Your 2023 Social Security Guide

By Brett Gottlieb

If you’re one of the lucky ones who is nearing retirement this year, you may be experiencing mixed emotions of both excitement and anxiety. Perhaps you are eager to begin a new chapter, but also uncertain on how to make it happen. Add to that the task of learning about the Social Security process, and it can all feel a bit daunting!

Given that the baby boomer generation is quickly reaching the age 65 and more adults are leaving the workforce due to the pandemic, it’s important that you have full knowledge of your benefits and how they work in order to get the most out of your retirement. Our team at Comprehensive Advisor is here to help with the following tips to guide you down the path to clarity.

Understand How Social Security Benefits Are Calculated

Your Social Security benefits are calculated by the Social Security Administration (SSA). Benefits are based on lifetime earnings across your 35 highest earning years. You must work a minimum of 10 years to be eligible for benefits. If you have worked less than 35 years, your

earnings will be calculated with zeros for the years you have not worked. All past wages are indexed to today’s wages in order to accurately reflect wage growth.

Once your average monthly earnings for your top 35 years are calculated, a specific formula is applied and the result is your primary insurance amount (PIA). The PIA is the benefit you are eligible to receive when you reach full retirement age (FRA).

The actual benefit you receive may not be your PIA. This is because your PIA will be increased or decreased depending on when you choose to receive benefits. Taking benefits before FRA will reduce your benefit, and waiting until after FRA will increase your monthly benefit. Also, starting at age 62, your eligible benefits will receive regular cost-of-living adjustments (COLA).

Spousal Benefits

Married people are eligible for benefits based on their spouse’s work history. The spousal benefit is 50% of the working spouse’s earned benefit. In order to receive these benefits, the working spouse must be at least 62 and have already filed for benefits.

If you are divorced, you may also be eligible to receive spousal benefits based on your ex- spouse’s work history. Your marriage needs to have lasted at least 10 years, you must be divorced for at least two years, and you must still be single. In addition, you need to be at least 62 and not eligible for a higher benefit amount based on your own work record. Unlike spousal benefits for married people, your ex-spouse does not need to have filed for benefits in order for you to claim them.

When You Can Claim Social Security Benefits

You can claim your Social Security benefits anytime between age 62 and age 70. If you continue to delay taking benefits after you reach age 70, there is no additional benefit increase. However, the age at which you choose to collect benefits before 70 will impact the amount of benefit you receive.

Early Retirement

You can start receiving benefits as early as 62, but your monthly benefit will be lower than if you waited longer. Your basic benefit is reduced a fraction of a percent for each month you begin receiving benefits prior to full retirement age. Taking benefits early can permanently reduce your benefit by up to 30%.

Full Retirement Age

Your full retirement age (FRA) changes based on the year you were born. FRA is 66 for those born between 1943 and 1954 and increases by two months for every year after that you were born until it settles at age 67 for those born in 1960 or later. If you wait until you reach full

retirement age to begin collecting your Social Security benefits, you will receive the full PIA that you have earned.

Year BornFull Retirement Age (FRA)
1943 to 195466
195566 and 2 months
195666 and 4 months
195766 and 6 months
195866 and 8 months
195966 and 10 months
1960 and later67

1

Delayed Benefits

If you’re still working or don’t need the money immediately, you can delay receiving your benefits. Your benefit will increase by 8% for each year that you delay after your FRA, with a maximum possible increase of 32%. You cannot delay and increase your benefit indefinitely, though. Once you reach age 70, the amount of benefits you receive will not increase any further.

Know the Best Time to Claim Benefits

While you are working, it’s possible to increase your future Social Security benefits by earning higher wages. However, once you stop working the only influence you have over your benefit is when you begin to take it. Your timing has a great impact on the total amount of the benefit you will receive and should be thoughtfully considered.

Social Security Statement

An important document that you will reference during the decision-making process is your Social Security statement. The Social Security Administration mails statements to workers age 60 and over who aren’t receiving Social Security benefits and do not yet have a my Social Security account. These statements will be mailed out three months prior to your birthday, but you can also access the same information by setting up an account on their website.

The statement will tell you your:

  • Estimated benefit if taken at age 62
  • Estimated benefit if taken at FRA
  • Estimated benefit if taken at age 70
  • Estimated disability benefit
  • Estimated family and survivor benefits
  • Medicare information
  • Earnings history

All benefit amounts listed are estimates and subject to change. They are calculated based on your date of birth and future estimated taxable earnings.

It is important to review your earnings history and check for accuracy. Your benefit is calculated based on those numbers, so any mistakes can affect your benefits. You should correct any errors as soon as possible.

Deciding When to Claim Benefits

Your Social Security benefits are calculated using complex actuarial equations based on life expectancy and estimated rates of return. They are not designed to encourage early or late retirement. If you live as long as anticipated, the total amount you receive over your lifetime should be about the same whether you claim it at age 62, age 70, or sometime in between. You will either receive the money as a smaller monthly payment over a longer period of time or a larger monthly payment over a shorter period of time.

The best time for you to claim your benefits will depend on your personal situation and health. If you expect to live longer than average, you may want to delay claiming your benefits because your overall lifetime benefit will be higher. If the opposite is true and you see little chance of making it into your mid-80s, you might receive a greater lifetime benefit by taking it sooner, even though it would be a smaller monthly payment.

Example given is a hypothetical sample scenario shown for illustrative purposes only, and numbers are calculated based on the following source:https://www.ssa.gov/planners/retire/1943.html

How Married Couples Can Help Optimize Benefits

Because married people have the ability to receive their own benefit or a spousal benefit, they have more to weigh out when filing for benefits. With the right strategy, married couples can help optimize their benefits.

In some situations, the lower-earning spouse may want to begin collecting benefits early while the higher-earning spouse waits as long as possible. That way, you can access the lesser benefit while increasing the higher benefit.

Often, it is the husband with the higher benefit and the wife with the lower one. Women also tend to live longer than men. By following this strategy of waiting as long as possible to claim the higher benefit, you not only potentially optimize the husband’s retirement benefit for use while he is alive, but it also the wife’s survivor benefit when he passes away.

Restricted Application

While it used to be a popular claiming strategy, the Restricted Application is now only available to those born before January 2, 1954. By restricting your application, you can receive a spousal benefit if your spouse is already collecting benefits while allowing your own benefit to continue to grow until age 70. That way, you can begin to receive spousal benefits while maximizing your own benefit.

How Working May Affect Your Benefits

Working does not affect your benefits once you reach FRA, but it does before that. Only earned income, such as wages and self-employment earnings, affects your Social Security benefits.

Income from investments, pensions, and annuities do not affect Social Security benefits.

For 2023, when you are under FRA for the whole year, your Social Security benefit is reduced by $1 for every $2 you earn over $21,240 in 2023. In the year that you reach FRA, your benefit is reduced by $1 for every $3 you earn over $56,520. Once you reach FRA, your benefit is no longer reduced no matter how much you earn. These dollar amounts adjust each year, so your benefit may change in following years.

2023 Cost-of-Living Adjustment

In 2023 the COLA is 8.7%, the biggest increase in 40 years. With this change, Social Security benefits started increasing by more than $140 per month in January 2023. There is also an increase in the Social Security tax cap. The cap is increased from $147,000 to $160,200, meaning Social Security taxes will not be withheld from income earned above that amount.

This substantial increase in benefits will hopefully provide retirees some relief from the rising cost of goods and services. Historically, a COLA that fails to keep pace with inflation only serves to exacerbate financial hardships. It’s important to keep in mind that the COLA will affect pre- retirees and retirees differently. Here’s what to expect based on where you are in your retirement journey.

Retirees Taking Social Security

While this increase is good news for retirees, it’s not a license to change spending habits all that much—as most retirees know all too well.

It will still be necessary to keep track of your finances, spending—and, importantly, your tax liabilities; some beneficiaries could experience increased taxes in the coming years, depending on their thresholds.

Retirees Not Taking Social Security

Retirees who have not started claiming Social Security will still reap the benefits of this increase even if they don’t take Social Security this year. There is never a decrease in the COLA, so the higher payments are here to stay. Keep in mind that, in some cases, it could be worth holding off taking Social Security for several years once you’re eligible as discussed above. Of course, the benefits of doing so vary based on individual circumstances.

Work With an Experienced Professional

Making a decision about when to claim Social Security benefits is an important one, and can have a big impact on your retirement. Finding a financial professional whom you trust can help you understand all your options—and the potential implications of each. They can support you in analyzing your investments and savings, explaining the different claiming strategies and how they could affect your retirement income, while providing guidance and advice on how to make the best decision for your situation.

Here at Comprehensive Advisor, we offer valuable resources and advice to help you understand the system in order to make the most of your benefits. Our team of experienced advisors can help build your financial confidence as you prepare for this next season of life. We can walk you through the Social Security process, helping you navigate the next chapter of your life with confidence. Reach out today by emailing us at info@ComprehensiveAdvisor.com or call (760) 813-2125.

About Our Advisors

Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees, in business administration and economics, and is Life Insurance licensed in several states. He is passionate about guiding his clients on retirement income planning, helping each client pursue their specific retirement goals, and defending the assets his clients have worked so hard to achieve. Brett is a California native and currently resides in San Elijo Hills with his beautiful wife and three children.

Our team of qualified professionals have experience in the financial service industry, and our advisors hail from some of the largest independent broker/dealers and banking institutions in the country. They have dedicated their professional careers to creating personalized financial

solutions for individuals and families who seek successful retirement planning and currently offer investment advisory services through AE Wealth Management, LLC. Our advisors take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County and beyond. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.

Investment advisory services made available through AE Wealth Management, LLC (AEWM). AEWM and Comprehensive Advisor are not affiliated companies. Insurance products are offered through the insurance business Comprehensive Advisor, LLC. Comprehensive Advisor, LLC is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. AEWM does not offer insurance products. The insurance products offered by Comprehensive Advisor, LLC are not subject to investment Advisor requirements. C.A. Financial & Insurance Services, CA Ins. Lic. #6000262. This material is intended to provide general information and is believed to be reliable, but accuracy and completeness cannot be guaranteed. Neither the firm nor its representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.

Investing involves risk, including the potential loss of principal. Any references to protection benefits, safety, security, lifetime income, etc. generally refer to fixed insurance products, never securities or investment products. Our firm is not affiliated with the U.S. government or any governmental agency. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. 1687684 – 2/23.

[1] https://www.investopedia.com/retirement/when-take-social-security-complete-guide/

next-step-circle

Ready to take
The Next Step?


For more information about any of the products and services we provide, schedule a visit today or register to attend a live informational event.

 

Or give us a call at 760.813.2125