Social Security 2025: 6 Things To Consider Before Withdrawing Benefits Next Year
Written by
John Csiszar
Edited by
Rebekah Evans
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Social Security seems like a simple program. You work, you pay your Social Security taxes and when you retire, you claim your benefit. But there’s a lot more that goes into Social Security than you might imagine. For example, the longer you work and the more you earn, the higher your benefit can be.
But one of the most important factors when it comes to the size of your Social Security benefit is when you actually claim it. Your age, your other sources of income, your cost of living and many other factors are important considerations when it comes to withdrawing Social Security benefits. Here’s a look at how they all play a role.
The Size of Your Benefit
The more you earn — at least up to the annual Social Security wage base limit — the more your ultimate benefit will be. According to the Social Security Administration (SSA), your 35 highest-earning years are taken and a formula is applied to calculate your benefit, so higher earners get larger Social Security checks. But the quoted benefit is available only at your “full retirement age,” which is 67 for anyone born in 1960 or later. You can claim your benefit as early as age 62, but it will be reduced by as much as 30%.
This is critical to understand because it could literally make or break your retirement. If your full retirement benefit is $2,000 per month, for example, but you’re planning on retiring at 62, you should anticipate receiving only about $1,400 instead. If you’re prepared for this reduction, it might actually work to your advantage, depending on your financial situation. But if you’re expecting $2,000, it could upend your entire retirement budget.
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Your Work Status and Income
If you intend to work after you claim your Social Security benefits, you might be in for another surprise. According to the SSA, your payout will be reduced by $1 for every $2 you earn above an annual limit, which is $22,320 for 2024.
The year you reach full retirement age, your benefit is reduced by $1 for every $3 you earn above a different limit, which is $59,520 in 2024. That money is repaid to you through a benefit adjustment when you reach full retirement age, but it’s important to understand.
Taxation
Working while you take Social Security benefits can have an additional complication: taxation. If your total income is above $25,000 as an individual or $32,000 as a joint filer, 50% to 85% of your Social Security income will become taxable.
For purposes of this calculation, “total income” is 50% of your Social Security benefit (plus any other earned income). This isn’t to say you shouldn’t supplement your Social Security check with additional income, but you should understand the potential tax ramifications.
Your Retirement Budget
Your expenses in retirement will likely be different from when you were in the working world. Some expenses (like healthcare) will likely increase, while others (such as commuting to work) will likely decrease.
Others, like travel costs, may either go up or go down. While you’ll never be able to forecast your retirement budget down to the penny, at least getting an idea of what your income and expenses might look like is a worthwhile effort before you decide to claim Social Security.
Your Other Sources of Retirement Income
For some retirees, Social Security is an absolute lifeline that will greatly depend upon in retirement. But for those with sizable retirement account balances and/or pensions, Social Security may be more of a supplemental than primary source of income.
Understanding where you stand financially in terms of your other sources of retirement income can serve as a guide as to when you should be claiming your Social Security benefit.
Your (Potential) Spousal Benefit
If you’re married, it’s possible that your spousal benefit may be more than the amount you’d receive from your own Social Security record. Most spouses of working individuals are able to claim a benefit equal to 50% of the primary beneficiary’s SS payment. If you don’t have an extensive work record or didn’t earn much during your working career, it’s entirely possible that the spousal benefit will exceed your own.
However, according to the SSA, this will be reduced if you claim a spousal benefit before you reach your own full retirement age. Either way, if this scenario could potentially apply to you, it’s an important thing to consider before you decide to take Social Security benefits next year.
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