The wrong Social Security decision can follow you for life. Here is what to know before you make it.
By Courtney Hoffman, CFP®, AAMS™ EverPar Advisors
Social Security seems straightforward until you start getting close to claiming it. At that point, most people realize there are a lot of moving pieces, and the decisions you make are some of the most permanent ones in your entire retirement plan.
In a recent conversation, Ken Petrashek, CFP® and I walked through six of the most common Social Security myths we hear from clients. Here is what we covered.
Myth 1: Waiting Until 70 Is Always the Smartest Move
Delaying Social Security until 70 is often presented as the obvious choice, but whether it actually makes sense depends on your individual situation.
The math behind the decision comes down to a break-even analysis. If you delay claiming, your monthly benefit increases, but you receive fewer years of payments. For most people, the break-even point lands somewhere in the early eighties. If you have strong longevity in your family, waiting can make a lot of sense. If you have known health factors that may shorten your life expectancy, claiming earlier could result in a higher total lifetime benefit.
Source: https://www.ssa.gov/benefits/retirement/planner/agereduction.html
Marital status is another major factor. If one spouse is a significantly higher earner, delaying their benefit can protect the surviving spouse, since the survivor will step up to the higher amount when the first spouse passes. Cash flow also plays a role. If you have limited savings and need the income, claiming earlier may be the right call. If you have a large portfolio and do not need the money, waiting gives you more flexibility.
The bottom line is that the right age to claim is not a universal answer. It requires running a personalized break-even analysis that accounts for your health, your spouse’s situation, your cash flow needs, and your overall financial picture.
Myth 2: My Social Security Decision Only Affects Me
If you are married, your Social Security decision has a direct impact on your spouse, both while you are both alive and after one of you passes.
On the spousal benefit side, the lower-earning spouse can receive up to 50% of the higher earner’s benefit at their full retirement age. That calculation is based on the higher earner’s primary insurance amount, meaning the benefit at their full retirement age, not the delayed amount at 70. When the higher-earning spouse passes, the surviving spouse steps up to that larger benefit amount. This means that if the higher earner claimed early and locked in a reduced benefit, the survivor carries that reduction for the rest of their life.
Source: https://www.ssa.gov/benefits/retirement/planner/applying7.html
There is also a provision worth knowing for divorced individuals. If you were married for ten years or more and have not remarried, you may be eligible to claim benefits based on your ex-spouse’s earning record, with no impact to them whatsoever. The key requirements are that the marriage lasted at least ten years, you remain unmarried, and your benefit based on their record would be higher than your own.
Myth 3: Social Security Income Is Not Taxed in Retirement
This one surprises a lot of people. Up to 85% of your Social Security benefit can be subject to federal income tax, depending on your total income in retirement.
The calculation is based on something called provisional income, which is your adjusted gross income plus any tax-exempt interest plus 50% of your Social Security benefits. For individuals, provisional income above $34,000 means up to 85% of your benefits are included in taxable income. For married couples filing jointly, that threshold is $44,000.¹
¹https://www.irs.gov/publications/p915
Sources: https://www.irs.gov/publications/p915 https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.html
What makes this particularly important is that these thresholds were set in 1984 and have never been adjusted for inflation. In today’s dollars, a retiree drawing from an IRA, receiving a pension, and collecting Social Security will often exceed these thresholds without realizing it.
There are a couple of things people commonly overlook in this calculation. Municipal bond interest is often thought of as federally tax-exempt, but it does count toward your provisional income. Large one-time IRA withdrawals, such as purchasing a vehicle or funding a major trip, can also spike your income in that year and pull more of your Social Security benefit into taxable territory.
The best approach is to model these scenarios in advance as part of your broader financial plan so you are not caught off guard when it happens.
Myth 4: I Should Claim Early Before Social Security Goes Broke
Concerns about Social Security’s long-term funding are legitimate, but the conclusion many people draw from them — that they should claim as early as possible to lock in their benefit — tends to work against them.
Current projections suggest there could be a shortfall in the Social Security trust fund around 2035, but that projection assumes Congress takes no action. Congress has addressed Social Security shortfalls more than 20 times since 1935. Given the sheer number of Americans who depend on these benefits, it would be politically untenable to let the program fail. The more realistic worst-case scenario is a reduction in benefits, not a complete suspension.
The flawed logic of claiming early to protect yourself is worth examining directly. If Social Security actually ran out of funds entirely, the fact that you started receiving benefits at 62 would not protect you. What it would do is lock in a permanent 30% reduction to your benefit for the rest of your life.
Myth 5: I Can Take Social Security Any Time After 62
Technically, you can begin collecting Social Security at 62. But if you are still working when you do, there is an important rule that most people are not aware of until it affects them.
The Retirement Earnings Test applies to anyone who claims benefits before their full retirement age, which is 67 for most people today, while continuing to earn income from work. In 2026, if you earn more than $24,480 in wages or self-employment income, one dollar of your Social Security benefit is withheld for every two dollars you earn over that limit. In the year you reach full retirement age, the limit rises to $65,160,¹ and the withholding rate drops to one dollar for every three dollars over the limit. Once you actually reach 67, the test no longer applies and you can earn as much as you want without any reduction.
¹https://www.ssa.gov/benefits/retirement/planner/whileworking.html
Source: https://www.ssa.gov/benefits/retirement/planner/whileworking.html
It is worth noting that the test only looks at wages and self-employment income. Investment income, IRA withdrawals, pension income, rental income, and capital gains do not count.
To put real numbers to it: imagine you are 64 years old, collecting $1,500 per month in Social Security, and earning $44,480 in part-time income. You are $20,000 over the limit. That means $10,000 of your Social Security benefits would either be withheld or need to be paid back. You do eventually get that money back once you reach full retirement age, but in the meantime the government holds it, which is effectively six or seven months of benefits you do not have access to.
This rule catches a lot of people off guard, particularly those who plan to retire from a full-time career but continue doing consulting work. The most important factor when considering early claiming is whether you will still be earning income.
Myth 6: My Advisor Automatically Handles All of This
Social Security planning does not happen in isolation. It connects directly to Medicare, and one of the most overlooked connections involves something called IRMAA, which stands for Income Related Monthly Adjustment Amount.
IRMAA is a surcharge added to your Medicare premiums based on your income from two years prior. This two-year lookback is where people run into trouble. A large income event at age 63, whether that is a Roth conversion, a significant IRA withdrawal, or a pension-to-annuity transfer, can show up in your Medicare premium calculation at age 65.
Ken shared a real example from his practice: a client whose company converted his defined benefit pension into an annuity. His monthly take-home income did not change at all, but the transaction appeared as over a million dollars of income on paper for that year. His Medicare premiums spiked as a result. He appealed twice and was denied both times.
Some of these situations are outside your control. But many are not. If you are considering a Roth conversion in your early 60s, modeling the downstream impact on your Medicare premiums is an important part of the analysis. A little forward planning can prevent a significant and avoidable increase in lifetime costs.
Every Situation Is Different
Social Security touches almost every part of a retirement plan, and the right approach looks different for every person. Nearly everyone is eligible for it, which means these questions come up constantly in our practice.If you are getting close to making a Social Security decision and want to work through it with someone, we would love to hear from you. Reach out to the team at EverPar to set up a foundation meeting.
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