As we navigate the complex world of retirement planning, Social Security remains a crucial piece of the puzzle. Yet, many aspects of this program are often misunderstood or overlooked. Here are five key facts about Social Security that might surprise you – and could significantly impact your retirement strategy.
Your benefits can grow by waiting
While you’re eligible to start claiming Social Security at 62, there’s a financial incentive to delay. For each year you postpone claiming, up to age 70, your benefits increase. This “delayed retirement credit” can boost your monthly check by up to 8% annually.1 If you’re in good health and anticipate a long retirement, this strategy could significantly enhance your long-term financial security.
Social Security offers more than retirement benefits
Many people view Social Security primarily as a retirement program, but its scope is broader. The system also provides vital disability insurance and survivor benefits. These additional protections serve as important financial safeguards for you and your family, offering support during unforeseen circumstances.2
Your benefits may be subject to taxation
It often comes as a surprise to retirees that Social Security benefits can be taxable. Depending on your overall income, up to 85% of your benefits might be subject to federal income tax.3 This potential tax liability underscores the importance of comprehensive tax planning in your retirement strategy to optimize your overall financial picture.
There’s an upper limit on benefits
For 2024, the maximum monthly Social Security benefit for a worker retiring at full retirement age is $3,822.4. This cap is crucial to understand, particularly for high-income earners. It emphasizes the need for additional retirement savings and income sources to maintain your desired lifestyle in retirement.
Cost-of-living adjustments are not automatic
While Social Security benefits often receive annual cost-of-living adjustments (COLAs), these increases aren’t guaranteed. The size of the COLA is tied to inflation rates, and in some years, there might be no increase at all.5 This variability highlights the importance of building a diverse retirement income strategy that can withstand economic fluctuations.
Being aware of these lesser-known aspects of Social Security can help you make more informed decisions about your retirement planning. Remember, Social Security is just one component of a comprehensive retirement strategy. As always, we’re here to help you navigate these complexities and create a plan tailored to your unique situation.
Have questions or want to discuss how these facts impact your retirement plan? Let’s talk. Your financial future is our priority, and we’re committed to helping you make the most of your retirement years.
This piece is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. CWM,LLC, any other named entity or any of their representatives may not give legal or tax advice.
Social Security Administration. (2023). Delayed Retirement Credits. https://www.ssa.gov/benefits/retirement/planner/delayret.html
Social Security Administration. (2023). Benefits. https://www.ssa.gov/benefits
Internal Revenue Service. (2023). Social Security Income. https://www.irs.gov/faqs/social-security-income
Social Security Administration. (2023). Maximum Social Security Retirement Benefit. https://www.ssa.gov/oact/cola/examplemax.html
Social Security Administration. (2023). Cost-of-Living Adjustments. https://www.ssa.gov/oact/cola/colaseries.html
