RMDs) from IRAs or 401(k) plans. 

• Passive income from investments including dividends, interest, and capital gains some of which are taxed at ordinary income rates.

• Pensions or similar retirement plans

• Income from other non-retirement investments

About Trinity Wealth Advisors

Our team of St. Louis CFP ® retirement planning professionals is committed to providing outstanding advice and service, and fostering close, personal relationships with our clients. 

We shape your finances through both values-driven life planning that honors Judeo-Christian business principles as well as sophisticated wealth management.

At the heart of your financial path is a crucial question: What does true wealth signify for you? For many, it’s about building a significant nest egg for retirement. Yet, it’s equally about cherishing life, family, faith, and community… and inspiring others to embrace the same values.

Our distinctive approach to wealth management is crafted to help you harmonize your financial objectives with your convictions, offering a seamless integration of ethical beliefs and financial strategy.
We invite you to connect with us to discover more about our retirement and Social Security planning services.