Answers to 7 Common Questions About Social Security

You might have more money stashed away in the Social Security trust fund than anywhere else. In fact, what you put into Social Security very well might be your biggest asset and future source of retirement income.

But do you know when you’ll be able to start collecting those earnings? Or what steps you can take now to maximize those benefits? What if you want to keep working past your retirement age?

Those are just a few of the common questions we often hear from clients about Social Security. Below, we’ll answer those and other common questions about these retirement benefits that will help you understand the program and how it affects you and your financial future.

1. At what age can I start taking Social Security retirement benefits?

Although most Americans are eligible to receive Social Security as early as age 62,¹ that may not be the ideal time for you to start receiving benefits. The difference is in the size of the monthly benefit you will receive if you wait.

For many, age 65 is the magic number when retirement “officially” begins, and that was the minimum age to receive full retirement benefits when the program began. But as the average life expectancy has increased – meaning we will have to draw benefits for longer – so has the age at which we are expected to start taking Social Security.²

The longer you wait to retire, the bigger your monthly Social Security benefit will be for the duration of the time you receive it. If you’re able to delay collecting benefits until age 70, your monthly amount will increase even more. In fact, every month you wait to file from your full retirement age (currently 67 for those born in 1960 and later) until age 70, your benefit will increase a total of 8 percent per year.³

2. What is my monthly Social Security benefit based on?

The formula is a bit complicated, but here are the main parts. First, the Social Security Administration takes your 35 highest earning years as its basis, then it applies an inflation factor. It adds up those 35 highest years (or fewer if you don’t have at least 35 years in the workforce) and divides it by the number of months to determine the average indexed monthly earnings (AIME).

Then it applies what’s called a “bend” point, designed to even out the system so that those who had the least income get the maximum benefits possible.⁴ It’s a little complex, but it’s essentially a formula that changes with the national average wage index to ensure someone who doesn’t make a lot of income will be protected in the system.

3. As a high-income earner, why am I paying so much in Social Security taxes when I won’t get it all back?

This is a common grievance, given that the collected funds aren’t sitting in an account just for you. Yet many people don’t realize that the amount they pay into Social Security doesn’t rise commensurate with their entire income.

The government has created a Social Security wage cap, currently set at $168,600 for 2024.⁵ If your earnings exceed that amount, nothing over it will be taxed for Social Security. Therefore, someone who earns $168,600 and someone who earns $5 million pay the same into the Social Security coffers, according to current law.

So, even though you may not get every dollar back when you collect your benefit, there is a limit on the amount of your wages that are subject to taxes if you earn above the wage limit.

4. If I want to keep working, will it affect my Social Security benefit?

Many workers, particularly those in white collar industries, sometimes choose to keep working past their retirement age. However, any sort of wages – whether a salary, contract or bonus – is earned income, which could reduce your Social Security benefit.

If you are younger than full retirement age and earn more than $22,320 – the annual limit for 2024 – the Social Security Administration will deduct $1 from your benefit payment for every $2 you earn. In the calendar year before you reach full retirement age, that earnings ceiling bumps up to $59,520 and the amount you are docked goes down to $1 for every $3 you earn. Once you reach full retirement age, earnings of any amount no longer reduce your benefit payment.⁶

The good news is that if your benefit is reduced due to excessive earnings, the money doesn’t just disappear. Instead, the government will recalculate your future payments and increase them to reflect the benefits withheld because of earned income.

Any unearned income, such as that from interest and dividends from your stock portfolio or passive rental income, would not reduce your Social Security benefit – although it could factor into how it’s taxed.

5. Do I have to pay taxes on Social Security?

Your benefit may be taxed as ordinary income at your regular tax rate, depending on how much other income you are receiving.

The government will tabulate your income from all sources, which could be rental income, a pension or investment income, to determine the portion of your Social Security benefit that will be taxed. The amount of your benefit that could be subject to taxes ranges from 0 percent to 85 percent.⁷

6. What if I started taking a Social Security payment and changed my mind?

If your financial situation changes, you may decide to halt benefits to help amp up your future monthly payment. If you are under full retirement age and elected benefits and have been receiving benefits for under 12 months, you can withdraw your application and pay back the entire amount you have already received.⁸

Otherwise, if it has been more than 12 months since you started receiving benefits, you’ll need to wait until you reach full retirement age and then request a suspension. You’ll then receive credit for each month of the suspension, ultimately boosting your the monthly benefit you’ll eventually receive.

7. Should I depend on Social Security to fund my retirement?

People are often surprised to hear the maximum Social Security benefit they can earn. Even if they were high-wage earners throughout their career and waited until age 70 to collect, the top monthly benefit in 2024 is $4,873 (assuming you retire at age 70).⁹ Many find that doesn’t adequately fund the lifestyle they anticipate or the legacy they hope to leave.

That’s why it’s wise to start planning for those golden years right now. Consulting with a financial professional can help you clarify your financial goals and the steps it will take to achieve them. While Social Security will likely be one core piece of your retirement, for most people, it shouldn’t be the only one.

Have More Questions About Social Security?

We can help answer any questions you might have about retirement and Social Security.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.