Social Security Planning

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Social Security Overview

Social Security benefits are intended to replace a percentage of a worker’s pre-retirement income based on their lifetime earnings. The portion of pre-retirement wages that Social Security replaces is based on your highest 35 years of earnings and varies depending on how much you earn and when you choose to start benefits.

The amount issued as monthly income replacement at full retirement age is referred to as the primary insurance amount (PIA). The PIA value is issued to every eligible client by the Social Security Administration (SSA).

Eligibility for Social Security

Clients must qualify for Social Security benefits clients by earning at least 40 Social Security credits. Clients earn up to four Social Security credits per year when they work and pay Social Security taxes.

Credits are based on their total wages and self-employment income for the year. The amount of earnings it takes to earn a credit may change each year. In 2021, clients earn one Social Security or Medicare credit for every $1,470 in covered earnings each year. You must earn $5,880 to get the maximum four credits for the year.

Primary Insurance Amount (PIA)

The PIA value is the monthly Social Security benefit a client will receive if they file for income at their full retirement age. At full retirement age the benefit is neither reduced by an early withdrawal penalty nor is it increased with a delay credit. The Social Security Administration will calculate and supply this amount for eligible clients.

How PIA is Calculated

.The Social Security PIA value is based on each eligible client’s averaged monthly earnings adjusted for wage growth. The average indexed monthly earnings (AIME) are separated into three amounts or “bend points”. These amounts change based on when a client reaches age 62. Each amount is multiplied by a specific factor and the sum of all three amounts will equal the client’s PIA value which can be increased or decreased depending on other variables. Here are links that illustrate PIA bend points and maximum benefit formulas.

Social Security Application ProcessRetirement Benefit

Full Retirement Age

Full retirement age is the age when clients will be able to collect their full-born retirement benefit amount. The full retirement age is 66 if clients were born from 1943 to 1954. The full retirement age increases gradually if they were born from 1955 to 1960, until it reaches 67. For anyone in 1960 or later, full retirement benefits are payable at age 67. You can find a client’s full retirement age by birth year in the full retirement age chart.

Early Retirement Age

Clients can collect Social Security benefits as early as age 62. However, their benefit is reduced if they start collecting benefits before full retirement age. Advisors can use the following link to determine how claiming retirement benefits early will affect the benefit amount. The early withdrawal penalty when filing for Social Security benefits before full retirement age ranges from 5% to 6.7% per year depending on the client’s birthday.

Delayed Retirement Age

When clients delay filing for Social Security beyond their full retirement age, the benefit amount will continue to increase until age 70. Advisors can use the following link to determine how delaying Social Security will affect the benefit amount. The delay credits applied to Social Security benefits range from 7.5% to 8% each year depending on the client’s birthday.

Spousal Benefit

Starting at age 62 spousal benefits are available to clients even if they never worked towards Social Security credits. If a client’s spouse qualifies for Social Security the spousal benefit can provide 50% of the spouse’s primary insurance amount value. The current plan’s strategy will automatically include spousal benefits when appropriate.

Spousal benefits are subject to an early withdrawal penalty (5% to 8% per year) but delay credits after full retirement age. Spousal benefits can be viewed in the Retirement > Cash Flows > Income Inflows > Social Security income area. Click the underlined column headers to reveal additional information including any spousal benefits.

Survivor Benefit

If a client passed away, the surviving spouse is eligible to receive a survivor benefit. The maximum monthly survivor benefit is 82.5% of the deceased spouse’s benefit amount. The spouse can then take the max of her retirement benefit or the deceased client’s retirement benefit.

An early withdrawal penalty of 4% to 6% per year is applied if the benefit is taken before the surviving spouse’s full retirement age. No delay credits are available on survivor benefits. Financial plans in RightCapital will default to a strategy that includes survival benefits when appropriate. When a client is “already receiving” Social Security the start age listed will be used to calculate survivor benefits.


Child Benefit

When a client files for Social Security benefits while listing a minor child as a dependent, there is an opportunity to receive additional benefits. The child can be biological, adopted or a stepchild in thehousehold.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.