So, what’s Social Security really worth? Let’s break down the strategies, pitfalls, and key decisions that could dramatically change your retirement outcome.

The Critical Role of Social Security in Retirement Planning

Social Security was never designed to be your only source of income in retirement—it was meant as a supplement. Yet, for many, it’s the cornerstone of their retirement strategy. This makes understanding its benefits, claiming strategies, and tax implications absolutely critical.

With the right approach, you can significantly increase the value of your benefits over time. Get it wrong, and you could leave tens of thousands—or even hundreds of thousands—on the table.

Types of Social Security Benefits You Need to Know

Social Security is more than just a monthly check:

• Retirement Benefits – The standard benefit based on your 35 highest-earning years.
• Spousal Benefits – Allows you to claim up to 50% of your spouse’s benefit, even if divorced, as long as you were married for at least ten years.
• Survivor Benefits – Provides the higher of two benefits to a surviving spouse, ensuring income continuity.
• Disability Benefits – Available for those who are unable to work due to a disability.
• Supplemental Benefits – For individuals 65 and older with limited income and resources.

Understanding which benefits apply to you—and how to maximize them—can make a massive difference in your long-term income.

How Social Security Is Funded

Social Security is funded through payroll taxes:

• 6.2% for Social Security and 1.45% for Medicare, for a total of 7.5% from both employees and employers.
• Self-employed individuals pay the full 15%, covering both portions.
• Taxes are applied up to an income threshold of $168,600; after that, only Medicare taxes are withheld.

The system is designed to be self-sustaining, but it’s no secret that the long-term solvency of Social Security is often debated.

Understanding Full Retirement Age and Claiming Strategies

Your Full Retirement Age (FRA) depends on your birth year:

• If born before 1937, your FRA is 65.
• If born after 1960, your FRA is 67.

Here’s the catch: claiming benefits before your FRA reduces your monthly payments. Wait until age 70, and you get an 8% boost per year past your FRA. This means your monthly check could be 32% higher than if you claimed at age 67.

This makes the decision to wait—or claim early—one of the biggest financial choices you’ll make.

Taxation of Social Security Benefits

Social Security benefits can be taxed—up to 85% of the benefit—depending on your provisional income, which includes:

• Adjusted Gross Income (AGI)
• Half of your Social Security benefits
• Non-taxable interest

The thresholds are:

• $32,000 for married couples
• $25,000 for singles

One strategy to reduce taxation: Roth IRA distributions are not included in provisional income, making them a powerful tool to manage your tax burden.

Working While Claiming Social Security

You can work while claiming Social Security, but there are earnings limits:

• Before FRA: $1 is deducted for every $2 earned above $22,000.
• In the year you reach FRA: $1 is deducted for every $3 earned above $60,000.
• After FRA: There are no earnings limits.

The good news? Any money withheld gets recalculated and added back after you hit your FRA.

The Case for Suspending Your Benefits

If you reach your FRA and want to boost your benefits, you can suspend them. For every year you wait, your payment increases by 8%. This strategy:

• Boosts future income
• Increases survivor benefits for your spouse
• Potentially adds tens of thousands to your total lifetime payout

However, suspending benefits also suspends payments to anyone claiming on your record, including spousal benefits.

Break-Even Analysis: When Waiting Pays Off

The question many ask: When does it make sense to wait?
The break-even age typically falls between 78 and 82. If you live past this age, you come out ahead by delaying benefits. If you’re in good health and have a family history of longevity, waiting is often the smarter move.

Social Security and Pensions: What You Need to Know

Receiving a pension doesn’t automatically reduce your Social Security—unless you’re subject to the Windfall Elimination Provision (WEP) or the Government Pension Offset (GPO):

• WEP reduces benefits for those with non-Social Security-covered pensions.
• GPO reduces spousal and survivor benefits for those with government pensions.

Knowing how these rules apply can help you avoid surprise reductions.

Medicare Enrollment and Social Security

If you’re already collecting Social Security when you turn 65, you’re automatically enrolled in Medicare Part A and B. If not, you need to sign up manually. Miss the deadline? You’ll face permanent penalties.

The exception: if you have employer-sponsored insurance, you may be able to delay Medicare without penalty.

Maximizing Your Social Security Benefits

To get the most out of Social Security:

• Wait until age 70 if possible.
• Work at least 35 years—any year you don’t work counts as zero in your calculation.
• Use Roth IRA distributions to manage taxable income.
• Strategize around spousal and survivor benefits to maximize household income.

Final Thought: What’s Social Security Really Worth?

For many Americans, Social Security isn’t just part of the plan—it is the plan. Understanding how to maximize it can mean the difference between getting by and living comfortably in retirement. With smart planning, you can unlock the full value of your benefits and ensure you’re not leaving money on the table.

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.

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Social Security

Understanding the Impact of the Repeal

Prior to this legislation, the GPO reduced Social Security spousal or survivor benefits for individuals receiving pensions from non-Social Security-covered employment. Specifically, the GPO reduced these benefits by two-thirds of the amount of the non-covered pension, often resulting in a complete elimination of the Social Security benefit for the surviving spouse.

Retroactive Benefits: A Closer Look

With the repeal of the GPO effective December 2023, individuals previously affected by this provision are now eligible for retroactive Social Security benefits dating back to January 2024. This means that surviving spouses who were denied benefits due to the GPO will receive lump-sum payments covering the period from January 2024 to the present.

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Illustrative Scenario

Consider the following example:

• Maximum Benefit Scenario: In 2024, the maximum Social Security benefit at age 70 was approximately $5,000 per month.
• Surviving Spouse with Non-Covered Pension: A surviving spouse, whose deceased partner was eligible for the maximum benefit but had not filed before passing at age 70, would typically be entitled to the full $5,000 monthly survivor benefit.
• Impact of a Non-Covered Pension: If this surviving spouse received a non-covered pension of around $7,400 annually (approximately $616.67 per month), the GPO would have reduced their survivor benefit by two-thirds of their pension amount.
• Calculation: Two-thirds of $616.67 is about $411.11. Subtracting this from the $5,000 survivor benefit would result in a monthly benefit of $4,588.89.
• Retroactive Payment: With the GPO repeal, the surviving spouse is now entitled to the full $5,000 per month retroactively from January 2024. Over 12 months, this equates to a lump-sum payment of $60,000.

Is This Scenario Common?

While the specific circumstances described may be uncommon, they highlight the substantial financial impact the repeal can have on affected individuals. The Social Security Administration is currently evaluating the implementation process for these changes and will provide guidance to beneficiaries.

Social Security

Conclusion

The repeal of the GPO under the Social Security Fairness Act represents a significant shift in Social Security policy, offering substantial retroactive benefits to eligible individuals. Beneficiaries are advised to stay informed through official Social Security Administration communications to understand how these changes may affect their benefits.

You should always consult a financial, tax, or legal professional familiar about your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns.

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