Social security benefits: Help maximize your clients’ outcomes

Social Security benefits are a cornerstone of retirement income for millions of Americans. As a financial advisor, your ability to guide clients through the nuances of claiming strategies and taxation and coordination with other income sources can significantly impact their financial well-being.

Brush up on some of the nuances of Social Security with our comprehensive overview. Use it to help clients make the most of their Social Security benefits as part of a holistic retirement plan.

Why Social Security benefits matter in retirement planning

Social Security benefits are more than just a monthly check—they represent a guaranteed, inflation-adjusted income stream that lasts for life. For many retirees, especially those without defined benefits like pensions, Social Security is the most stable and predictable source of income. Even for high-net-worth clients, these benefits can serve as a hedge against market volatility and longevity risk.

It’s worth noting:

• Social Security benefits are backed by the U.S. government and adjusted annually for inflation.
• They provide income security not only for retirees, but also for disabled workers and surviving family members.
• Understanding how benefits are calculated and when to claim them is essential for maximizing their value.

Let’s explore how the timing of when your clients claim Social Security benefits matters. 

Eligibility and timing: When clients can claim Social Security benefits

To receive Social Security retirement benefits, clients must earn at least 40 credits, which typically equates to 10 years of work. The age at which they choose to begin receiving benefits plays a critical role in determining the monthly amount.

There are several types of claiming options. These include:

• Early retirement (age 62): Clients can begin benefits early, but with a permanent reduction of up to 30%.
• Full retirement age (66–67): Clients receive 100% of their benefits based on their birth year.
• Delayed retirement (up to age 70): Benefits increase by approximately 8% for each year delayed.

Advisors should help clients weigh the trade-offs between early access to income and the long-term benefit of higher monthly payments. When your clients begin to claim their benefits is important, but other factors must be taken into consideration too, based on each client’s unique situation.

Strategic claiming: How to maximize Social Security benefits

Claiming Social Security benefits is not a one-size-fits-all decision. There are several factors to consider, such as a client’s health, family history, financial needs, and marital status when developing a claiming strategy.

Delaying benefits can be especially advantageous for clients who expect to live beyond the average life expectancy or who want to maximize survivor benefits for a spouse. It’s important to explore what reasons they may have for delaying their benefits claim.

Ideal candidates for delaying benefits could include:

• Clients in good health with a family history of longevity.
• Clients with sufficient retirement savings to cover early retirement years.
• Clients with younger or lower-earning spouses who will rely on survivor benefits.

Using planning software to model different scenarios can help clients visualize the long-term impact of their choices. Some of your clients may choose to continue working during retirement. Be sure they are aware of how this could impact their Social Security benefits.

Working in Retirement: How earnings affect Social Security benefits

Many clients plan to continue working after they begin receiving Social Security benefits. However, if they claim benefits before reaching full retirement age, their benefits may be temporarily reduced due to the earnings test.

The earnings test is a provision that regulates the benefits of individuals who claim Social Security benefits before reaching their full retirement age (FRA) and continue to work. Your clients should become familiar with it before making any retirement decisions.  

Here are the 2025 earnings limits:

• Before FRA: $1 in benefits is withheld for every $2 earned over $23,400.
• Year of FRA: $1 is withheld for every $3 earned over $62,160.
• After FRA: Clients can earn an unlimited amount without any reduction in benefits.

It’s important to note that these reductions are not permanent. Once clients reach FRA, their benefits are recalculated to account for the months when benefits were withheld, potentially increasing their future payments.

When people retire, it becomes more important than ever that they keep more of their money and avoid unnecessary erosion, especially to taxes. Be sure your clients understand how taxes work when it comes to Social Security income.

Taxation of Social Security benefits: What clients need to know

Your clients may not realize that Social Security benefits could be subject to federal income tax depending on their total income. This lack of awareness could result in an unwanted surprised at tax time.

To avoid that, make sure they know the IRS tax thresholds:

• Single filers: Up to 85% of benefits may be taxable if income exceeds $34,000.
• Married filing jointly: Up to 85% of benefits are taxable if income exceeds $44,000.

Engaging in tax-efficient investing and planning is vital as your clients near retirement and for those actively in retirement. Explore ways to reduce their taxable income and optimize tax-efficient planning strategies such as:

• Using Roth IRAs or tax-free municipal bonds to reduce taxable income.
• Sequencing withdrawals from taxable and tax-deferred accounts to stay below thresholds.
• Considering partial Roth conversions before required minimum distributions (RMDs) begin.

Advisors can add value by helping clients manage their income sources to minimize the tax impact on their Social Security benefits. For some, this can be especially important as they think about retaining more of their money for a surviving spouse.

Spousal and survivor Social Security benefits: Coordinating for couples

Spousal and survivor benefits offer unique planning opportunities for married and divorced clients. A spouse may be eligible for up to 50% of the higher earner’s benefit, and a surviving spouse may receive the full benefit amount of the deceased partner.

Some key points to remember include:

• Spousal benefits are available once the primary earner begins receiving benefits.
• Survivor benefits can be claimed as early as age 60 (or 50 if disabled).
• Divorced spouses may qualify if the marriage lasted at least 10 years and they are currently unmarried.

Coordinating the timing of benefits between spouses can help maximize household income and ensure financial stability for the surviving spouse.

However, Social Security benefits aren’t just for those in retirement. Be sure your clients know about other situations that may qualify for Social Security benefits.

Disability and family benefits under Social Security

Social Security benefits can apply to more than just retirement. Clients who become disabled before reaching retirement age may qualify for Social Security Disability Insurance (SSDI), which pays full benefits until they reach FRA. Additionally, certain family members—including dependent children and spouses caring for children—may be eligible for auxiliary benefits.

These benefits can be a critical source of support for families facing unexpected health or financial challenges. Advisors should be aware of these provisions and help clients understand their eligibility.

It’s important to explore the possibility of a disability occurring before or during retirement. For your clients with certain health issues, it may be more likely to happen. This will be an important part of your conversation with them about health care costs in retirement and planning for those.

The financial advisor’s role in Social Security planning

As a financial advisor, you are uniquely positioned to help clients navigate the complexities of Social Security benefits. Your expertise can help them avoid common mistakes, such as claiming too early, underestimating taxes, or failing to coordinate spousal benefits.

By proactively addressing Social Security in your planning process, you can enhance your value proposition and build deeper, more trusting client relationships. If you’re ready to start the conversation with your clients, here’s a checklist to help you navigate the key steps in Social Security planning.

Notes:

• All investing is subject to risk, including possible loss of principal. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account.
• Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline.
• Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund's trading or through your own redemption of shares. For some investors, a portion of the fund's income may be subject to state and local taxes, as well as to the federal Alternative Minimum Tax.
• Neither Vanguard nor its financial advisors provide tax and/or legal advice. This information is general and educational in nature and should not be considered tax and/or legal advice. Any tax-related information discussed herein is based on tax laws, regulations, judicial opinions and other guidance that are complex and subject to change. Additional tax rules not discussed herein may also be applicable to your situation. Vanguard makes no warranties with regard to such information or the results obtained by its use, and disclaims any liability arising out of your use of, or any tax positions taken in reliance on, such information. We recommend you consult a tax and/or legal adviser about your individual situation.