How to Maximize Social Security Benefits with Smart Claiming and Income Planning

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

For many retirees, Social Security is a cornerstone of their retirement income. But when and how you claim your benefits—and how you plan your income around them—can have a major impact on the total amount you receive over your lifetime. With updated Social Security thresholds, limits, and rules, there are new opportunities to optimize your claiming strategy and coordinate Social Security with your broader financial plan.

In this article, we’ll cover:

• How Social Security benefits are calculated and funded

• Four ways to increase your Social Security benefit amount

• How income and taxes affect your benefits

• The impact of Medicare premiums and income planning

• How delaying Social Security can create opportunities for Roth conversions

• What to know about the earned income penalty if you claim early

• Answers to common Social Security claiming questions

Maximizing Social Security During the Working Years

The foundation for a strong Social Security benefit starts during your working years. Understanding how the system works helps you make informed decisions about your career, income, and retirement planning.

How Social Security Is Funded and Calculated

Social Security is primarily funded through payroll taxes under the Federal Insurance Contributions Act (FICA). In 2025, workers and employers each pay 6.2% of wages (for a total of 12.4%) up to the taxable wage base, which is $176,000 in 2025. Any earnings above that amount are not subject to Social Security tax and do not increase your benefit.

Your benefit is based on your highest 35 years of indexed earnings—meaning each year’s income is adjusted for inflation to reflect its value in today’s dollars. If you worked fewer than 35 years, zeros are included in the calculation, which can significantly reduce your average and therefore your monthly benefit.

Key takeaway: Once your annual income exceeds the taxable wage base, additional earnings don’t raise your future Social Security benefit. However, working longer can still increase your benefit if you replace lower-earning years or zeros in your 35-year average.

Four Ways to Increase Your Social Security Benefits

1. Fill in or Replace Zero Years

If you have fewer than 35 years of work history, each missing year is counted as zero. Even one extra year of income can replace a zero and raise your benefit.

Example: If you worked 32 years and earned $80,000 annually in your final three years, adding those years could significantly boost your benefit calculation.

2. Delay Claiming to Earn Higher Benefits

You can claim Social Security as early as age 62, but doing so permanently reduces your benefit—up to 30% less than your full retirement age (FRA) amount. For those born in 1960 or later, FRA is 67.

If you wait past FRA, your benefit grows by 8% per year up to age 70, plus annual cost-of-living adjustments (COLAs).

Example:

• Claiming at 62: $1,400/month

• Claiming at 67: $2,000/month

• Claiming at 70: $2,480/month

That’s a $1,080 per month difference for waiting between the ages of 62 and 70.

3. Maximize Spousal and Dependent Benefits

Spousal and dependent benefits can be valuable for married couples or retirees with young children.

• Spousal Benefit: A spouse can claim up to 50% of the higher earner’s FRA benefit, provided the higher earner has already filed.

• Divorced Spouse Benefit: You may qualify if the marriage lasted 10 years or longer, and you haven’t remarried prior to age 60.

• Dependent Benefit: Retirees age 62+ with children under 18 may receive additional benefits for dependents.

Planning tip: For individuals who plan to utilize the 50% spousal benefit and/or the dependent benefit, the path to the optimal filing strategy is more complex because the spouse and dependents cannot receive these benefits until that individual has actually turned on their social security benefit, which, in some cases, can favor not waiting until age 70 to file.

4. Understand Survivor Benefits

If one spouse passes away, the surviving spouse receives the higher of the two benefits. This makes it especially beneficial for the higher-earning spouse to delay claiming to age 70, maximizing the survivor benefit and providing long-term income protection.

How Social Security Benefits Are Taxed

Up to 85% of your Social Security benefits may be taxable, depending on your combined income (adjusted gross income + nontaxable interest + half of your Social Security benefits).

• Single filers: Taxes begin at $25,000 of combined income

• Married filing jointly: Taxes begin at $32,000 of combined income

If you don’t need Social Security to cover living expenses right away, delaying benefits can not only increase your future income but may also help manage taxes by controlling your income levels in early retirement.

Medicare Premiums and Income Planning

Once you reach age 65, you’ll typically enroll in Medicare Part B and D, and your premiums are based on your Modified Adjusted Gross Income (MAGI). Higher income means higher premiums under the Income-Related Monthly Adjustment Amount (IRMAA) rules.

Because Social Security benefits count as income for these purposes, timing your claiming strategy can help you manage Medicare costs.

Roth Conversions: Turning Delay into an Opportunity

Delaying Social Security creates a window for Roth conversions—moving money from a traditional IRA to a Roth IRA at potentially lower tax rates before Required Minimum Distributions (RMDs) begin at age 73 or 75.

Benefits of Roth conversions include:

• Paying tax now at potentially lower rates

• Reducing future RMDs

• Potentially reduce future Medicare premiums

• Creating a tax-free income source in retirement

• Leaving tax-free assets to heirs

Coordinating your claiming strategy with Roth conversions can improve long-term tax efficiency and enhance your retirement flexibility.

Claiming Early? Know the Earned Income Penalty

If you claim Social Security before full retirement age and continue to work, your benefits may be temporarily reduced.
In 2025, the earnings limit is $23,400. For every $2 earned over the limit, $1 in benefits is withheld.

In the year you reach FRA, a higher limit applies: $62,160, and only $1 is withheld for every $3 earned above that.
Once you reach full retirement age, the penalty disappears, and your benefit is recalculated to credit any withheld amounts.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQ)

How are Social Security benefits calculated?
Social Security benefits are based on your highest 35 years of indexed earnings, adjusted for inflation. If you worked fewer than 35 years, zeros are included in your calculation, which can reduce your benefit.

What are the main ways to increase your Social Security benefits?
You can boost your benefit by replacing “zero” earning years, delaying your claim up to age 70 for an 8% annual increase past full retirement age, and coordinating spousal or survivor benefits strategically. Working longer and earning more during high-income years can also improve your benefit calculation.

How does delaying Social Security affect taxes and Medicare premiums?
Delaying benefits can help you manage taxable income in early retirement and avoid higher Medicare premiums triggered by the IRMAA income thresholds. This window can also allow for Roth conversions, which reduce future Required Minimum Distributions (RMDs) and create tax-free income in later years.

How are Social Security benefits taxed?
Up to 85% of your benefits may be taxable depending on your combined income (adjusted gross income + nontaxable interest + half of your benefits). Taxes begin at $25,000 for single filers and $32,000 for married couples filing jointly. Managing income sources can help minimize these taxes.

What is the earned income penalty for claiming Social Security early?
If you claim before full retirement age and continue working, benefits are reduced by $1 for every $2 earned above $23,400 in 2025. In the year you reach full retirement age, the limit increases to $62,160, and only $1 is withheld for every $3 earned over that amount. The penalty ends at full retirement age, when your benefit is recalculated.

What are spousal and survivor Social Security benefits?
A spouse can claim up to 50% of the higher earner’s full retirement benefit once that person has filed. If one spouse passes away, the survivor receives the higher of the two benefits. This makes it especially advantageous for the higher earner to delay claiming to age 70 to maximize long-term income protection.

How can Roth conversions complement Social Security planning?
Performing Roth conversions in the years before claiming Social Security or reaching RMD age allows retirees to shift pre-tax funds into tax-free accounts at potentially lower tax rates. This strategy can reduce future taxable income, manage Medicare premiums, and increase retirement flexibility.

Social Security Claiming Strategies: Early vs. Delayed Benefits Explained

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

For many retirees, Social Security ends up being the single largest and most reliable income source in retirement. It is inflation-protected, provides survivor benefits, and lasts for life. Yet, many people cost themselves hundreds of thousands of dollars in lifetime income by claiming too early—or by ignoring the tax and spousal rules that make timing so important.

This article explores two common paths for claiming Social Security, the tax and survivor strategies that matter most, and how to build a decision framework that balances both the math and the emotional realities of retirement.

The Two Paths: Early & Active vs. Delay & Fortify

There is no one-size-fits-all answer to Social Security timing. Instead, retirees can think of two primary paths:

Path A: Early & Active (Claiming at 62–65)

• Works best for those with health concerns or shorter life expectancy.

• Provides cash flow to enjoy active early retirement years.

• Can unlock additional benefits, such as spousal add-ons or child benefits.

• Trade-off: Lower lifetime income and reduced survivor benefits.

Path B: Delay & Fortify (Claiming at 67–70)

• Higher earner delays to 70, maximizing both their lifetime benefit and the survivor benefit for their spouse.

• Serves as “longevity insurance,” providing a larger, inflation-adjusted check for life.

• Opens the door for Roth conversions to reduce future required minimum distributions (RMDs) and future Medicare premiums.

• Trade-off: Requires income from working or pensions, or drawing down on assets in the meantime

Path A: Early & Active (Claiming at 62–65)

For many retirees, claiming Social Security early feels like “getting what’s yours” after decades of paying into the system. And in some cases, it’s absolutely the right move. This path prioritizes flexibility and cash flow in the early years of retirement — often before traditional pensions, investment income, or part-time work fully kick in.

Let’s unpack when and why early claiming can make sense, and the trade-offs to watch out for.

Works Best for Those with Health Concerns or Shorter Life Expectancy

Social Security benefits are designed around actuarial averages. The longer you live, the more a delayed claim pays off. But if you have health concerns, a family history of shorter life expectancy, or simply want to maximize income during the “go-go” years of retirement, claiming early can be a rational and emotionally satisfying choice.

For example, a retiree who claims at 62 will receive about 70–75% of their full retirement age (FRA) benefit. While that’s a reduction, the earlier payments can add up over time if the individual doesn’t live into their 80s or 90s.

Rule of thumb: If you expect your life expectancy to be shorter than the early 80s, claiming before FRA may result in higher total lifetime benefits.

Provides Cash Flow to Enjoy Active Early Retirement Years

Many retirees want to travel, pursue hobbies, or help family members financially in their 60s while they’re still healthy and energetic. Social Security can serve as a predictable income base that helps fund this period — reducing the need to withdraw heavily from investment accounts during market downturns.

Consider a 63-year-old couple who wants to take advantage of early retirement while waiting for their portfolio to grow. Claiming one spouse’s benefit early might provide enough monthly income to bridge the gap and protect long-term assets.

Tip: Early claiming can work well as part of a “phased retirement” approach — easing out of the workforce while still maintaining a reliable income stream.

Can Unlock Additional Benefits, Such as Spousal Add-Ons or Child Benefits

Claiming early sometimes unlocks access to auxiliary benefits that wouldn’t otherwise be available. For instance:

• A non-working spouse can start claiming a spousal benefit once the higher-earning spouse files for Social Security.

• Dependent children under age 18 (or 19 if still in high school) may also qualify for benefits if a parent begins claiming.

This strategy can create a multi-benefit window, where the total family income from Social Security exceeds what the primary earner would receive alone — especially valuable for families still supporting dependents or paying for college.

Trade-Off: Lower Lifetime Income and Reduced Survivor Benefits

The biggest drawback to early claiming is mathematical: reduced monthly checks for life. Claiming at 62 permanently cuts benefits by roughly 25–30% compared to waiting until full retirement age. For married couples, this also means a smaller survivor benefit for the spouse who lives longer.

Over a 20- or 30-year retirement, that difference can add up to hundreds of thousands of dollars in lost income. It can also limit flexibility later in life when expenses like healthcare and long-term care rise.

To visualize this, here’s a simple comparison:

Path B: Delay & Fortify (Claiming at 67–70)

If the Early & Active path is about maximizing flexibility and early retirement enjoyment, the Delay & Fortify strategy is about building strength and security for the long haul. Delaying your Social Security claim allows your benefit to grow each year, providing powerful longevity insurance and boosting survivor protection for your spouse.

This path often works best for retirees who expect to live into their 80s or beyond, have other income sources to draw from in the meantime, or want to use the delay window for tax-efficient planning.

Higher Earner Delays to 70, Maximizing Both Their Lifetime Benefit and the Survivor Benefit for Their Spouse

For married couples, Social Security isn’t just an individual decision — it’s a household one. The higher-earning spouse’s benefit often becomes the survivor benefit for the remaining spouse.

By waiting to claim until age 70, the higher earner locks in delayed retirement credits that increase benefits by roughly 8% per year after full retirement age (up to age 70). That means a benefit that would have been $2,000 at age 67 could grow to about $2,480 per month by age 70 — a 24% increase for life.

That higher benefit continues for as long as either spouse is alive, making this strategy especially valuable for couples where one spouse is expected to live well into their 80s or 90s.

Example:
If one spouse claims early at 62 and the other delays to 70, the household creates a blend — immediate income now, and a larger, inflation-protected income base later that acts as a financial safety net for the survivor.

Serves as “Longevity Insurance,” Providing a Larger, Inflation-Adjusted Check for Life

Delaying Social Security is sometimes compared to buying an annuity — but without the fees or market risk. It’s an inflation-adjusted income stream that continues for life, backed by the U.S. government.

For those with strong health and longevity in their family history, this can be one of the best “investments” available, because the increase in monthly income provides protection against outliving assets in later years.

Breakeven point: Typically, the math favors delaying if you live past your early 80s. But beyond the numbers, many retirees value the peace of mind that comes with knowing they’ll always have a larger, guaranteed income base, no matter how long they live.

Opens the Door for Roth Conversions to Reduce Future RMDs and Medicare Premiums

One of the less-discussed advantages of delaying benefits is the tax planning window it creates. Between retirement (often mid-60s) and age 70, retirees may have lower taxable income, creating an opportunity to do Roth IRA conversions at favorable tax rates.

Here’s why this matters:

• Converting pre-tax assets to Roth reduces future Required Minimum Distributions (RMDs) at age 73/75.

• Lower RMDs can help manage Medicare premiums, which are based on income (IRMAA thresholds).

• Roth income in retirement is tax-free, helping stabilize cash flow and protect against rising tax rates.

Strategy in action:
A retiree might use withdrawals from cash or taxable accounts to fund living expenses while converting portions of their traditional IRA to a Roth during those pre-70 years. Then, when Social Security finally starts, their taxable income is lower — improving long-term tax efficiency.

Trade-Off: Requires Income from Working or Pensions, or Drawing Down on Assets in the Meantime

The biggest hurdle in delaying Social Security is bridging the income gap. If you retire at 65 but delay claiming until 70, that’s five years of expenses that must be covered by savings, part-time work, or other income sources.

For some retirees, this is perfectly manageable. For others, it may mean drawing down more from investment accounts — which can be uncomfortable, especially during volatile markets.

The key is to view this period as a trade-off by drawing down on a larger portion of your retirement assets now for a higher guaranteed income stream later on. Many financial plans model this “bridge strategy” explicitly, showing how a few years of portfolio withdrawals can result in higher lifetime income and stronger survivor protection.

Building a Decision Framework: Balancing the Math and the Mindset

Choosing when to claim Social Security is part math, part mindset. The best decision balances financial optimization with personal goals and health considerations.

A helpful framework:

1. Start with longevity assumptions. Estimate based on family health and lifestyle.

2. Assess your income bridge. Can you fund living expenses until 67–70 without stress?

3. Run the household math. Model joint benefits, survivor income, and tax implications.

4. Weigh the emotional factors. Early claiming often feels more secure and immediate; delaying feels more strategic and protective.

5. Revisit regularly. If you’re 62 and unsure, you don’t have to decide today — claiming flexibility exists year to year.

The right Social Security claiming strategy isn’t about “winning” a mathematical breakeven test — it’s about creating confidence and control in retirement.

The Bottom Line

Social Security is one of the most valuable, inflation-protected income sources you’ll ever have. Taking the time to make a thoughtful, data-driven claiming decision can add tens or even hundreds of thousands of dollars to your lifetime benefits.

But just as importantly, it can bring peace of mind — knowing your retirement income is designed to support both your financial goals and your life priorities.

If you’re approaching retirement, consider running multiple claiming scenarios or working with a financial planner to build a customized Social Security plan that fits your household.

Because in the end, smart Social Security planning isn’t just about maximizing a benefit — it’s about maximizing the life you can live in retirement.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQs)

What are the main differences between claiming Social Security early versus delaying benefits?
Claiming early (ages 62–65) provides immediate income and flexibility but permanently reduces monthly benefits by up to 30%. Delaying to age 70 increases benefits by 8% per year after full retirement age and strengthens survivor protection for a spouse.

When does it make sense to claim Social Security early?
Early claiming can make sense for retirees with health concerns, shorter life expectancy, or those who need income to support active early retirement years. It can also unlock spousal or dependent benefits sooner. However, it reduces lifetime and survivor benefits, so it’s best suited for households prioritizing flexibility over long-term income maximization.

What are the advantages of delaying Social Security until age 70?
Delaying benefits boosts lifetime and survivor income, provides inflation-adjusted longevity protection, and can create a valuable tax-planning window. Those extra years often allow retirees to perform Roth conversions at lower tax rates and reduce future Required Minimum Distributions (RMDs) and Medicare premiums.

How do spousal and survivor benefits factor into Social Security claiming decisions?
For married couples, the higher earner’s benefit often becomes the survivor benefit. By delaying their claim to age 70, the higher earner ensures the surviving spouse receives a larger, inflation-adjusted income for life—providing greater long-term financial stability.

What is the breakeven point for delaying Social Security?
Generally, if you live beyond your early 80s, delaying your claim tends to produce higher lifetime benefits. However, the optimal strategy depends on personal health, family longevity, and income needs during the delay period. Financial modeling can help identify the most efficient approach.

How can delaying Social Security support tax and Medicare planning?
The years between retirement and claiming benefits often provide a “low-income window” ideal for Roth conversions. This can lower future RMDs and taxable income, helping retirees stay below the IRMAA thresholds that trigger higher Medicare premiums.

How should I decide which Social Security claiming strategy is best for me?
The right approach balances math and mindset—combining life expectancy estimates, income bridge options, household tax impact, and emotional comfort. Working with a financial planner to test multiple claiming scenarios can clarify which path offers the best balance of income security and lifestyle freedom.

Will Social Security Be There When You Retire?

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

If you’ve looked at your Social Security statement recently, you may have noticed a troubling note: beginning in 2034, the system will no longer have enough funding to pay out full promised benefits. For many Americans, this raises a big question: Will Social Security even be there when I retire?

In this article, we’ll break down:

• How Social Security is currently funded and why it faces challenges

• What the 2034 date really means (hint: it’s not “bankruptcy”)

• Why Congress is likely to act before major benefit cuts happen

• Practical solutions that could shore up the system for future retirees

• Why meaningful reform may not happen until the last minute

How Social Security Works Today

Social Security is funded primarily through FICA payroll taxes. Workers and employers each pay 6.2% of wages (12.4% total) into the system, which goes toward funding retirement benefits for current retirees.

Here’s the key point: the money doesn’t accumulate in a large “savings account” for future benefits. Instead, today’s payroll taxes go right back out the door to pay today’s beneficiaries. This setup worked well when there were many workers for each retiree, but demographic trends are changing the math.

• Baby Boomers are retiring in large numbers.

• People are living longer, so they collect benefits for more years.

• Birth rates are low, meaning fewer workers are paying into the system.

This imbalance is the root of Social Security’s funding challenge.

What Happens in 2034?

Many people think 2034 is the year Social Security “goes bankrupt.” That’s not the full story.

According to the Social Security Trustees’ report, if Congress does nothing, the system’s trust funds will be depleted by 2034. At that point, incoming payroll taxes would still be enough to pay about 80% of promised benefits.

In practical terms, this would mean an immediate 20% cut in benefits for all recipients. While Social Security wouldn’t disappear, such a cut would have a huge impact on retirees who rely on it as their primary source of income.

Why We Believe Congress Will Act

It’s our opinion that Congress will not allow benefits to be cut so dramatically. Here’s why:

• For a large portion of Americans over age 65, Social Security is the primary source of retirement income.

• Cutting benefits by 20% would potentially impoverish millions of retirees.

• Retirees also represent a powerful voting population, making it politically unlikely that lawmakers would let the system fail without intervention.

That doesn’t mean changes won’t come—but it does make drastic benefit cuts less likely.

Possible Solutions to Fix Social Security

The challenge is real, but there are several practical options available. The earlier these changes are made, the smaller the adjustments need to be. If lawmakers wait until 2034, the fixes may be more drastic. Some of the most common proposals include:

1. Increasing the Taxable Wage Base

Right now, Social Security taxes only apply to wages up to $176,100 (2025 limit). Someone earning $400,000 pays Social Security tax on less than half of their income.

• Raising or eliminating the cap would bring more revenue into the system.

• While no one likes higher taxes, it may be less painful than the economic impact of the sudden cut in Social Security Benefits starting in 2034

2. Extending the Full Retirement Age

Currently, full retirement age is 67. But Social Security hasn’t been properly indexed for life expectancy. Studies suggest that if it were, the full retirement age could be in the early 70s.

• Extending retirement age would reduce how long people collect benefits.

• This adjustment reflects the fact that Americans are living longer and the Social Security system was not originally designed to make payments to retirees for 15+ years

3. Limiting Early Filing Options

Right now, many people file early at 62, locking in a reduced benefit.

• One proposal is to require younger workers (e.g., those 50 and under) to wait until full retirement age to claim.

• This would preserve more assets in the trust over the long term.

Why Reform May Be Delayed

Unfortunately, even though the math is clear, we don’t expect Congress to make many changes before 2034. Why? Because fixing Social Security is a politically unfriendly topic.

• To save the system, lawmakers must either raise taxes or cut benefits.

• Neither of those options wins votes, which makes reform easy to push off.

This likely means the situation will get more tense as we approach 2034. If reforms aren’t passed in time, one possibility is a government bailout of the Social Security Trust, with additional money created to keep it solvent. While this could buy time, it doesn’t address the underlying funding imbalance—and could carry broader economic consequences.

How We Plan Around Social Security Uncertainty

For our clients, we don’t take a “wait and see” approach. Since we don’t know the exact fate of Social Security, for clients under a specific age, we build retirement plans that assume a reduction in benefits.

• If Social Security benefits are reduced in the future, our clients’ plans are already designed to account for the cut, meaning their retirement income won’t be derailed.

• If, on the other hand, Congress keeps Social Security fully intact, that’s fantastic—it simply means more income than we initially projected.

This conservative approach provides peace of mind and ensures that retirement strategies remain flexible no matter what happens in Washington.

The Bottom Line

Social Security faces real funding challenges, but it’s highly unlikely to disappear. Instead, it will probably undergo adjustments to ensure long-term solvency.

For retirees and pre-retirees, the key takeaway is this: don’t panic, but don’t ignore it either. Build your retirement plan with the assumption that Social Security may look different in the future. A fee-based financial planner can help you model different scenarios and build a strategy that works no matter how Congress acts.

If you’d like to explore how Social Security fits into your retirement plan, learn more about our financial planning services here.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Do Social Security and Pension Payments Automatically Stop After Someone Passes Away?

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

When a loved one passes away, the last thing most families want to think about is financial paperwork. But knowing how Social Security and pensions handle payments after death is important to avoid complications—and sometimes even having to pay money back.

In this article, we’ll walk through:

• How Social Security gets notified of a death

• How pension plans handle benefit changes or survivor benefits

• What happens if extra payments are made after someone dies

• Steps families can take to make the process smoother

Does Social Security Automatically Get Notified?

Social Security does not always know right away when someone has passed away. Notification usually happens through a few channels:

• Funeral homes: Most funeral directors automatically report the death to Social Security if you provide the Social Security number.

• Vital records offices: State offices that issue death certificates send reports to Social Security.

• Family members: Survivors can call Social Security directly at 1-800-772-1213 to report the death.

It’s generally a good idea for a family member to call Social Security directly, even if the funeral home is handling notification. This avoids delays and prevents overpayments.

What About Pension Payments?

Unlike Social Security, pension payments come from an employer-sponsored retirement plan, and each plan has its own rules.

When a pensioner passes away:

• The plan administrator must be notified (usually with a copy of the death certificate).

• If the pension had a survivor benefit option, payments may continue to the surviving spouse, but potentially at a reduced amount (for example, 50% or 75% of the original benefit).

• If no survivor benefit was elected, payments stop entirely.

Employers and pension administrators typically don’t receive automatic death notifications. It is up to the family or executor to contact the plan.

What Happens if Extra Payments Are Made?

If Social Security or a pension plan issues payments after the recipient’s death, those payments are considered overpayments and must be returned.

• Social Security: Payments are typically due back if they were made for the month after the person passed. For example, if someone dies in June, the July payment (received in July for June’s benefit) must be returned. The bank may be required to send it back automatically.

• Pensions: If payments continue after the date of death, the plan administrator will usually request repayment once notified.

If funds have already been withdrawn from the account, the surviving family may be responsible for repayment.

Key Takeaways

• Social Security is usually notified by funeral homes or state records, but families should still call directly to avoid delays.

• Pension plans typically do not get automatic notifications—survivors must contact the plan administrator with a death certificate.

• Survivor benefits depend on the pension election made at retirement.

• Any overpayments from Social Security or pensions must be returned.

While it’s an uncomfortable topic, taking quick action to notify Social Security and pension administrators can prevent financial stress later. It’s one of those small but important steps in the estate settlement process.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions:

Does Social Security automatically know when someone dies?
Not always. Funeral homes typically report deaths to Social Security if given the person’s Social Security number, and state vital records offices also send reports. However, families should still call Social Security directly at 1-800-772-1213 to confirm notification and prevent overpayments.

What happens to Social Security payments after death?
Social Security benefits stop the month a person dies. Any payment made for the month after death must be returned. For example, if someone passes in June, the benefit received in July must be sent back.

How are pension payments handled when a retiree passes away?
Pension plans must be notified of the death, usually with a copy of the death certificate. If a survivor benefit was chosen, payments may continue to the spouse—often at a reduced amount (such as 50% or 75%). If no survivor option was selected, pension payments stop entirely.

Who is responsible for reporting a death to the pension plan?
The family, executor, or surviving spouse must contact the pension plan administrator directly. Employers and pension providers do not receive automatic death notifications.

What if Social Security or the pension keeps paying after death?
Any payments made after the date of death are considered overpayments and must be returned. The bank may automatically send back Social Security payments, while pension plans typically contact the family to recover funds.

Should You Withhold Taxes from Your Social Security Benefit?

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

For many retirees, Social Security is a cornerstone of their retirement income. But what sometimes comes as a surprise is that Social Security benefits can be subject to federal income tax—and in a few cases, state income tax as well. This raises an important planning question: should you withhold taxes directly from your Social Security benefit, or handle them another way?

Let’s walk through the key considerations.

Social Security Withholding Options

The Social Security Administration (SSA) allows you to elect to have federal income taxes withheld directly from your monthly benefit. Unlike wages, where you can set a specific withholding percentage, Social Security offers fixed percentage options:

• 7%

• 10%

• 12%

• 22%

These percentages are applied to your total monthly benefit, and the withheld amount is sent directly to the IRS. This system is called voluntary withholding, and it can be a convenient way to avoid unexpected tax bills at the end of the year.

How Social Security Is Taxed at the Federal Level

Whether or not your Social Security benefit is taxable depends on your provisional income, which includes:

• Your adjusted gross income (AGI), plus

• Any tax-exempt interest, plus

• 50% of your Social Security benefits

Depending on your filing status and income level:

• Single filers: If provisional income is between $25,000 and $34,000, up to 50% of your Social Security is taxable. Above $34,000, up to 85% of benefits may be taxable.

• Married filing jointly: If provisional income is between $32,000 and $44,000, up to 50% of benefits are taxable. Above $44,000, up to 85% of benefits may be taxable.

It’s important to note that no one pays tax on more than 85% of their Social Security benefit.

State Taxation of Social Security

Most states do not tax Social Security benefits. However, as of now, 12 states do tax Social Security in some form:

• Colorado

• Connecticut

• Kansas

• Minnesota

• Montana

• Nebraska

• New Mexico

• Rhode Island

• Utah

• Vermont

• West Virginia

• Wisconsin

Each state has its own rules, income thresholds, and exemptions, so the actual impact can vary significantly.

What If You Don’t Withhold? Estimated Tax Payments

If you choose not to have taxes withheld from your Social Security benefits, you may need to make quarterly estimated tax payments to the IRS. These payments cover your expected federal tax liability and prevent penalties.

The deadlines for estimated tax payments are:

• April 15 – for income earned January 1 through March 31

• June 15 – for income earned April 1 through May 31

• September 15 – for income earned June 1 through August 31

• January 15 (of the following year) – for income earned September 1 through December 31

How to Elect Withholding from Your Social Security Benefit

You can elect to have taxes withheld from your Social Security in two ways:

1. Online – Log into your my Social Security account and update your withholding preferences electronically.

2. Paper Form – Complete IRS Form W-4V (Voluntary Withholding Request) and mail it to your local Social Security office.

Once processed, your elected withholding percentage will be applied to each monthly benefit.

IRS Penalties for Not Withholding or Paying Estimated Taxes

If you fail to withhold taxes or make sufficient estimated tax payments, the IRS may assess underpayment penalties. These penalties are essentially interest charges, calculated on the unpaid balance for each quarter you were short.

The penalty is based on:

• The amount underpaid, and

• The length of time the payment was late

The interest rate is tied to the federal short-term interest rate plus 3% and is adjusted quarterly.

For retirees living on fixed income, these penalties can feel like an unnecessary burden. Electing withholding or staying current with estimated payments can help avoid these surprises.

Final Thoughts

For many retirees, setting up withholding directly from Social Security benefits is the easiest way to stay on top of taxes. It provides peace of mind, ensures compliance, and avoids the hassle of quarterly estimated payments.

However, every situation is unique. The decision should factor in your other sources of income, state tax laws, and overall tax bracket.

Working with a financial planner or tax professional can help determine whether withholding, estimated payments, or a combination of both makes the most sense for you.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQs)

Are Social Security benefits taxable?
Depending on your total income, up to 85% of your Social Security benefits may be subject to federal income tax. The amount taxed is based on your provisional income—which includes your adjusted gross income, tax-exempt interest, and half of your Social Security benefits.

How can I have taxes withheld from my Social Security benefits?
You can elect voluntary withholding through the Social Security Administration. Fixed percentages of 7%, 10%, 12%, or 22% can be withheld from each monthly payment and sent directly to the IRS to cover your federal tax liability.

How do I request tax withholding from my Social Security payments?
You can make the election online through your my Social Security account or by filing IRS Form W-4V (Voluntary Withholding Request) with your local Social Security office. Once processed, the withholding percentage applies automatically to future payments.

Which states tax Social Security benefits?
Most states do not tax Social Security, but a handful—including Colorado, Kansas, Minnesota, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, West Virginia, Wisconsin, and Connecticut—do in some form. Rules and exemptions vary by state.

What happens if I don’t withhold taxes from my Social Security income?
If you choose not to withhold, you may need to make quarterly estimated tax payments to the IRS. Missing these payments or paying too little can result in underpayment penalties and interest charges.

When are quarterly estimated tax payments due?
Estimated payments are typically due on April 15, June 15, September 15, and January 15 of the following year. These payments cover taxes owed on income not subject to withholding, including Social Security, pensions, and investment income.

How can retirees avoid IRS underpayment penalties?
Setting up withholding directly from Social Security benefits is often the easiest option. Alternatively, retirees can work with a tax professional to estimate their annual tax liability and adjust quarterly payments accordingly to avoid penalties.

Social Security: A Complete Guide to Benefits

While most Americans understand Social Security as a monthly retirement benefit, the system is far more expansive than that. It provides a foundation of income not only for retirees, but also for spouses, surviving family members, and even minor children.

For many, Social Security is one of the largest sources of guaranteed income in retirement. Yet, without a clear understanding of how the program works, individuals often leave money on the table or make filing decisions that reduce lifetime benefits. In this guide, we’ll walk through the primary types of Social Security benefits available and the planning opportunities they create for you and your family.

Retirement Benefits

Retirement benefits are the most common form of Social Security income and are based on your earnings record over your working years. You must earn 40 quarters of work credit (typically 10 years of work) to qualify.

Filing Age Matters

You can begin collecting benefits as early as age 62, but doing so permanently reduces your monthly benefit. On the other hand, delaying benefits past your Full Retirement Age (FRA) can increase your monthly payment by as much as 8% per year until age 70.

For example, if your Full Retirement Age is 67 and your monthly benefit at that age is $2,000, delaying until age 70 would increase your benefit to approximately $2,480 per month for life.

Planning Strategy:

If you have other sources of income, delaying Social Security can be a powerful way to hedge against longevity risk. Higher lifetime benefits can also increase survivor benefits for a spouse, which is especially important if one spouse is expected to live significantly longer than the other.

Spousal Benefits

Spousal benefits allow a lower-earning spouse (or a non-working spouse) to claim up to 50% of their spouse’s full retirement benefit.

Eligibility Criteria:

• Must be at least 62 years old

• The higher-earning spouse must have filed for their own benefit

• Marriage must have lasted at least 1 year (or 10 years if divorced)

For example, if your spouse's full benefit is $2,000 per month, you could receive $1,000 per month as a spousal benefit—even if you never worked.

Planning Tip:

If your own benefit is less than half of your spouse’s, spousal benefits can provide a significant boost to household income. However, if you claim before your FRA, your spousal benefit will also be reduced.

Survivor Benefits

When a worker passes away, their spouse and dependent children may be eligible for survivor benefits based on the deceased’s earnings record. These benefits can be a critical form of income replacement.

Who Can Claim:

• A surviving spouse as early as age 60 (or 50 if disabled)

• Surviving divorced spouses (if the marriage lasted 10+ years)

• Minor children under age 18 (or 19 if still in high school)

• Disabled adult children whose disability began before age 22

Survivor benefits can be up to 100% of the deceased worker’s benefit amount. However, claiming early will reduce the amount received.

Strategy Example:

A widow claiming survivor benefits at age 60 may receive 71.5% of the deceased spouse’s benefit, while waiting until her FRA allows her to claim the full 100%.

If the surviving spouse is also eligible for their own retirement benefit, they can switch between benefits to maximize lifetime payouts. For example, they might take survivor benefits early and delay their own retirement benefit until age 70 to receive delayed credits.

Benefits for Minor Children

Children of retired, disabled, or deceased workers may also qualify for Social Security benefits.

Eligibility:

• Must be under age 18 (or 19 if still in high school)

• Must be unmarried

• Or, must have a disability that began before age 22

Each eligible child may receive up to 50% of the parent’s benefit (or 75% if the parent is deceased), subject to a family maximum of 150% to 180% of the worker’s benefit amount.

Planning Opportunity:

Parents nearing retirement who still have minor children can increase household income by claiming their own benefit and triggering minor benefits for their children. In some cases, this can result in tens of thousands of dollars in additional family income.

Disability Benefits (SSDI)

Social Security Disability Insurance (SSDI) is available to workers who have a qualifying disability and a sufficient work history.

Key Points:

• The disability must be expected to last at least 12 months or result in death

• The number of required work credits depends on your age at the time of disability

• Benefits are based on your average lifetime earnings, similar to retirement benefits

SSDI also includes dependent benefits for minor children and spouses in certain cases, making it another critical piece of the Social Security safety net.

Taxation of Benefits

Many people are surprised to learn that Social Security benefits can be taxable at the federal level, depending on your income. The social security provisional income formula determines what portion of your social security benefits will be taxed at the federal level which ranges from 0% to 85%.

Provisional Income Calculation:

The provisional income formula is as follows:

Provisional income = AGI + tax-exempt interest + 50% of Social Security benefits

If your provisional income exceeds the IRS thresholds below, up to 85% of your Social Security benefits may be subject to federal income tax:

• Single filers: Benefits become taxable if income > $25,000

• Married filing jointly: Threshold starts at $32,000

Planning Tip:

Roth IRA distributions and qualified withdrawals from a Health Savings Account (HSA) do not count toward provisional income, making them useful tools in managing your tax liability in retirement.

Earnings Limits Before FRA

If you claim benefits before Full Retirement Age and continue working, your benefits may be temporarily reduced.

2025 Earnings Limit:

• $23,400/year before FRA

• $1 for every $2 earned above this limit is withheld

• In the year you reach FRA, a higher threshold applies

• No limit applies after reaching FRA

The good news: Any withheld benefits are recalculated into your future payments once you reach FRA, so the money is not lost—it’s just delayed.

Final Thoughts

Social Security is more than just a retirement benefit—it’s an income safety net for families, widows, children, and disabled workers. Understanding how and when to claim each type of benefit can create significant long-term financial value.

Whether you are approaching retirement or already receiving benefits, strategic planning around Social Security can impact your taxes, cash flow, and even legacy planning for future generations.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQs):

What are the main types of Social Security benefits available?
Social Security provides several types of benefits, including retirement, spousal, survivor, disability (SSDI), and benefits for minor children. Each type is based on specific eligibility criteria tied to a worker’s earnings record and family situation.

How does the age at which I claim Social Security affect my benefit amount?
Claiming benefits before your Full Retirement Age (FRA) reduces your monthly payments permanently, while delaying benefits past FRA can increase them by up to 8% per year until age 70. The best claiming age depends on factors like life expectancy, income needs, and spousal considerations.

Can a spouse who never worked receive Social Security benefits?
Yes, a non-working or lower-earning spouse can receive up to 50% of their spouse’s full retirement benefit as a spousal benefit. To qualify, the higher-earning spouse must have filed for benefits, and the marriage must meet the required duration rules.

What are survivor benefits and who can claim them?
Survivor benefits provide income to the spouse, children, or other dependents of a deceased worker. A surviving spouse can claim benefits as early as age 60, while dependent children and certain disabled adults may also qualify based on the worker’s earnings record.

Are Social Security benefits taxable?
Depending on your income, up to 85% of your Social Security benefits may be subject to federal income tax. The taxable portion is determined using your “provisional income,” which includes your adjusted gross income, tax-exempt interest, and half of your Social Security benefits.

How does working before Full Retirement Age affect my benefits?
If you claim benefits before FRA and continue to work, part of your payments may be temporarily withheld if your earnings exceed annual limits. Once you reach FRA, the withheld amounts are recalculated into future payments, effectively restoring the value over time.

Can children receive Social Security benefits based on a parent’s record?
Yes, children of retired, disabled, or deceased workers may qualify for benefits if they are under 18 (or 19 if still in high school) or became disabled before age 22. These payments can provide up to 50–75% of the parent’s benefit amount, subject to family maximum limits.

How to Minimize Taxes on Social Security

The IRS determines how much of your Social Security is taxable using your provisional income, which includes:

• Your adjusted gross income (AGI)

• Plus any tax-exempt interest (such as from municipal bonds)

• Plus 50% of your annual Social Security benefit

Example:

If your AGI is $20,000, you receive $5,000 in municipal bond interest, and your annual Social Security benefit is $30,000, your provisional income would be $40,000 — putting you in the 50% taxable range if you file your taxes married filing joint.

Based on this calculation, here are the income thresholds that determine how much of your benefit is taxable:

• Single filers

• $25,000 to $34,000 in provisional income: up to 50% of benefits may be taxable

• Over $34,000: up to 85% may be taxable

• Married filing jointly

• $32,000 to $44,000 in provisional income: up to 50% of benefits may be taxable

• Over $44,000: up to 85% may be taxable

Note: This doesn’t mean your benefits are taxed at 85%. Rather, it means up to 85% of your benefit amount is included in your taxable income and taxed at your ordinary income tax rate.

Strategies to Reduce or Eliminate Social Security Taxes

1.  Delay Taking Social Security

Delaying benefits until age 70 not only increases your monthly payout, but also creates an income “gap window” where you can take advantage of other planning opportunities — such as Roth conversions — before your benefit starts impacting your tax return.

2. Draw Down Pre-Tax Assets Before Claiming

In the early years of retirement, before beginning Social Security, consider withdrawing from traditional IRAs or 401(k)s. These distributions are taxable now, but doing so may reduce your future required minimum distributions (RMDs), which in turn lowers taxable income once you begin collecting Social Security.

3. Consider Roth Conversions

Similar to item 2, Roth conversions allow you to shift money from a traditional IRA to a Roth IRA, paying tax now in order to avoid higher taxes later.  By shifting money from a Traditioanl IRA to a Roth IRA prior to starting your social security benefit, it may keep you in lower tax brackets in future years especially when RMDs (requirement minimum distribution) begin at age 73 or 75. Also, once in a Roth IRA, future withdrawals are tax-free and do not count toward provisional income — helping keep more of your Social Security sheltered from taxation.

Note: Keep in mind that conversions count as income in the year they’re done — and can impact provisional income temporarily.

4. Use Qualified Charitable Distributions (QCDs)

QCDs allow individuals age 70½ or older to donate up to $100,000 per year directly from an IRA to a qualified charity. These donations count toward your RMD but are excluded from taxable income.

Clarification: The $100,000 QCD limit applies per individual IRA owner — so a married couple could potentially exclude up to $200,000 in charitable distributions if each spouse qualifies.

This is another way to reduce the size of a pre-tax retirement account balance which counts toward the RMD calculation.  Also since the QCD counts toward the RMD amount it can reduce your taxable income, potentially making less of your Social Security benefit subject to taxation at the federal level.

Example:  Sue is 78 and is required to take RMD from her traditional IRA of $10,000.  Sue decides to process a QCD from her IRA sending $10,000 to her church.  She has met the RMD requirement but the $10,000 does not represent taxable income to Sue.  Sue’s provision income as a single filer is $30,000 making her Social Security benefit 50% taxable. If she did not process the QCD, that would have raised her provisional income to $40,000 making 85% of her social security benefit subject to taxation.

5. Be Cautious With Tax-Free Interest

Although interest from municipal bonds is federally tax-exempt and potentially state income tax, it is included in the provisional income calculation. If your portfolio includes significant tax-free bond income, it could unintentionally push you into the 50% or 85% taxable Social Security range.

Final Thoughts

Social Security is a cornerstone of retirement income, but managing how it’s taxed is just as important as deciding when to claim. The key to minimizing Social Security taxes is planning around when you claim benefits and where your income is coming from. Strategies like Roth conversions, QCDs, and pre-Social Security IRA withdrawals can all work together to help you keep more of your benefits.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQs):

How does the IRS determine how much of my Social Security is taxable?
The IRS uses your “provisional income” to determine taxation, which includes your adjusted gross income (AGI), tax-exempt interest, and 50% of your annual Social Security benefits. Depending on your filing status and total provisional income, up to 50% or 85% of your Social Security benefits may be taxable.

What are the income thresholds for Social Security taxation?
For single filers, provisional income between $25,000 and $34,000 makes up to 50% of benefits taxable, and income above $34,000 makes up to 85% taxable. For married couples filing jointly, the 50% range applies between $32,000 and $44,000, with anything above $44,000 potentially making up to 85% taxable.

Does “85% taxable” mean I pay 85% tax on my benefits?
No. It means that up to 85% of your Social Security benefit is included in your taxable income and taxed at your ordinary income tax rate. You’re not taxed at 85%; rather, that portion is subject to your regular tax bracket.

How can I reduce or avoid taxes on my Social Security benefits?
You can lower taxable income by delaying Social Security, making Roth conversions before claiming benefits, or drawing down pre-tax accounts early in retirement. Using qualified charitable distributions (QCDs) from IRAs after age 70½ can also reduce taxable income and lower how much of your benefit is taxed.

How do Qualified Charitable Distributions (QCDs) affect Social Security taxation?
QCDs let you donate up to $100,000 per year directly from an IRA to a charity, satisfying required minimum distributions (RMDs) without increasing taxable income. By lowering your income, QCDs can reduce the portion of your Social Security benefits subject to tax.

Does tax-free interest from municipal bonds affect Social Security taxation?
Yes. Although municipal bond interest is exempt from federal income tax, it is included in the provisional income formula. Large amounts of tax-free interest can unintentionally increase the taxable portion of your Social Security benefits.

Turning on Social Security Early? Keep Your Final Paystub to Avoid Penalties

If you are planning to retire prior to your social security full retirement age, and you are also planning on turning on your social security benefits as soon as you retire, you have to be aware of a flaw in the social security system that may automatically prompt social security to attempt to assess an earned income penalty error against your social security benefit in the year that you retire. 

Social Security Earned Income Penalty

If you elect to begin receiving Social Security benefits prior to your full retirement age, Social Security assesses a penalty against the Social Security benefits that you receive if your earned income exceeds a specific threshold.  That limit in 2025 is $23,400.  If you have earned income over $23,400, and you file for social security benefits prior to your FRA, social security will assess a penalty equal to $1 for every $2 over the $23,400 threshold.

For example, Scott retires at age 63; his full retirement age for Social Security is 67, but he elects to file for Social Security benefits as soon as he retires.  Scott continues to work part-time and makes $35,000. Since Scott’s income is $11,600 over the $23,400 threshold, social security will assess a $5,800 penalty against Scott’s social security benefit in the following year.

Social security does not assess the penalty by requesting a check from Scott, instead, if Scott was receiving $2,000 per month in Social Security, then the following year they would withhold 3 months of social security payments from Scott, totaling $6,000 to cover the penalty, and then Scott’s monthly benefit would resume after the penalty months have been assessed.

Note: Social security does not withhold partial months for the penalty; if $100 is still owed in the penalty and the monthly SS benefit is $2,400, social security will withhold the full $2,400 monthly benefit to assess the final $100 penalty amount owed.

Flaw In Assessment of Social Security Income Penalty

There is a common flaw in the assessment of the Social Security earned income penalty in the year that an individual retires because it’s a common occurrence that prior to an individual actually retiring, they may have already earned more than the $23,400 income threshold with their employer prior to turning on their social security benefits. Will they be doomed and have to pay the SS penalty, or is there a way to appeal the earned income penalty in these cases?

Thankfully, it’s the latter of the two.  In the year that you retire, if you stop working and then turn on your social security benefits AFTER you have stopped working, the income earned prior to the month that you turned on your social security benefits is ignored for purposes of the social security earned income penalty.

For example, Jen, age 64, works for ABC Company from January – May, and then fully retires May 30, 2025. Between January – May, Jen had a W-2 income of $40,000, well above the $23,400 SS earned income threshold. However, since Jen did not turn on her social security benefits until June, after she had received her final paycheck from ABC Company, the $40,000 in W-2 that she earned prior to turning on her SS does not count toward the $23,400 income penalty threshold. 

However, here is the flaw.  Social Security has no idea when Jen stopped working during the year. All social security knows is that Jen turned on her social security prior to her full retirement age, and according to her tax return filed in that year, her earned income was over the $23,400 threshold. Due to this flaw, we coach clients by saying, “expect social security to attempt to assess the earned income penalty, but keep your final pay stub which shows the date of your final payroll and the total W-2 amount, which should be the amount of earned income that was reported on your tax return”. It may also be helpful to obtain a letter from your employer verifying your final date of employment and the total W-2 income earned at the time of separation from service.

Individuals Who Retire but Then Work Part-time

There are situations where individuals retire from their primary career, turn on Social Security after receiving their final paycheck, but then later in that calendar year they work part-time or start a business that produces income.  There is a special assessment of the Social Security earned income penalty for these individuals. The income earned prior to turning on their social security benefit is still ignored, but assuming that their income exceeds the $23,400 threshold before they retire, social security allows these individuals to continue to collect their social security benefit without penalty as long as:

1.  Their monthly income received does not exceed $1,950 ($23,400 divided by 12 months) …..AND

2. The individual did not perform substantial services in self-employment. The definition of substantial services means devoting more than 45 hours a MONTH to the business or between 15 – 45 hours to a business in a highly skilled occupation.

Exceeding either of the thresholds listed above will trigger the penalty.

Full Retirement Age – No Income Limits

Once you have reached FRA (full retirement age) for Social Security, the earned income penalty no longer applies. You can then earn as much as you want in earned income, and the Social Security earned income penalty will not apply.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQs):

What is the Social Security earned income penalty?
If you begin receiving Social Security benefits before reaching your full retirement age (FRA) and continue to earn income from work, the Social Security Administration may reduce your benefit. In 2025, the income limit is $23,400. For every $2 you earn above that amount, $1 of your Social Security benefits is withheld.

How does Social Security apply the penalty?
Social Security doesn’t send you a bill. Instead, it withholds full months of future benefit payments until the penalty amount is repaid. For example, if your penalty is $5,800 and your monthly benefit is $2,000, Social Security would withhold three full months of benefits ($6,000 total).

What happens if I retire mid-year and already earned more than the limit?
If you stop working and turn on your Social Security benefits after retirement, your earnings from earlier in the same year do not count toward the $23,400 limit. However, because Social Security’s system doesn’t automatically know when you stopped working, it may incorrectly assess a penalty.

How can I appeal an incorrect earned income penalty?
Keep your final pay stub showing your last paycheck date and total W-2 income, and ask your former employer for a letter verifying your final date of employment. You can use these documents to appeal the penalty and demonstrate that your income occurred before you began receiving benefits.

Can I work part-time after turning on Social Security before full retirement age?
Yes, but limits still apply. As long as you earn less than $1,950 per month (the monthly equivalent of $23,400 per year) and do not perform “substantial services” in self-employment (more than 45 hours per month, or 15–45 hours in a highly skilled field), your benefits will not be reduced.

What happens once I reach full retirement age (FRA)?
Once you reach FRA, the earned income penalty no longer applies. You can earn as much income as you want without any reduction in your Social Security benefits.

Why is the earned income penalty considered a flaw?
The flaw arises because Social Security’s system uses annual income data from tax filings without knowing when during the year the income was earned. This often causes the system to mistakenly flag retirees who stopped working mid-year as exceeding the income limit, even when they are not subject to the penalty.