
The subject of Social Security monthly benefits is typically a contentious topic when discussing retirement planning. There is no universally applicable method for managing Social Security, and choices regarding these benefits must be considered in the broader view of an client's financial circumstances.
Quick Recap: monthly Social Security benefits are disbursed to qualified retirees, disabled individuals, and surviving spouses and children of deceased workers.
This article will primarily address the benefits for retirees.
What is the ideal age to begin receiving Social Security payments?
This is the main question asked as individuals reach the eligible age for Social Security. There is no one size fits all, however, here are some ages to keep in mind:
Payments can initiate as early as 62, be postponed until the age of 70, or initiated at any point in between. The amount received on a monthly basis varies according to the age at which benefits are claimed. For instance, beginning at the earliest age of 62 leads to a reduction of around 30% in monthly payments compared to starting at Full Retirement Age (approximately 67, based on birth year). Opting to delay benefits until age 70 results in a monthly benefit that is 24% higher than if begun at Full Retirement Age. Please note that beyond 70, postponement does not have any benefit; deferral can actually diminish overall lifetime benefits.
Other factors can also affect the decision to begin receiving benefits:
If there is a chance that early withdrawals from retirement assets may occur, it might be prudent to start receiving Social Security sooner, facilitating the growth of retirement assets in a tax-advantaged manner, thereby promoting sustained asset expansion.
Another facet of planning to keep in mind is expected retirement income and expenses. If Social Security is the basis for non-discretionary expenses, claiming benefits upon retirement might align with the cessation of other income sources. Conversely, if a pension or alternate income stream covers these fixed expenses, such sources could provide extra flexibility while determining Social Security timing.
How is Social Security subjected to taxation?
The intricacies of Social Security taxation are complex, for the sake of simplicity, the following guidelines for federal taxation, sourced from SSA.Gov, can be referenced:
Individuals filing federal tax returns as "individuals" with combined income* ranging from $25,000 to $34,000 might be liable to pay income tax on up to 50% of their benefits.
If combined income* exceeds $34,000, up to 85% of benefits could be subject to taxation.
For those filing joint returns, combined income* between $32,000 and $44,000 could lead to income tax on up to 50% of benefits.
In cases where combined income* surpasses $44,000, up to 85% of benefits might be subject to taxation.
Married individuals filing separate tax returns will likely face taxes on their benefits.

*Taxation of benefits are not uniform and will vary state-to-state.
How can we strategize income to optimize Social Security?
A common misconception is that any form of earnings—be it wages from employment or withdrawals from retirement accounts—will invariably reduce Social Security benefits. However, this isn't entirely accurate as receiving wages from a job are the only way to reduce benefits. Nevertheless, income from alternate sources can influence how benefits are taxed.
Let's first delve into how earned income impacts monthly benefits. If one is beneath Full Retirement Age (typically between 66 and 67, contingent on birth year), has initiated Social Security benefits, and continues working a job that yields wages, Social Security payments will be reduced by $1 for every $2 of earnings beyond $21,240 (in 2023).
After reaching Full Retirement Age, the reduction is less pronounced, with benefits curtailed by $1 for every $3 of earnings surpassing $56,520.
This constitutes a complete reduction in benefits, distinct from the earlier-discussed benefit taxation. It could make sense for someone intending to work and earn beyond the income threshold to postpone benefit initiation for two reasons:
1) the increased monthly benefit as a result of waiting to begin payments
2) not reducing benefits received due to earned income
It's important to note that any benefits reduced owing to wage-based employment prior to Full Retirement Age will yield a higher monthly payout upon attaining Full Retirement Age. This adjustment is aimed at compensating for the months during which benefits were diminished.
Supplementing Retirement Income
The Social Security system wasn't created to function as the sole source of income in retirement; rather, it serves as a safety net ensuring a degree of financial stability. Social Security stands as a valuable tool for financial adaptability, especially in conjunction with income derived from a diversified retirement portfolio.
The best decisions about Social Security payments are best made within the holistic framework of a financial plan. Please reach out to us and discuss whether a financial plan could offer clarity regarding your Social Security choices.
AARP.Org https://www.aarp.org/retirement/social-security/questions-answers/retirement-benefit-break-even