Financial Adviser Shares Essential Social Security Insights for Retirees

Social Security plays a crucial role as a source of income for retirees, yet many approaching retirement remain unclear about their benefits. Financial adviser and Social Security recipient himself, Kim Franke-Folstad, emphasizes the importance of understanding these benefits through his educational workshops. With over 50 years of experience in the financial services sector, Franke-Folstad addresses common misconceptions and offers practical advice for navigating the complexities of Social Security.

Franke-Folstad advises that working with a knowledgeable financial adviser is essential for tailoring retirement strategies to individual circumstances. He notes that a single workshop or a few articles are often insufficient for comprehensively understanding the nuances of Social Security, particularly for married couples.

Key Insights for Future Retirees

Here are five important considerations for soon-to-be retirees regarding Social Security:

1. **Filing Age Impacts Benefits**
Individuals can begin receiving Social Security benefits at age 62; however, doing so results in permanently reduced payments. To receive 100% of earned benefits, individuals must reach their full retirement age (FRA), currently between 66 and 67, depending on their birth year. Delaying benefits past the FRA increases monthly payments, making it financially advantageous for those in good health or expecting a long retirement.

2. **Marital Status Matters**
Filing decisions should be coordinated with spouses, as these choices significantly affect both partners’ retirement income. For example, if one spouse dies, the lower of the two Social Security payments is eliminated. There are specific rules that determine the benefits a widow or widower may receive, influenced by age, disability status, and whether they care for a dependent child under 16. Additionally, divorced individuals may qualify for benefits based on an ex-spouse’s record if they were married for at least ten years.

3. **Earnings Test Applies**
Social Security recipients can continue to work, but exceeding the Social Security Administration’s (SSA) earnings threshold may result in a temporary reduction of benefits. In 2025, the annual limit for individuals under the FRA will be $23,400. Exceeding this amount leads to a deduction of $1 for every $2 earned above the threshold. For those reaching their FRA in 2025, the limit before their birthday is set at $62,160, with a similar deduction structure.

4. **Tax Implications for Benefits**
Many retirees are unaware that Social Security benefits can be subject to federal income tax. The IRS calculates a “provisional income” to determine taxability, which includes adjusted gross income, tax-free interest, and half of Social Security benefits. For individuals with provisional incomes between $25,000 and $34,000, or couples earning between $32,000 and $44,000, up to 50% of benefits may be taxable. If provisional income exceeds these thresholds, up to 85% of benefits could be taxed.

5. **Withdrawal and Reapplication Options**
If beneficiaries change their minds after filing, they can withdraw their application within 12 months and reapply later. This is a one-time opportunity, and they must repay any benefits received to qualify.

Franke-Folstad stresses that navigating Social Security can be complicated, and retirees should not hesitate to seek guidance from professionals. By gathering information from the SSA website and collaborating with a retirement specialist, individuals can maximize their benefits and secure a stable financial future.

The insights shared by Franke-Folstad reflect a growing need for education on Social Security, especially as proposals, such as the one mentioned by former President Donald Trump in 2024 to eliminate federal taxes on benefits, remain unimplemented. Understanding the rules and planning accordingly is vital for ensuring that retirees receive the full benefits they have earned throughout their working lives.