Financial Literacy

Social Security is often the cornerstone of retirement planning. For most Americans, it provides a significant portion of their income in retirement, acting as a safety net they've been paying into throughout their working lives. But while many people know they're entitled to benefits, the details of how Social Security works can be surprisingly complex.

This week, we'll explore strategies for maximizing your benefits and ensuring your family receives everything it's entitled to.

A Brief History of Social Security

Social Security was signed into law in 1935 by President Franklin D. Roosevelt. Its original purpose was to provide financial support to retired workers, a direct response to the economic hardships of the Great Depression. Over the decades, it has evolved to cover not just retirees but also disabled workers, spouses, and survivors.

Today, more than 65 million Americans receive Social Security benefits, and the program remains a lifeline for millions of retirees. Despite its importance, Social Security faces financial challenges.

How's that? The program is funded through payroll taxes, but fewer workers are paying into the system as the population ages and more people retire. While Social Security is projected to pay full benefits until the early 2030s, beyond that, it may only be able to cover about 75% of promised benefits unless changes are made.

How Social Security Fits Into Your Retirement Plan

Social Security was never designed to be your sole source of income in retirement. Instead, it's a supplement - providing a steady income stream to help cover your basic living expenses. But how big a role Social Security plays depends on several factors, including how much you've earned during your working years and when you decide to claim benefits.

The key is to consider Social Security as part of your broader retirement strategy. If you have savings in an IRA, 401(k), or pension, Social Security can work alongside those resources to create a reliable income stream. But to maximize your benefits, you need to understand a few key concepts.

Eligibility: How Do You Qualify?

To qualify for Social Security benefits, you need to have worked and paid into the system for at least ten years (or earned 40 "credits"). Each year, you can earn up to four credits based on your income, and for 2025, you'll need to make $1,810 to earn one credit.

The amount of your benefit is based on your highest 35 years of earnings, and if you have fewer than 35 years of work history, the remaining years are counted as zeros, lowering your average. This is why it's essential to keep working - if possible - until you've built up enough years of earnings to maximize your benefit.

When to Claim: The Timing Dilemma

One of your most critical decisions is when to claim your Social Security benefits. You can start as early as age 62, but your benefits will be reduced if you claim before reaching your Full Retirement Age (FRA), which is 67 for most people retiring today. On the flip side, if you delay claiming until age 70, your benefits will increase by about 8% for each year you wait beyond FRA.

It's a tricky balance: claiming early gives you more years of income but at a lower monthly amount. Waiting increases your check but shortens the number of years you'll collect. We'll cover this in detail, so you can make an informed decision about what timing works best for you.

Spousal and Survivor Benefits

If you're married or widowed, spousal and survivor benefits can significantly boost your household income. These benefits allow you to collect up to 50% of your spouse's benefit, even if you never worked or earned substantially less. If your spouse passes away, survivor benefits may offer additional financial support.

This area of Social Security is often overlooked, but it can make a substantial difference in your financial security.

Working While Claiming

Many retirees continue working even after they begin receiving Social Security benefits. But working while claiming benefits comes with its own set of rules. For example, your benefits could be temporarily reduced if you claim before your Full Retirement Age and earn more than a set amount. Once you reach FRA, however, you can earn as much as you want without affecting your Social Security checks.

This can be a complex area, so we'll explain what you need to know if you plan to keep working in retirement.

Taxes on Social Security and How to Minimize Them

Did you know your Social Security benefits could be taxed? Depending on your total income in retirement, up to 85% of your benefits may be subject to federal taxes. State taxes can also come into play, depending on where you live. Managing your retirement income streams carefully can help you minimize the tax burden on your Social Security benefits.

So we'll discuss strategies to reduce your tax liability, helping you keep more of your hard-earned benefits.

Avoiding Common Mistakes

Finally, we'll wrap up this series by exploring the most common mistakes people make when it comes to Social Security. From claiming too early to misunderstanding how spousal benefits work, these errors can cost retirees thousands of dollars over their lifetimes.

The Takeaway

Social Security is a vital part of retirement planning, but it's also filled with complexities. The decisions you make - when to claim, how to coordinate benefits with your spouse, and how to manage taxes - can have a lasting impact on your financial security.

Let's get started!

One of the most important things to understand about Social Security is how your benefits are calculated. Social Security isn't a one-size-fits-all program. The amount you'll receive each month depends on factors like how long you've worked, how much you've earned, and when you decide to claim your benefits. Understanding how your benefits are determined and when you're eligible to collect can make a big difference in your financial future.

Let's take a look at how Social Security benefits are calculated, who qualifies for them, and how to maximize what you receive.

How Are Social Security Benefits Calculated?

Your Social Security benefit is based on your highest 35 years of earnings. If you worked for fewer than 35 years, the Social Security Administration (SSA) will count some years as zero, which can lower your overall benefit. On the other hand, if you've worked for more than 35 years, only your highest-earning years will be counted.

The SSA adjusts your earnings for inflation and averages your top 35 years of income to calculate your Average Indexed Monthly Earnings. Once that's determined, they use a formula to calculate your Primary Insurance Amount - the base benefit you're entitled to at your Full Retirement Age.

The formula is progressive, meaning lower earners receive a higher percentage of their income as benefits than higher earners. But don't worry about the math - the SSA handles that for you. The key takeaway is that working longer and earning more over your career can increase your benefits.

The Full Retirement Age

The age at which you can receive your full Social Security benefit is known as your Full Retirement Age (FRA). For most people retiring today, FRA is between 66 and 67, depending on your birth year. If you were born in 1960 or later, your FRA is 67.

But here's the catch: you don't have to wait until your FRA to start receiving benefits. You can claim as early as 62, but your monthly payments will be reduced. For every month you claim before FRA, your benefit is reduced by a fraction of a percent—about 6.67% per year. If you claim at 62, you could see your benefits reduced by up to 30%.

On the flip side, if you delay claiming beyond your FRA, your benefits increase by about 8% for each year you wait, up until age 70. So, while claiming early means you'll get more checks over your lifetime, delaying can significantly boost the size of those checks.

Early Retirement vs. Delayed Benefits

The decision of when to claim Social Security is personal and depends on your health, financial needs, and whether or not you're still working. For some, claiming early makes sense—especially if they need the income or have health concerns. For others, waiting can provide a much larger monthly benefit that will continue to grow the longer they delay.

Here's how it breaks down:

• Claiming early - You can start receiving benefits as early as 62, but the trade-off is a smaller monthly check.

• Waiting until Full Retirement Age - You'll receive your full benefit with no reductions.

• Delaying until 70 - Each year you wait beyond your Full Retirement Age, your benefit increases, maxing out at 70. This is the best way to maximize your monthly Social Security check.

Who Qualifies for Social Security Benefits?

To qualify for Social Security benefits, you must earn enough credits over your working years. In 2025, you'll earn one credit for every $1,810 in wages or self-employment income, and you can earn up to four credits per year. You need 40 credits (or ten years of work) to qualify for retirement benefits.

If you haven't worked enough to earn 40 credits, you won't be eligible for retirement benefits on your own, but you may still qualify for spousal or survivor benefits based on your spouse's work record. This can be particularly important for people who spent much of their lives out of the workforce, whether raising a family or for other reasons.

Estimating Your Benefit Amount

Wondering how much you'll get? The SSA makes it easy to estimate your benefits with its online Social Security Statement tool. By creating a mySocialSecurity account, you can see a detailed record of your earnings, how much you've paid into the system, and an estimate of your monthly benefit at different ages.

The estimate is based on your current earnings and gives you a snapshot of your benefits at age 62, your Full Retirement Age, and age 70. It's a valuable tool to help you plan for retirement and make informed decisions about when to claim.

Impact of Earnings on Your Benefit

Your benefits aren't just based on how much you earned - they're also impacted by how long you earned that income. Since the SSA uses your top 35 earning years to calculate your benefit, continuing to work longer, especially if you earn more in your later years, can significantly increase your final benefit amount.

If you didn't work for 35 years, each year without income counts as zero, which lowers your average earnings. On the other hand, if you continue working beyond your Full Retirement Age and replace lower-earning years with higher-earning ones, your benefit will increase. This is especially relevant for people who experienced lower earnings early in their careers but are now earning more.

In addition, working longer can help offset the impact of reduced benefits if you claim Social Security before your Full Retirement Age. In some cases, continuing to earn income can reduce the amount of reduction in your benefits.

Spousal and Survivor Benefits

For married couples, there's another way to maximize Social Security benefits: spousal and survivor benefits. If your spouse earned more than you or you never worked enough to qualify on your own, you may be eligible for spousal benefits. These benefits can provide up to 50% of your spouse's benefit amount if claimed at your Full Retirement Age.

If your spouse passes away, you may also be eligible for survivor benefits, which can allow you to receive the higher of your benefit or your spouse's benefit.

Key Points

• Social Security benefits are based on your highest 35 years of earnings, with adjustments for inflation.

• Your Full Retirement Age is when you're eligible to receive your full benefit, but claiming early or delaying can impact your monthly payments.

• You need 40 credits (about ten years of work) to qualify for benefits. If you don't meet this requirement, spousal or survivor benefits may still be available.

• Estimating your benefits using the SSA's online tools can help you plan for retirement.

• Working longer or earning more in later years can increase your final benefit.

The Takeaway

Understanding how your Social Security benefits are calculated and when you're eligible to collect them is critical to maximizing your retirement income. By timing your claim strategically, you can maximize your lifetime benefits and ensure financial stability in retirement.

One of the most important things to understand about Social Security is how your benefits are calculated. Social Security isn't a one-size-fits-all program. The amount you'll receive each month depends on factors like how long you've worked, how much you've earned, and when you decide to claim your benefits. Understanding how your benefits are determined and when you're eligible to collect can make a big difference in your financial future.

Let's take a look at how Social Security benefits are calculated, who qualifies for them, and how to maximize what you receive.

How Are Social Security Benefits Calculated?

Your Social Security benefit is based on your highest 35 years of earnings. If you worked for fewer than 35 years, the Social Security Administration (SSA) will count some years as zero, which can lower your overall benefit. On the other hand, if you've worked for more than 35 years, only your highest-earning years will be counted.

The SSA adjusts your earnings for inflation and averages your top 35 years of income to calculate your Average Indexed Monthly Earnings (AIME). Once that's determined, they use a formula to calculate your Primary Insurance Amount (PIA) - the base benefit you're entitled to at your Full Retirement Age (FRA).

The formula is progressive, meaning lower earners receive a higher percentage of their income as benefits than higher earners. But don't worry about the math - the SSA handles that for you. The key takeaway is that working longer and earning more over your career can increase your benefits.

The Full Retirement Age (FRA)

The age at which you can receive your full Social Security benefit is known as your Full Retirement Age. For most people retiring today, FRA is between 66 and 67, depending on your birth year. If you were born in 1960 or later, your FRA is 67.

But here's the catch: you don't have to wait until your FRA to start receiving benefits. You can claim as early as 62, but your monthly payments will be reduced. For every month you claim before FRA, your benefit is reduced by a fraction of a percent—about 6.67% per year. If you claim at 62, you could see your benefits reduced by up to 30%.

On the flip side, if you delay claiming beyond your FRA, your benefits increase by about 8% for each year you wait, up until age 70. So, while claiming early means you'll get more checks over your lifetime, delaying can significantly boost the size of those checks.

Early Retirement vs. Delayed Benefits

The decision of when to claim Social Security is personal and depends on your health, financial needs, and whether or not you're still working. For some, claiming early makes sense—especially if they need the income or have health concerns. For others, waiting can provide a much larger monthly benefit that will continue to grow the longer they delay.

Here's how it breaks down:

• Claiming early - You can start receiving benefits as early as 62, but the trade-off is a smaller monthly check.
• Waiting until Full Retirement Age (FRA) - You'll receive your full benefit with no reductions.
• Delaying until 70 - Each year you wait beyond your FRA, your benefit increases, maxing out at 70. This is the best way to maximize your monthly Social Security check.

Who Qualifies for Social Security Benefits?

To qualify for Social Security benefits, you must earn enough credits over your working years. In 2025, you'll earn one credit for every $1,810 in wages or self-employment income, and you can earn up to four credits per year. You need 40 credits (or ten years of work) to qualify for retirement benefits.

If you haven't worked enough to earn 40 credits, you won't be eligible for retirement benefits on your own, but you may still qualify for spousal or survivor benefits based on your spouse's work record. This can be particularly important for people who spent much of their lives out of the workforce, whether raising a family or for other reasons.

Estimating Your Benefit Amount

Wondering how much you'll get? The SSA makes it easy to estimate your benefits with its online Social Security Statement tool. By creating a mySocialSecurity account, you can see a detailed record of your earnings, how much you've paid into the system, and an estimate of your monthly benefit at different ages.

The estimate is based on your current earnings and gives you a snapshot of your benefits at age 62, your FRA, and age 70. It's a valuable tool to help you plan for retirement and make informed decisions about when to claim.

Impact of Earnings on Your Benefit

Your benefits aren't just based on how much you earned—they're also impacted by how long you earned that income. Since the SSA uses your top 35 earning years to calculate your benefit, continuing to work longer, especially if you earn more in your later years, can significantly increase your final benefit amount.

If you didn't work for 35 years, each year without income counts as zero, which lowers your average earnings. On the other hand, if you continue working beyond your Full Retirement Age and replace lower-earning years with higher-earning ones, your benefit will increase. This is especially relevant for people who experienced lower earnings early in their careers but are now earning more.

In addition, working longer can help offset the impact of reduced benefits if you claim Social Security before your FRA. In some cases, continuing to earn income can reduce the amount of reduction in your benefits.

Spousal and Survivor Benefits: Eligibility Beyond Your Own Work Record

For married couples, there's another way to maximize Social Security benefits: spousal and survivor benefits. If your spouse earned more than you or you never worked enough to qualify on your own, you may be eligible for spousal benefits. These benefits can provide up to 50% of your spouse's benefit amount if claimed at your Full Retirement Age.

If your spouse passes away, you may also be eligible for survivor benefits, which can allow you to receive the higher of your benefit or your spouse's benefit.

We'll cover this topic in greater detail in "Spousal and Survivor Benefits: Maximizing Your Family's Social Security Income" so you can make sure your household is maximizing every benefit available.

Key Points

• Social Security benefits are based on your highest 35 years of earnings, with adjustments for inflation.

• Your Full Retirement Age (FRA) is when you're eligible to receive your full benefit, but claiming early or delaying can impact your monthly payments.

• You need 40 credits (about ten years of work) to qualify for benefits. If you don't meet this requirement, spousal or survivor benefits may still be available.

• Estimating your benefits using the SSA's online tools can help you plan for retirement.

• Working longer or earning more in later years can increase your final benefit.

The Takeaway

Understanding how your Social Security benefits are calculated and when you're eligible to collect them is critical to maximizing your retirement income. By timing your claim strategically, you can maximize your lifetime benefits and ensure financial stability in retirement.

Many retirees don’t fully retire. Whether for financial reasons, to stay active, or to pursue a passion, continuing to work after claiming Social Security benefits is a common choice. But how does working affect your Social Security benefits? The answer depends on your age, income, and when you claim.

Let's break down how working while receiving Social Security impacts your benefits, what you need to be aware of if you claim before Full Retirement Age (FRA), and how working after FRA can still be a beneficial financial move.

How Social Security Works If You’re Still Earning

You can claim Social Security benefits as early as age 62. Still, suppose you start collecting before your FRA and continue working. In that case, your benefits may be temporarily reduced depending on how much you earn. The Social Security earnings test comes into play here, and the rules are essential to understand.

If you’re under your Full Retirement Age and your earnings exceed a specific limit, Social Security may withhold a portion of your benefits. However, once you reach FRA, the earnings limit disappears, and you can work without affecting your Social Security payments.

The Earnings Limit: How It Affects Your Benefits

In 2025, if you are under FRA and receiving Social Security, you can earn up to $23,400 per year without any reduction in your benefits. If you earn more than that, Social Security will withhold $1 in benefits for every $2 you earn over the limit.

For example, if you’re 64 and earn $25,000 in a year while receiving Social Security, you’re $3,760 over the limit. In this case, Social Security would withhold $1,880 from your benefits for that year. The withheld benefits aren’t lost, however - they’re recalculated once you reach Full Retirement Age and are added back into your benefit over time.

In the year you reach FRA, the rules are more lenient. You can earn up to $56,520 in the months leading up to your birthday without any reduction in benefits. If you earn more than this, Social Security will withhold $1 for every $3 you earn over the limit.

Once you reach your Full Retirement Age, there’s no earnings limit, and you can work and earn as much as you like without affecting your Social Security payments.

What Happens to Withheld Benefits?

If your benefits are reduced because of the earnings test, the money isn’t gone forever. When you reach Full Retirement Age, Social Security recalculates your benefits to account for the months when benefits were withheld. In other words, you’ll receive a slightly higher monthly benefit going forward to make up for what was withheld earlier.

This recalculation doesn’t fully replace the withheld benefits, but it does ensure you receive some compensation for the reduction. The exact increase depends on how many months you lost benefits and how close you were to your FRA when the benefits were withheld.

Why Continue Working After Claiming Social Security?

Despite the earnings test and potential benefit reductions, many people choose to continue working after claiming Social Security. Here’s why:

• Increasing Your Monthly Benefit - Even if your benefits are reduced by the earnings test, continuing to work could increase your future Social Security payments. Since your Social Security benefit is based on your highest 35 years of earnings, earning more in your later years can replace lower-earning years earlier in your career. This could result in a higher overall benefit.

• Supplementing Retirement Income - Social Security alone isn’t enough for many retirees to cover all their living expenses. Working part-time or full-time can provide additional income to bridge that gap while also allowing you to delay tapping into other retirement accounts, such as IRAs or 401(k)s.

• Health and Longevity Considerations - Staying active and engaged through work can have physical and mental health benefits. For some, the structure and purpose provided by work contribute to a higher quality of life in retirement.

• Delayed Claiming Strategy for Spouses - If one spouse continues working while the other delays claiming their Social Security benefits, it can boost the household’s long-term income. Delaying benefits past Full Retirement Age increases payments by 8% per year until age 70. This strategy can be especially effective if the spouse delaying benefits is the higher earner.

The Impact of Taxes on Social Security Benefits

Working while receiving Social Security benefits can also impact your taxes. If you have additional income from wages or other sources, part of your Social Security benefits may become taxable. The IRS uses a formula called provisional income to determine how much of your benefits are subject to federal taxes.

Provisional income includes:

• Your adjusted gross income (AGI)
• Nontaxable interest (such as from municipal bonds)
• Half of your Social Security benefits

If your provisional income is above a certain threshold, up to 85% of your Social Security benefits could be taxed:

• If your provisional income is between $25,000 and $34,000 (for individuals) or $32,000 and $44,000 (for married couples), up to 50% of your benefits may be taxed.
• If your provisional income exceeds $34,000 (individuals) or $44,000 (married couples), up to 85% of your benefits may be taxed.

It’s important to factor in this potential tax burden when planning to work and collect Social Security simultaneously. A careful strategy for managing retirement income and withdrawals from tax-advantaged accounts can help you minimize taxes on your Social Security benefits.

The Earnings Test and Survivor Benefits

If you’re receiving survivor benefits, the earnings test also applies if you claim before Full Retirement Age. The same earnings limits apply, and your benefits could be reduced if you earn more than the limit. However, once you reach FRA, you can work without any reduction in your survivor benefits.

This is especially important to consider if you are a widow or widower planning to continue working after your spouse has passed away. Coordinating your survivor benefits and earnings can ensure you maximize your income.

Key Points

• If you claim Social Security before Full Retirement Age and continue working, the earnings test could reduce your benefits if you earn more than the annual limit ($23,400 in 2025).

• The reduction is temporary, and withheld benefits are recalculated once you reach Full Retirement Age.

• Once you reach Full Retirement Age, you can work and earn as much as you want without affecting your Social Security payments.

• Continuing to work after claiming Social Security can increase your overall benefit if your earnings replace lower-earning years in your work history.

• Be mindful of how additional earnings may impact the taxation of your Social Security benefits.

The Takeaway

Working while receiving Social Security can be a smart financial move, but it requires careful planning to avoid unintended reductions in benefits or tax consequences. Whether you plan to work full-time, part-time, or pursue new ventures in retirement, understanding how the earnings test and tax rules work can help you make the most of your Social Security income.

One of the less pleasant surprises in retirement is that Social Security benefits can be taxable. Depending on your total income, up to 85% of your Social Security benefits could be subject to federal taxes. For many retirees, this tax bite can be a shock, especially if they were expecting to live tax-free off their benefits. But the good news is, with some strategic planning, you can minimize the taxes you owe on your Social Security income.

In this article, we’ll break down how Social Security benefits are taxed, explain the income thresholds to watch out for, and offer strategies to reduce or eliminate taxes on your benefits.

How Social Security Benefits Are Taxed

Whether your Social Security benefits are taxed depends on your provisional income. Provisional income is a calculation the IRS uses to determine how much of your benefits are taxable. It includes the following:

• Your adjusted gross income (AGI), which is income from wages, interest, dividends, pensions, and other taxable income.
• Nontaxable interest, such as interest from municipal bonds.
• Half of your Social Security benefits.

Once you’ve added these up, your provisional income will determine how much of your Social Security benefits are taxable.

Here’s the breakdown:

• If your provisional income is less than $25,000 (for individuals) or less than $32,000 (for married couples filing jointly), your Social Security benefits aren’t taxed.
• If your provisional income is between $25,000 and $34,000 (for individuals) or $32,000 and $44,000 (for married couples), up to 50% of your benefits may be taxed.
• If your provisional income exceeds $34,000 (for individuals) or $44,000 (for married couples), up to 85% of your benefits may be taxed.

How to Minimize Taxes on Your Social Security Benefits

While you can’t always avoid taxes on your Social Security benefits, there are strategies you can use to minimize the tax burden. The key is to manage your income from other sources carefully so your provisional income stays below the taxable thresholds as much as possible. Here’s how you can do that:

Adjust Your Retirement Withdrawals

One of the most effective ways to minimize taxes on Social Security benefits is to control when and how you withdraw money from your retirement accounts. Here’s how this can work:

• Withdraw from Roth accounts - If you have a Roth IRA or Roth 401(k), withdrawals from these accounts don’t count toward your provisional income because they’re tax-free. By using funds from your Roth accounts instead of tax-deferred accounts like traditional IRAs or 401(k)s, you can keep your income lower and reduce the amount of your Social Security that’s taxable.

• Strategic withdrawals from tax-deferred accounts - Traditional IRA and 401(k) withdrawals count as taxable income and will raise your provisional income. However, if you can take smaller distributions over time, you might be able to spread out your taxable income and avoid triggering higher taxes on your Social Security benefits.

• Delay Required Minimum Distributions (RMDs) - Once you turn 73, you must start taking RMDs from your traditional IRA or 401(k). These withdrawals are counted as income, which could push you into a higher provisional income bracket. To avoid this, consider drawing down those accounts before you reach 73 to reduce the size of future RMDs.

Be Mindful of Investment Income

Income from interest, dividends, and capital gains can increase your provisional income and, in turn, the portion of your Social Security benefits that’s taxable. If you have significant investment income, consider these strategies:

• Tax-efficient investing - Shifting your investments into tax-efficient options, such as tax-free municipal bonds or tax-managed mutual funds, can help reduce your taxable income. This can keep your provisional income lower and reduce your Social Security tax liability.

• Harvest capital gains carefully - If you need to sell investments, be mindful of the capital gains tax hit. By spreading out the sales of appreciated investments over multiple years, you can avoid bumping up your income in any single year, which could trigger higher taxes on your Social Security benefits.

Consider Roth Conversions Early in Retirement

Another option is to convert funds from a traditional IRA or 401(k) into a Roth IRA in the early years of retirement - before you start claiming Social Security benefits or are subject to RMDs. Roth conversions are taxable, but once the money is in a Roth IRA, future withdrawals won’t count as taxable income.

This strategy allows you to pay lower taxes on your retirement savings before you start collecting Social Security and enjoy tax-free withdrawals from your Roth account later on. Reducing your taxable income in your later years can minimize taxes on your Social Security benefits.

Delay Social Security

If you don’t need your Social Security benefits right away, delaying your claim until age 70 can help in two ways. First, you’ll increase your monthly benefit by 8% for every year you delay past Full Retirement Age, giving you more income later. Second, delaying Social Security while drawing from other income sources (such as a traditional IRA or 401(k)) could allow you to reduce the size of future RMDs and manage your taxable income more efficiently.

This strategy works particularly well if you have other income to live on in the early years of retirement, such as savings or investments. By delaying Social Security, you might be able to keep your provisional income lower in the years when you finally start claiming benefits.

Understand State Taxes on Social Security

While we’ve focused on federal taxes, it’s important to note that some states also tax Social Security benefits. Currently, 12 states tax some portion of Social Security income. These states include Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

If you live in one of these states, it’s important to understand the specific tax rules that apply to Social Security benefits. Some states offer exemptions or income thresholds similar to the federal system. In contrast, others may tax some of your benefits regardless of income.

If you’re considering moving in retirement, the Social Security benefits tax treatment in your new state should be a consideration.

Key Points

• Social Security benefits may be taxable depending on your provisional income, which includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits.

• Up to 85% of your Social Security benefits could be taxed if your provisional income exceeds $34,000 for individuals or $44,000 for married couples.

• Strategies to reduce taxable income (such as Roth conversions, tax-efficient investing, and strategic withdrawals from retirement accounts) can help minimize the taxes you owe on your Social Security benefits.

• Be mindful of how Required Minimum Distributions (RMDs), investment income and charitable giving can impact your provisional income.

• Understanding both federal and state tax rules for Social Security can help you keep more of your benefits in retirement.

The Takeaway

Taxes on Social Security benefits can take a bite out of your retirement income. Still, with careful planning, you can minimize the impact. By managing your retirement income streams and using tax-efficient strategies, you can keep your provisional income low and reduce the taxes you owe on your benefits.

When planning for retirement, it’s easy to focus solely on your own Social Security benefits. However, if you’re married - or were married - there’s more to the picture. Spousal and survivor benefits are a critical piece of the Social Security system that can significantly increase the total income available to your household. These benefits are designed to support lower-earning spouses or surviving partners, helping ensure your family has financial stability throughout retirement.

Social Security spousal benefits are designed to provide income to individuals who may not have worked enough to qualify for their own benefits or earned significantly less than their spouse. The basic idea is that if one spouse was the primary earner, the other could still receive a portion of the higher earner’s benefit.

Here’s how it works: if you’re eligible for spousal benefits, you can receive up to 50% of your spouse’s benefit at Full Retirement Age. This applies even if you’ve never worked or didn’t earn enough credits to qualify for your own Social Security benefit. If you’re eligible for both your own benefit and spousal benefits, you’ll receive the higher amount - but not both.

When Can You Claim Spousal Benefits?

You can start claiming spousal benefits as early as age 62, but like regular Social Security benefits, claiming early reduces the amount you receive. If you claim spousal benefits before your Full Retirement Age (FRA), the benefit will be reduced by a fraction each month. For example, if your FRA is 67 and you claim at 62, your spousal benefit could be reduced by as much as 30%.

One important thing to remember is that your spouse must already be receiving their benefits inn order for you to claim spousal benefits. If your spouse has decided to delay claiming until after their FRA, you’ll need to wait until they start receiving their benefits before you can claim spousal benefits.

How Spousal Benefits Are Calculated

The spousal benefit you receive is based on your spouse’s Primary Insurance Amount (PIA)—the benefit they’re entitled to at their Full Retirement Age. If your spouse claims early, their benefit will be reduced, and your spousal benefit will be based on that lower amount.

Let’s say your spouse’s PIA is $2,000. If they claim at their FRA, you could be eligible for up to $1,000 in spousal benefits (50% of $2,000). However, if your spouse claims early and their benefit is reduced to $1,600, your spousal benefit would be based on the $1,600 figure, meaning you would receive $800 instead of $1,000.

Maximizing Spousal Benefits

If you’re married, coordinating your claiming strategies is one of the most effective ways to maximize your household’s Social Security income. Here are some key points to keep in mind:

• Delay Your Spouse’s Claiming - If the higher-earning spouse delays claiming their benefits until after Full Retirement Age, not only will their benefits increase by about 8% per year up to age 70, but the spousal benefit will also be based on a higher Primary Insurance Amount. This can provide a larger benefit for both spouses.

• Claim Your Benefit First - If you’re eligible for Social Security benefits based on your own work record, it may make sense to claim your benefit first while waiting to claim spousal benefits. If your own benefit is lower, you can switch to spousal benefits once your spouse begins receiving theirs, maximizing the overall income for your household.

• Avoid Claiming Spousal Benefits Early - Just as claiming your own benefits early reduces the monthly amount, claiming spousal benefits before Full Retirement Age can result in a permanent reduction. If possible, wait until FRA to claim spousal benefits to receive the maximum amount.

Survivor Benefits: Protecting Your Family

If your spouse passes away, you may be eligible for survivor benefits, which can help replace lost income. Survivor benefits are designed to provide financial support to the surviving spouse by allowing them to receive the higher of their own benefit or their deceased spouse’s benefit.

Survivor benefits are typically based on the deceased spouse’s Social Security benefit, and you can begin receiving these benefits as early as age 60 (or age 50 if you are disabled). However, like spousal benefits, claiming before your Full Retirement Age will result in a reduced benefit. If you wait until your FRA, you can receive 100% of your spouse’s benefit.

One key advantage of survivor benefits is that they aren’t limited to 50% of the deceased spouse’s benefit—surviving spouses can receive the full amount. This can be a crucial lifeline, especially if the deceased spouse was the primary earner.

Coordinating Survivor Benefits with Your Own

If you’re eligible for both your own Social Security benefit and survivor benefits, you can choose to claim one first and switch to the other later. For example, you could claim survivor benefits early and let your own benefit grow until age 70, when it reaches its maximum amount. Alternatively, you could claim your own benefit first and switch to survivor benefits later if they offer a higher payout.

This flexibility allows you to maximize your total Social Security income over your lifetime. However, it’s essential to carefully plan the timing of when you claim each benefit to make the most of the available options.

What Happens After a Divorce?

Spousal and survivor benefits aren’t just for currently married couples—if you’re divorced, you may still be eligible for benefits based on your ex-spouse’s work record. To qualify for divorced spousal benefits, you must meet the following conditions:

• You were married for at least ten years.
• You are currently unmarried.
• Your ex-spouse is eligible for Social Security benefits.
• You are age 62 or older.

If these conditions are met, you can claim divorced spousal benefits just as you would if you were still married. You can receive up to 50% of your ex-spouse’s benefit, and the good news is that this doesn’t reduce the benefit your ex-spouse or their new spouse receives.

Similarly, if your ex-spouse passes away, you may be eligible for survivor benefits based on their work record. These benefits can help provide financial stability even after a divorce, ensuring you have access to the income you need in retirement.

Key Points

• Spousal benefits provide up to 50% of your spouse’s benefit at Full Retirement Age, and claiming early results in reduced benefits.

• Survivor benefits allow you to receive up to 100% of your deceased spouse’s benefit, but claiming before FRA will result in a reduced amount.

• Delaying your spouse’s benefits can increase the amount you receive in both spousal and survivor benefits.

• Divorced individuals can still qualify for spousal and survivor benefits based on their ex-spouse’s work record as long as they meet specific criteria.

• Coordinating spousal and survivor benefits with your own can help maximize total Social Security income for your household.

The Takeaway

Spousal and survivor benefits are valuable for maximizing your family’s Social Security income. By understanding how these benefits work and timing your claims strategically, you can ensure that both you and your spouse receive the highest possible benefit throughout retirement.

Navigating Social Security can be tricky. While it’s a crucial part of retirement income for most Americans, it’s easy to make mistakes that can cost you thousands of dollars over the course of your retirement. Whether it’s claiming too early, misunderstanding spousal benefits, or failing to plan for taxes, even minor missteps can have lasting financial consequences.

In this article, we’ll walk through some of the most common Social Security mistakes and, more importantly, how you can avoid them.

Claiming Benefits Too Early

One of the biggest mistakes people make is claiming Social Security benefits as soon as they’re eligible, which is at age 62. While getting money sooner can be tempting, claiming early has a significant downside: your monthly benefit will be reduced. For every year you claim before your Full Retirement Age (FRA), your benefit is reduced by about 6.67% per year, or up to 30% if you claim at 62.

Claiming early can make sense if you have health concerns or financial needs. Still, it can leave you less income in the long run - especially if you live longer than expected. If you’re in good health and can afford to wait, delaying Social Security until your FRA or even up to age 70 can significantly increase your monthly benefits.

Overlooking the Benefits of Delaying

On the flip side of claiming too early, many retirees don’t realize how much they stand to gain by waiting. If you delay claiming beyond your FRA, your benefits increase by about 8% annually until age 70. That means by waiting until age 70, you could increase your monthly benefit by up to 24-32%, depending on your FRA.

Delaying benefits can be particularly advantageous if you expect to live into your 80s or beyond. It also provides more financial security in the later stages of retirement, when healthcare costs and other expenses may rise.

Misunderstanding Spousal and Survivor Benefits

Spousal and survivor benefits are often overlooked or misunderstood, yet they can significantly affect the total amount of Social Security income available to a household.

• Spousal Benefits - If you are married, you may be eligible to receive spousal benefits based on your spouse’s earnings record. This benefit can be up to 50% of your spouse’s benefit at their FRA. Many people don’t realize that they can receive spousal benefits even if they haven’t earned enough credits on their own.

• Survivor Benefits - If your spouse passes away, you may be eligible for survivor benefits, which can provide up to 100% of your spouse’s benefit. Timing is critical here - if you claim survivor benefits before your own Full Retirement Age, your benefit will be reduced. Survivor benefits are particularly important for households where one spouse was the higher earner.

Understanding how these benefits work (and when to claim them) can help maximize your total household Social Security income.

Working While Claiming Early Benefits

If you plan to continue working after claiming Social Security, be cautious about claiming before your Full Retirement Age. Social Security may reduce your benefits if you claim early and earn more than the annual earnings limit ($23,400 in 2025). For every $2 you earn over the limit, $1 is withheld from your benefits.

Once you reach your FRA, you can work without any reduction in benefits, but if you claim before that and plan to keep earning, it may be worth waiting to claim. Any benefits withheld due to earnings are eventually added back into your benefit calculation once you reach FRA, but it’s essential to know how working can affect your benefits in the meantime.

Not Factoring in Taxes on Benefits

Many retirees are surprised to learn that Social Security benefits can be taxed. Whether your benefits are taxable depends on your provisional income, which includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits.

If your provisional income exceeds certain thresholds, up to 85% of your benefits may be taxable. Retirees who don’t plan for this can pay more taxes than expected, reducing their overall retirement income.

One way to minimize taxes on Social Security benefits is to manage your other income streams carefully. For example, withdrawing from Roth IRAs (which don’t count as taxable income) or delaying Required Minimum Distributions (RMDs) from traditional retirement accounts can help keep your taxable income - and thus the taxes on your Social Security - lower.

Ignoring Life Expectancy in Your Strategy

When deciding when to claim Social Security, it’s important to consider your life expectancy. If you come from a family with a history of longevity or are in good health, delaying Social Security can provide higher benefits over a longer period. If you expect to live into your 80s or 90s, waiting until age 70 to claim could maximize your lifetime income.

However, claiming earlier may make sense if you have health concerns or a shorter life expectancy. In this case, it’s important to weigh the benefits of receiving income sooner against the reduction in monthly benefits.

Failing to Review Your Social Security Statement

It’s crucial to review your Social Security Statement periodically to ensure that your earnings history is accurate. Your benefits are calculated based on your top 35 earning years, so any errors in your earnings record could reduce your monthly benefit.

You can check your Social Security Statement online by creating a mySocialSecurity account. Reviewing your statement allows you to verify that your earnings have been correctly recorded so you don’t miss out on any benefits you’re entitled to.

Forgetting About Divorced Spousal Benefits

If you’re divorced, you may still be eligible for spousal benefits based on your ex-spouse’s earnings record. To qualify, you must have been married for at least ten years and be unmarried when you claim benefits. If your ex-spouse qualifies for Social Security benefits, you could be eligible for up to 50% of their benefit - without affecting their payments.

Divorced spousal benefits are often overlooked, but they can provide a valuable source of retirement income, especially if you were out of the workforce for a significant period during the marriage.

Key Points

• Claiming benefits too early can result in permanently reduced monthly payments, so consider waiting if you can afford to.

• Delaying benefits until age 70 can significantly increase your monthly income, especially if you expect to live longer.

• Spousal and survivor benefits can maximize your household’s total Social Security income, so it’s important to understand how these work.

• If you plan to work while receiving benefits, be aware of the earnings limit and how it could reduce your Social Security checks if you claim before Full Retirement Age.

• Managing your retirement income streams carefully can help minimize taxes on your Social Security benefits.

• Regularly reviewing your Social Security Statement can help catch any errors in your earnings history that could impact your future benefits.

The Takeaway

Avoiding these common Social Security mistakes can help you maximize your benefits and ensure financial stability throughout your retirement. The decisions you make - when to claim, how to coordinate benefits with your spouse, and how to manage taxes - can have a lasting impact on your income. Planning carefully and staying informed can avoid costly mistakes and maximize your Social Security benefits.