PFA Updates
Surprising Facts About Social Security That Can Impact Your Retirement
Jan 15, 2025
When it comes to retirement, Social Security and Medicare are often misunderstood or underestimated. But the truth is that both can play a vital role in your financial strategy, no matter your income level or net worth.
Here are some lesser-known facts that may shed new light on how Social Security and Medicare can fit into your long-term strategy:
1. Social Security is more than just retirement benefits
Most people think of Social Security solely as a retirement program. However, it also provides crucial life insurance and disability insurance coverage. For example, if you’re a young worker with a family, your Social Security life insurance protection could be worth nearly $948,000. About 90% of workers aged 21–64 have some disability coverage through Social Security.1
2. Delaying your claim can increase benefits
Waiting to take Social Security past your full retirement age can boost your benefits by 8% annually until age 70. While delaying may seem like a simple choice, it's a nuanced decision that depends on factors like your health, work plans, and marital status.2 We find most clients start benefits earlier rather than later.
3. Social Security adjusts for inflation
Unlike some private pensions, Social Security can be adjusted annually. This cost-of-living adjustment (COLA) is designed to help maintain your purchasing power. In 2025, the COLA is 2.5%, following one of the largest increases in recent history. However, there have been years with no COLA increase, so preparation is essential.3
4. Your benefits may be taxable
Did you know your Social Security benefits could be subject to federal income tax if your combined income exceeds certain thresholds? Up to 85% of your benefits could be taxed, and it’s important to consider how this might impact your overall retirement income strategy.4,5
5. Spousal benefits can boost household income
Even if your spouse has never worked, they may be eligible for up to 50% of your benefit. Survivor/Widow benefits can also be a significant consideration for your household income in retirement.6
6. Social Security provides stability amid market volatility
Because it provides stable income, Social Security offers a steady income stream that is not dependent on market performance. This monthly payment can help cover basic living expenses without tapping into investment accounts during market downturns.
7. Your total benefit might surprise you
The lifetime value of your Social Security benefits can be substantial. For example, a single high earner turning 65 in 2025 could receive benefits worth over $630,000 over their lifetime.7
8. High income can mean higher Medicare premiums
If your income exceeds certain thresholds, you may pay higher premiums for Medicare. Understanding these costs can help you better prepare your retirement budget.8
9. Social Security benefits are available internationally
If you’re considering retiring abroad, you can still receive Social Security benefits in most countries. However, Medicare may not cover all healthcare outside the United States, so that additional preparation might be required.9
10. The Windfall Elimination Provision may reduce benefits
If you’ve worked in a job not covered by Social Security and receive a pension, the Windfall Elimination Provision could reduce your benefits. Understanding this rule is essential for accurate retirement preparation.10
Conclusion
Social Security and Medicare are more than just a safety net; they are strategic assets in your retirement portfolio. As financial professionals, we're here to help you understand how to manage your benefits and integrate them into a comprehensive retirement strategy.
If you have questions about how Social Security and Medicare fits into your retirement or want to explore your choices further, don’t hesitate to reach out.
Disclaimer: This email is for informational purposes only. Please consult with a tax, legal, or financial advisor for advice tailored to your individual circumstances.
Sources:
1. Center on Budget and Policy Priorities, May 31, 2024. Several factors affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder may also pay surrender charges and face income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
https://www.cbpp.org/research/social-security/top-ten-facts-about-social-security
2. Social Security Administration, October 2024
https://www.ssa.gov/benefits/retirement/planner/delayret.html
3. Social Security Administration, October 2024
4. Social Security Administration, October 2024. This email is for informational purposes only and is not a replacement for real-life advice. Consult your tax, legal, and accounting professionals before modifying your Social Security strategy.
https://www.ssa.gov/manage-benefits/request-withhold-taxes
5. Social Security Matters, July 15, 2024
https://blog.ssa.gov/do-you-qualify-for-social-security-spouses-benefits-2/
6. Social Security Administration, October 2024
7. Urban Institute, July 2023
8. Senior Healthcare Direct, October 2024
https://www.seniorhealthcaredirect.com/medicare-part-b
9. USA.gov, October 2024
https://www.usa.gov/social-security-abroad
10. Medicare.gov, October 2024
https://www.medicare.gov/publications/11037-medicare-coverage-outside-the-united-states.pdf
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