Ready For Retirement Podcast Summary
Episode 5: Advanced Social Security Strategies to Maximize Your Retirement Income
Host: James Conole, CFP®
Release Date: January 28, 2025

Introduction

In Episode 5 of the Ready For Retirement podcast, financial expert James Conole delves deep into advanced strategies for maximizing Social Security benefits. Responding to listener questions and expanding on essential concepts, James equips retirees with the knowledge to navigate the complexities of Social Security, ensuring a more secure and prosperous retirement.

Listener Question: Navigating the Social Security Earnings Test

The episode kicks off with James addressing a listener named David's inquiry about applying for Social Security benefits at age 63 while continuing full-time employment until reaching the 2025 earnings test limit.

• David's Question: "I will be 63 in December, and if I apply for my Social Security to start in January of 2025, can I work full time until I reach the earnings test limit for 2025 and take off the rest of the year? Would I be on the yearly earnings test since I'm starting at the beginning of the year?"

James’s Response:

James clarifies that “any earnings that you receive before turning on your Social Security benefit are not included in the earnings limit test. The earnings limit test only has to do with earnings that you receive once you have begun your Social Security” (01:30).

Key Points:

• Pre-Benefit Earnings: David can work without restrictions until April 2025, as earnings before benefits start are not subject to the earnings limit.
• Post-Benefit Earnings: Starting May 2025, earnings are subject to the Social Security earnings limit of $23,400 for that year.

James further explains the implications of exceeding the earnings limit once benefits are initiated, emphasizing the withholding of Social Security benefits based on excess income.

Understanding the Five Social Security Limits

James outlines five critical Social Security thresholds that retirees must comprehend to optimize their benefits:

1. Social Security Earnings Limit
2. Social Security Wage Base
3. Maximum Social Security Benefits
4. Provisional Income
5. Social Security Bend Points

1. Social Security Earnings Limit

Definition: The earnings limit restricts the amount you can earn while receiving Social Security benefits before reaching full retirement age.

Details:

• 2025 Earnings Limit: $23,400 annually.
• Withholding Rule: For every $2 earned above the limit, $1 is withheld from benefits (02:45).

Example: “If you earn exactly $33,400, which is $10,000 above the $23,400 limit, Social Security will withhold $5,000 from your annual benefits” (04:00).

Key Insight: James emphasizes the importance of accurately estimating earnings to avoid unexpected benefits withholding: “If you estimate an amount that you're going to earn and it exceeds the earnings limit, or if you don't, if you earn more than you told them that you're going to earn, that would be money that you have to pay back to Social Security” (05:15).

2. Social Security Wage Base

Definition: The wage base is the maximum income subject to Social Security taxes each year.

2025 Wage Base: $176,100.

Details:

• Total FICA Taxes: 15.3% (7.65% employee and 7.65% employer).
  • Social Security Tax: 6.2% up to the wage base.
  • Medicare Tax: 1.45% on all earnings, with no cap.

Impact:

• Higher Earners: Once the wage base is exceeded, no further Social Security taxes are deducted, potentially increasing net pay for the remainder of the year.
• Maximizing Benefits: Maxing out contributions can influence the maximum Social Security benefit attainable.

James’s Explanation: “At $176,100, you are paying the full 7.65% of every dollar up until that wage base. From there on out, you are still paying the 1.45% in Medicare taxes” (09:30).

Future Considerations: James notes ongoing discussions about adjusting the wage base to preserve Social Security’s solvency, which could involve increasing or eliminating the cap (12:00).

3. Maximum Social Security Benefits

Individual Maximums:

• Age 62: $2,710/month.
• Full Retirement Age (66-67): $4,018/month.
• Age 70: $5,108/month.

Family Maximum: Ranges between 150% and 180% of an individual’s full retirement age benefit, encompassing spousal and dependent benefits.

Key Point: “These max benefits are assuming you've maxed out what you've paid into Social Security” (15:45).

Implications: Understanding these caps helps retirees plan the optimal age to claim benefits to maximize income.

4. Provisional Income

Definition: Provisional income determines the portion of Social Security benefits that are subject to federal taxes.

Thresholds for 2025:

• Single Filers:

  • Up to $25,000: 0% taxable.
  • $25,000 - $34,000: Up to 50% taxable.
  • Above $34,000: Up to 85% taxable.

• Married Filers:

  • Up to $32,000: 0% taxable.
  • $32,000 - $44,000: Up to 50% taxable.
  • Above $44,000: Up to 85% taxable.

Important Note: These thresholds are not indexed to inflation, potentially leading to more benefits being taxed over time as income rises (18:00).

James’s Insight: “A maximum of 85% of your benefit is included in your taxable income” (17:05).

5. Social Security Bend Points

Definition: Bend points are the earnings thresholds that determine what portion of your Social Security benefits is counted toward the calculation of your benefits.

2025 Bend Points:

• First Tier: Up to $1,226/month – 90% of earnings count.
• Second Tier: $1,226 - $7,391/month – 32% of earnings count.
• Third Tier: Above $7,391/month – 15% of earnings count.

Explanation: “Within the first bend point, any of those monthly earnings that you have, 90% of those earnings go into the calculation to determine how much you're eligible for in Social Security” (20:15).

Implications:

• Impact on Benefits: Higher earners contribute proportionally less towards their benefits, aligning with Social Security’s safety net philosophy to support lower earners more substantially.
• Strategic Planning: Understanding bend points is crucial for retirees considering part-time work or additional income sources to optimize benefit calculations (22:30).

Conclusion and Additional Resources

James wraps up the episode by reaffirming the importance of understanding these five Social Security limits to maximize retirement income. He directs listeners to additional resources, including a video on four strategies to enhance Social Security benefits, and emphasizes consulting with financial professionals before making decisions.

Final Note: “Take a look. Watch that video so you can see what you can do to create a more secure retirement” (25:00).

Disclaimer

James concludes with a standard disclaimer advising listeners to consult with tax, financial, or legal professionals before making any financial decisions based on podcast content.

Summary

In this comprehensive episode, James Conole provides invaluable insights into the intricate mechanisms of Social Security, empowering retirees to make informed decisions. By dissecting the earnings limit, wage base, maximum benefits, provisional income, and bend points, James offers a roadmap to effectively navigate Social Security's complexities, ensuring that listeners can optimize their retirement income and achieve financial peace of mind.

Connect with Root Financial

For personalized assistance in implementing these strategies, listeners are encouraged to visit rootfinancialpartners.com and schedule a consultation with Root Financial advisors.