Social Security is a huge and complex topic. We may be familiar with hearing Social Security come up in the news and in politics.

Every financial advisor knows that Social Security is one of the cornerstones, the foundational pieces, of retirement planning and requires careful consideration.

Unfortunately, more often than not, Social Security is not given the time and attention that it deserves.

The truth is that there are a number of different strategies that we can implement when it comes to Social Security and retirement planning.

Hypothetically just looking at the typical married couple there are 81 different potential combinations when it comes to Social Security.

So there’s a lot that goes into making decisions regarding Social Security.

Social Security Penalties

One thing that people usually don’t consider when it comes to Social Security is that there are penalties for double dipping.

Here’s what I mean by double dipping with Social Security:

In the government’s eyes, you have what’s considered to be a full retirement age. This is the age where you are entitled to claim and collect Social Security.

Now, if you need to, you can claim and collect Social Security as early as 62. However, this is not your full eligible age for retirement. Collecting Social Security at age 62 is considered claiming early.

The government only wants you to claim Social Security early if you really need it. If you plan on working, you probably don’t need Social Security as an income stream at that point.

So if you work and claim Social Security early, the government considers that to be double dipping and there is a penalty involved with doing this.

Not only do you stop the growth of your Social Security benefit, but for every dollar, you earn over a specific and pretty low limit, they take back $0.50 on the next $1.00 of your Social Security.

Not only have you cut short what could be a much higher Social Security income into the future, but you’re not even getting what you expected if you fall into this category and are deemed to be double dipping.

Many people don’t know about this Social Security penalty and make the mistake of claiming Social Security while still intending on working and earning an income.

It’s important to know all the penalties associated with Social Security so that you don’t lose money.

Taxes and Social Security

As a financial advisor, I always encourage people to consider the taxation of their benefits and Social Security is no different.

Regardless of whether you have reached full retirement age or not, and even after full retirement age, you have to consider taxation on your Social Security benefits.

Social Security taxation is determined by whether you’re single or married and by your income thresholds.

Also, if you exceed certain amounts of income, your Social Security can not only become taxable, but it can be up to 50% or even 85% taxable.

Withdrawals from your tax-deferred retirement accounts like 401(k)s and IRAs, actually count into the above income equation.

So taking a withdrawal from a 401(k) or an IRA can actually cause your Social Security to become taxable which many people do not realize.

Luckily discussing all your Social Security options with a financial advisor can help you save as much of your retirement funds as possible.

Losing a Spouse’s Social Security

There are many more aspects, and issues, and elements to claiming and collecting Social Security.

One of the things that a lot of people do not consider is that one of the streams of Social Security disappears when one of two spouses in a couple passes away.

This loss of Social Security income can be detrimental to the spouse who is left behind. The survivor is going to have a depleted amount of retirement income at the same time that they have lost their spouse.

Now, they do get to assume the higher of the two Social Security benefits but consider this:

If both people have claimed on their own Social Security benefit, and are collecting an equal amount, the worse the situation is going to be on the survivor.

This is because they can have as much as a 50% loss in retirement income just due to losing their spouse’s Social Security benefit.

In comparison, if one spouse had been a very high-income earner, and the other spouse had been a homemaker and raised the family and not had a lot of credits on their own Social Security, they may be claiming and collecting half of their spouse’s Social Security, which doesn’t give the optimal situation during their mutual lifetimes.

In this case, after one spouse passes away, whomever it is, the survivor gets to assume the higher Social Security benefit. That could be as little as a one-third drop in income.

Either way, between a third to a half of our income from Social Security, is going to disappear when a spouse passes.

That’s what we call spousal income dependency via Social Security and certainly something we need to address.

Unfortunately, this is something that typically happens much later and even after our own lifetimes.

It’s something that we don’t often see being considered when we are making the decision on how to claim and collect Social Security in our early to mid-60s.

Because of all of the things that can be affected by Social Security, we encourage everyone to discuss all of their options with a professional financial advisor.

At Richon Planning in Fuquay-Varina, we are happy to discuss all of your Social Security options for your retirement plan so that you can live a comfortable retirement and preserve as much of your retirement income as possible.