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Retirement Planning

Understanding Social Security

How benefits are earned, calculated, and claimed — and why the timing decisions you make have lasting consequences.

The Basics

A guaranteed income stream. With a catch.

Social Security was signed into law in 1935 as part of the New Deal, created to give working Americans a base of income they couldn't outlive. The idea was straightforward: you pay into the system during your working years, and the government sends you a monthly check for the rest of your life once you retire. Nearly 90 years later, that core promise is still intact.

What's changed is the complexity. The program now covers retirement, disability, and survivor benefits, and the rules governing when and how you claim have a significant impact on how much you receive. For most clients, Social Security is one of the largest financial assets they own — often worth several hundred thousand dollars in lifetime income. The decisions made around it deserve the same attention as any major financial choice.

Why it matters

For many retirees, Social Security is the only source of guaranteed, inflation-adjusted income. The difference between claiming at 62 versus 70 can be worth tens of thousands of dollars over a retirement — sometimes more.

Common misconception

Social Security is not simply a return of what you paid in. It's a benefit calculated from your earnings history and structured to replace a higher percentage of income for lower earners. What you receive depends on when you claim, not just how much you contributed.

How It Works

Four types of benefits, one system

Social Security covers more situations than most people realize. Understanding which benefit applies — and how eligibility works for each — is the starting point for any claiming strategy.

01

Retirement benefits

To receive retirement benefits based on your own work record, you need 40 credits — roughly 10 years of covered employment. In 2025, you earn one credit per $1,810 of income subject to Social Security tax, up to four credits per year.

You can begin claiming any month between age 62 and 70. The longer you wait, the larger your monthly check. Most people reach their Full Retirement Age (FRA) between 66 and 67, depending on birth year. Claiming before FRA permanently reduces your benefit; delaying past FRA permanently increases it.

Not all jobs pay into Social Security. Some government employees are covered by separate pension systems and may not have contributed.

02

Spousal benefits

If you're married (or were married), you may be eligible to receive the greater of your own benefit or up to 50% of your spouse's FRA benefit. This matters most if you didn't work or had significantly lower earnings than your spouse.

To claim spousal benefits you must be at least 62, and your spouse must already be receiving their own benefit. Claiming before your own FRA reduces the spousal benefit below the 50% maximum — the range is 32.5% at age 62 to 50% at FRA.

Divorced spouses may also qualify if the marriage lasted at least 10 years, regardless of whether the ex-spouse has claimed yet. A spousal benefit is also available at any age if you are caring for a child under 16 or a child with a disability.

03

Survivor benefits

When a worker dies, their spouse, children, and in some cases dependent parents may be eligible for survivor benefits. A surviving spouse can generally claim as early as age 60 (50 with a disability) if the marriage lasted at least 9 months, and they haven't remarried before that age.

The survivor benefit is generally the greater of the survivor's own benefit or the deceased spouse's benefit, assuming FRA has been reached. Before FRA, a reduced benefit is available starting at 71.5% at age 60.

Unmarried children under 18 (or under 20 if full-time students) are also eligible, generally receiving 75% of the deceased parent's benefit. A family maximum applies to the total paid, though divorced spouses don't count toward that limit.

04

Disability benefits

Social Security Disability Insurance (SSDI) provides income to workers who become unable to work due to a qualifying disability before reaching retirement age. Eligibility depends on your work history, age, and the nature of the disability. SSDI is not addressed in detail here, but it's worth knowing it exists if circumstances change before retirement.

By the Numbers

How your benefit is actually calculated

Your monthly benefit isn't arbitrary — it follows a formula applied to your earnings history. The math has a few moving parts, but the logic is consistent: higher lifetime earnings produce a larger benefit, but the formula is designed to replace a higher percentage of income for lower earners.

Straightforward case

Meet Dana. Dana worked steadily for 35 years and averaged about $5,500 per month in Social Security-covered earnings (after inflation adjustments). That gives Dana an AIME of $5,500.

Applying the 2025 formula:

First bracket 90% × $1,226 = $1,103.40
Second bracket 32% × ($5,500 − $1,226) = 32% × $4,274 = $1,367.68
PIA at FRA $1,103.40 + $1,367.68 = $2,471/month

If Dana claims at FRA, that's the check. If Dana claims at 62, it drops to roughly $1,730/month (70% of PIA). If Dana waits until 70, it grows to roughly $3,064/month (124% of PIA).

The spousal wrinkle

Meet Sam and Jordan. Sam had a long career and is projected to receive $3,200/month at FRA. Jordan spent most of their working years raising children and has only a modest benefit of $800/month on their own record.

Because 50% of Sam's FRA benefit ($1,600) exceeds Jordan's own benefit ($800), Jordan can claim the spousal benefit instead.

Jordan's own benefit at FRA $800/month
Spousal benefit at FRA 50% × $3,200 = $1,600/month
Jordan's best option at FRA $1,600/month (spousal)

If Jordan claims the spousal benefit before FRA, the amount is reduced. At age 62, Jordan would receive roughly $1,040/month (32.5% of Sam's FRA benefit) rather than the full $1,600.

These examples are illustrative. Actual benefits depend on your full earnings history, birth year, filing status, and current Social Security rules. The formula bend points shown reflect 2025 values and are adjusted annually for wage inflation.

Taxation of benefits

Social Security benefits can be partially taxable at the federal level depending on your provisional income (gross income + tax-free interest + half of your Social Security benefit). For single filers, up to 50% of benefits may be taxable above $25,000, and up to 85% above $34,000. For married filers, those thresholds are $32,000 and $44,000. These percentages refer to the portion of your benefit that is included in taxable income, not the rate at which it is taxed — your actual tax depends on your marginal bracket. Several states also tax Social Security benefits at the state level. How and when you take withdrawals from other accounts can affect where your provisional income lands, which is one reason claiming strategy rarely gets decided in isolation.

Planning Ahead

How timing and sequencing change the outcome

Most of the value in Social Security planning comes from understanding how your claiming decision interacts with everything else — taxes, Medicare, spousal benefits, and portfolio withdrawals. None of these decisions live in isolation.

✓ Delaying to 70 adds up to 8% per year. For someone in good health, waiting from FRA to 70 is often one of the highest guaranteed returns available. It also grows the survivor benefit paid to a spouse.
✓ Claiming before FRA can trigger a tax on wages. If you're still working and claim before FRA, Social Security withholds $1 of benefits for every $2 earned above $23,400 (2025). Benefits are recalculated upward at FRA, but the interaction with earned income matters.
✓ The gap years between retirement and claiming are a tax planning window. If you retire before taking Social Security, your taxable income may be lower than it will be once benefits start. That window is often the best time for Roth conversions, which can reduce RMDs and keep provisional income lower throughout retirement.
✓ Social Security affects Medicare premiums. IRMAA surcharges on Medicare Part B and D are triggered by income two years prior. Large Roth conversions or other income spikes in the years before or after claiming can push you into a higher IRMAA tier, adding hundreds of dollars per month in premiums.
✓ Spousal and survivor strategies can add significantly to lifetime income. For married couples, coordinating who claims when — often having the higher earner delay to 70 — maximizes the survivor benefit and provides better income protection for the spouse who lives longer.

The math is straightforward. The strategy isn't.

When to claim, how it interacts with your other income, and what it means for your spouse are questions worth working through carefully. If you want to run the numbers against your actual situation, we're happy to do that.

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