Social Security: What You Need To Know (2026) | Episode 4

In this episode I talk about how Social Security claiming works. How your Social Security (SSA) benefit is reduced or increased based on when you claim. I talk about 5 things to think about when planning a SSA claiming strategy. 

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This has been provided for informational purposes only. Each individual situation will vary. For more information and answers to many questions about Social Security benefits, go to ssa.gov.

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

Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Nodaway Valley Bank (NVB) and Nodaway Valley Investment Services™ (NVIS) are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using the name NVIS, and may also be employees of NVB. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, NVB or NVIS. Securities and insurance offered through LPL or its affiliates are:

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Transcript

SPEAKER_00 0:00

Hey everybody, welcome back to my channel. What I want to talk about today is something that you probably heard about and you maybe even talked to your friends about, but it's called Social Security. And yes, and you probably know what Social Security is. You get a paycheck every month when you retire from the government. You pay in over your lifetime. But what I really want to focus on in today's episode is how does Social Security work? But more importantly, one of the most opinionated things I see with Social Security is when should you claim Social Security? Because that decision of when you claim Social Security can have an effect on your life and on your financial plan, in the tune of potentially hundreds of thousands of dollars. So, first things first, how do you get social security? How does it work? Well, over the course of your working career, you pay into this thing called Social Security, this big bucket essentially that you're paying money into from every single paycheck to the tune of 6.2% for you as the employee and 6.2% as the employer for a total of 12.4% of your paycheck goes into the Social Security bucket. Now to qualify for Social Security, you generally need 40 credits. Each year, you can add up to four credits to your bucket. So you need to have 10 years of work and paying taxes. There's a certain income limit you have to make. It's pretty, pretty low, but you have to work for at least 10 years, earn four credits a year for a total of 40 credits to qualify for Social Security. So you're working at your job, every single paycheck, a portion of that gets thrown into the Social Security bucket. You earn enough credits, 40 total credits. Maybe you work for 35 years, 40 years, maybe you only work for 20, but you're throwing money into the Social Security bucket. And when it comes time to take money from the bucket, you're now at retirement age. That number is based on the average of your 35 best earning years. So if you work for 40 years, they will take the 35 highest and take the average of that to calculate what your benefit is. If you only work for 30 years, there's five years that you have a zero, which will actually bring your average down for your social security benefit. Once they take all that, they calculate your earnings, you have enough credits to qualify, they will give you a number. You can go to SSA.gov. They will give you a number that is your PIA, primary insurance amount. And depending on the year you're born, that is the amount you will receive at full retirement age. For some of you, it's 65. For some of you, it's 66. For some of you, it's like 66 years and eight months, 66 years and 10 months. And for some of you, it is currently 67 years old. So depending on the year you're born is what determines what your full retirement age is. But here's the catch. You can actually claim your social security benefit as early as 62 years old, or delay it past your full retirement age up until 70 years old. So this is kind of where things get questioned with Social Security. Well, I can take it at 62, I can take it at my full retirement age, or I could even delay until 70. Now, why would you do that? Why would you take it early, or why would you delay until 70? So an easy way to think of this is if you take your Social Security before your full retirement age, anywhere between 62 and whatever your full retirement age is, your benefit that you will receive from Social Security will be reduced. The earlier you take it, the more reduced it will be. The closer to full retirement age, the closer it will be to that full retirement age number. But anytime you take Social Security before full retirement age, it will be reduced. And it will be reduced permanently. So if you take it early, and I'll talk through an example here in a second, but if you take it early, that benefit is permanently reduced. And if you delay past full retirement age, your benefit actually gets higher. So if you wait until 70 or 69 to claim your Social Security benefit, it will actually be higher than what it was at full retirement age for you. And that increase is also permanent. So now you have this question: do I claim early and reduce my benefit permanently? Do I just wait until full retirement age and claim what I'm supposed to get my PIA, primary insurance amount? Or do I delay until closer to 70 and increase my benefit permanently? That is the big question that everyone has when it comes to Social Security. So let me just give you an example. This is just a hypothetical example, not an actual person situation. But let's just say someone pulls up their social security number and their full retirement age benefit is $2,000 per month. What this will look like is you'll get a piece of paper that says, well, if you claim at $62, you go early, you might only receive $1,400 per month. So you lose out on $600 per month permanently from your Social Security. If you claim at $70, in this case, this is their full retirement age, they will get the full $2,000 per month. But if you delay until $70, we're actually going to give you a little bit of an increase and pay you $2,480 a month. Anything past the age of 70, it does not make sense to delay claiming Social Security because there's no more increases after 70. So if you're 71 and you're listening to this right now and you haven't claimed Social Security, what are you doing? There's no reason to wait longer than age 70 because there's no increase past 70. But you can see from that example that if you claim early, you're gonna get a reduction. Then you're gonna have your full retirement age, and then if you delay until 70, you're gonna get an increase from what your full retirement age amount is. So then you can start to place into your financial plan. Hopefully you've been building one, or hopefully your financial planner has given you a financial plan so you have some clarity around your money. If you haven't, please reach out. Let's set up your free consultation. So then the question becomes when do you claim social security? And while I don't know your personal situation, so I can't give you any recommendations, I can give you some things to think about that may help you give a direction on when you should claim social security. First off, your life expectancy. If you plan to live for a long life expectancy, obviously we don't know, but you can use maybe your family history of long life or short life. But if you have a history of long life, so your life expectancy is long, maybe into the 90s, well then delaying your social security past full retirement age, again, this all depends if your plan can handle it, but if it can, delaying your social security past full retirement age can make sense because you're locking in that higher monthly benefit for longer. But if you have a shorter life expectancy, your parents only lived to the early 70s, well then maybe claiming as early as possible or closer or at full retirement age might make sense. Number two, your need for income. Maybe your plan says, hey, you saved well, but you need to claim Social Security at 62, at 64, before full retirement age for your financial plan to work out. Well, in that case, then it makes sense to claim early. Maybe you've been a really, really good saver, and your spending compared to your portfolio and other income sources in retirement says, hey, we actually don't need Social Security right this second. We can delay it and lock in that higher benefit, 68, 69, 70, and it's not gonna have that big of an effect on our financial plan and our need for income and that longevity insurance that we're getting from Social Security, because it does have a cost of living adjustment every single year. We're gonna lock in that higher benefit because we don't need the income right this second. Our portfolio, our other income sources can fill our need for income, and we can delay social security. So your need for income, your overall financial plan has an effect on when you claim Social Security. Number three is taxes. Maybe you don't know this, but 15% of your social security is always tax-free. So the most you could be taxed on your social security, the limit is 85%, as current tax law is written. Now it could be as low as 0% is taxed, but up to 85% of your social security check can be taxed. So there's some tax planning around Social Security of claiming it while you might be also doing Roth conversions, might actually increase the amount that your Social Security is taxed, which means less in your pocket. So there's different tax planning strategies and tax things that come into play with Social Security claiming that can have an effect on taking it early or even delaying it so you can do some other tax planning things, such as Roth conversions, for example, that can really dictate the best time or the most optimal time to claim social security. The fourth thing to think about is your spouse. So with Social Security, how this works is let's say there's a husband and a wife. The wife has a higher Social Security benefit per month than the husband. If the wife passes away, the husband will actually jump up to start receiving the higher benefit amount that his wife had. However, he will lose his. So put another way, the higher earning benefit spouse, if they pass away first, the lower benefit spouse will actually jump up and take over getting social security checks the same amount as the higher earning spouse that passed away. So that's why this is important is let's say you're the higher earning spouse or your spouse is higher earner, they're gonna get a higher social security benefit because they've paid more into the system over their working career. Maybe your plan says the lower earning spouse, let's take their social security check at full retirement age, it is X amount of dollars a month, but the higher earner let's delay until 70 to maximize the most that they will get from Social Security so that if the higher earning spouse does pass away first, the lower earning spouse from that social security benefit will jump up and take over theirs. It'll help the longevity of the plan with that situation. So depending on your income levels, how much you're set to receive from Social Security between you and your spouse, it can be something to think about is we both don't have to take it at the same time. One spouse takes it early, the other spouse, the higher earner, delays to get the higher benefit over life. And that is a way to think about different ways to claim social security for your financial plan. And the fifth thing to think about is are you working? So this is something that catches people off guard. But if you are claiming Social Security full retirement age and you earn over a certain limit, in 2026, Social Security deducts $1 from your benefit amount for every $2 you earn above $24,480. So what that means is if you claim Social Security, let's call it at 63 years old, before your full retirement age, but you're still working and you're making $50,000, $60,000, $100,000, $300,000 a year, for every $2 you earn above $24,480, your Social Security benefit will be reduced. And there's a different amount in the year that you turn your full retirement age. But at a high level, if you are continually working before full retirement age and you claim social security, the amount that you earn over a certain limit does have an effect on how much your social security that you get. Now, important note is that reduction in benefits is not permanent. Once you hit full retirement age or past full retirement age, there is no income limit. You could make $500,000, $800,000 a year after full retirement age, and you're still set to receive your full social security amount. It is really just a big factor in the year that you are full retirement age or before full retirement age if you were to claim your social security. And the final thing is really just your overall financial plan. When it comes to running your financial plan and when to take Social Security, it's dependent upon your personal situation. What income sources do you have in retirement? Are you continuing to work? Are you not gonna work? How's your longevity, your life expectancy for you and your spouse? All of these different things play a part in your overall financial plan, which then can help determine the optimal time to claim social security. It's also important to note that it's not always about optimizing everything. Sometimes taking social security when maybe the math says one thing, but your your situation says another, that can make sense too. And that is why talking with a financial planner, understanding your situation, your different scenarios can really help you understand when to claim social security and give you some ideas and things to think about for your own personal situation when it comes to claiming Social Security. And when we talk about the potential reduction of Social Security in 2032, there's been a lot of talks about that. As a financial planner, I run my clients' financial plans with different customization. What if they were set to receive their full retirement benefits? What if Social Security does get cut by 30%? How does that affect their plan? What if Social Security gets cut by 50%? How does that affect their plan? What if we want to run a plan just to give them an idea? If Social Security went away, how would that affect their plan? So I can customize with my clients different scenarios when it comes around claiming Social Security, but also the potential for the reduction of Social Security benefits. So at the end of the day, the right decision of when to claim Social Security is the one that fits your financial plan. When you read articles that say the perfect age to claim Social Security is this, the perfect age is this, really the perfect age is the one that fits your financial picture. So if you're within five to ten years until retirement, it can be a good idea to start looking at different scenarios for your social security claiming strategies. Because looking at these small decisions now can have a large impact over your lifetime. Thank you so much for being here, and I'll see you in the next episode. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.