Date: October 23, 2023

Smart Social Security Facts: Your Guide to Tax Planning for 2024

Most people we are talking to about their plans for a comfortable, secure retirement have serious concerns about inflation and a potential recession in 2024. When they added the complexities of Social Security’s eligibility requirements, planning for the future became even more complicated. They want to make the right decisions to maximize their after-tax lifetime benefits.  

Social Security may or may not produce a meaningful monthly income for you. But, at a minimum, it extends the life of your other retirement assets.

We would like to help. This guide will cover strategies associated with Social Security income, how that interacts with other sources of retirement income, and the applicable tax implications. 

At Heritage Capital, we believe in providing you with clear, easy-to-understand financial advice that reduces your tax exposure and optimizes the value of your hard-earned wealth. 

Here are five considerations before taking your Social Security benefits.  

Understanding the Meaning of Full Retirement Age (FRA)

Knowing your full retirement age is essential for maximizing the benefits you’ll receive during your lifetime and perhaps your spouse’s lifetime.

The full retirement age for Social Security benefits varies depending on your birth year; for those born between 1943 and 1954, it is 62, and it gradually increases to 67 for those born in 1960 or later. This calculator can be used to determine your specific FRA. 

It’s important to note that if you decide to claim Social Security benefits before reaching your full retirement age, your monthly benefits will be permanently reduced. For example, if you start claiming benefits at 62, you effectively reduce your benefits by as much as 30% of the annual amount. Conversely, delaying your claim until after your full retirement age can increase your benefits by 8% annually until age 70.

If you have yet to reach full retirement age and you still earn an income, there’s an important rule you should be aware of. 

For 2023, if you make more than $21,240, your Social Security benefits will be reduced by $1 for every $2 you earn over this limit. Now, the rules change a bit in the year you hit full retirement age. In that case, instead of $2, you will have $1 deducted from your benefits for every $3 you earn over a separate, higher limit. Make sure to keep these numbers in mind as you plan your retirement income strategy.

Retirement Income Needs 

Planning for retirement requires a comprehensive look at all potential sources of income to make informed decisions, especially when starting Social Security Administration (SSA) benefits. Let’s look at some typical retirement income streams:

  • Defined Benefit Pensions: If you’re among the few with a pension, factor this guaranteed income into your base calculations. A sufficient pension amount can sometimes afford you the luxury of delaying SSA benefits to maximize monthly payouts in the future.
  • Retirement Account Distributions: Your 401(k), IRA, or other tax-deferred accounts also come into play. Timing the distributions strategically can help manage your taxable income, particularly about SSA benefits, which may be taxed based on your overall income.
  • Passive Income: Rental properties, dividends, or interest payments contribute to your financial security but may push you into a higher tax bracket. Develop a thorough understanding of these income streams’ timing and tax effects.
  • Investment Returns: Capital gains from the sale of investments not held in tax-deferred retirement accounts are another consideration. If you foresee substantial capital gains, consider postponing your SSA benefits or using other strategies (tax loss harvesting) to minimize your tax liabilities.
  • Tax Planning for 2024: In preparation for April 15th, consider maximizing contributions to your tax-advantaged accounts. Consider a Roth IRA conversion if you think you will be in a higher tax bracket after you retire or your investment assets have substantially declined. 

Longevity and Health Considerations

When to take Social Security should be based on both spouses’ health and immediate family members’ longevity. 

If longevity runs in your family and you are in good health, consider delaying Social Security as long as possible to significantly increase your monthly benefits, thus enhancing your financial security later in life. 

On the flip side, if you have health concerns or a family history that suggests a shorter lifespan, consider taking benefits earlier to increase your immediate income.

Your situation is personal and should be integrated into a broader financial plan to ensure your financial decision is aligned with your long-term needs and goals.


Watch our video on” Understanding Social Security.” 


Assess the Economic Environment

Understanding the economic environment is crucial before you pull the trigger on when to take Social Security benefits. Let’s not sugarcoat it; the health of the US economy can have a major impact on your retirement-related decisions. For example, how inflation impacts the purchasing power of your assets. This is particularly onerous for early retirees living on fixed incomes.

Recessions: During periods of negative economic growth, interest rates typically decrease, which increases the importance of Social Security. In general, interest rates may also decline, which may cause you to spend principal to maintain your standard of living. 

Election Years: Election-year volatility can make the financial markets more uncertain. Who is going to win? How will their policies impact the economy and me? While Social Security benefits are stable, the value of your other investments may fluctuate. Market instability can be concerning if you rely on these investments to supplement Social Security and other sources of retirement income.

Inflation: Inflationary pressures are another elephant in the room. The Social Security Administration does adjust benefits based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), but that may only partially keep pace with rising costs, particularly for healthcare.

Stagflation: Stagflation is a double-whammy of recession or very low economic growth and inflation. This economic condition can be devastating for retirees relying solely on fixed incomes. Stagflation can erode the purchasing power of your Social Security benefits while limiting opportunities for producing supplementary income.

Tax Planning for 2024: To mitigate some of these economic risks, you can begin preparing for April 15, 2024, today. Meet with a fee-only fiduciary financial advisor who can assess your current strategy and portfolio. Determine if any of your assets are less susceptible to the impact of market volatility, then determine if there are any tax consequences associated with change – for example, the buying and selling of securities.  

Is Heritage Capital Right for You?

Paul Schatz, the founder of Heritage Capital LLC, is an experienced financial professional.  In his early career, Paul acquired his specialized knowledge on Wall Street, devising innovative strategies to produce competitive returns while minimizing risk.  At that time, his expertise mainly benefitted the super-affluent, including hedge funds, large corporations, and major institutions.

However, a turning point came when Paul recognized a deeper calling: extending his investment acumen to empower individual investors and their families. 

Why should his sophisticated strategies be the exclusive domain of these institutional investors?  Why not use his specialized knowledge to benefit individual investors in his community? 

Answering the call, Paul traded his cushy Wall Street digs to venture out on his own, launching Heritage Capital LLC. The firm broke from the conventional mold and began operating as an independent boutique, paying a straightforward fee for his knowledge, advice, and services. 

He was no longer told what to sell by his corporate bosses. The result: unbiased, conflict-free financial advice.

As part of this new foundation, Heritage Capital is a fee-financial fiduciary. There are no commission-based sales incentives—just a focus on aligning the firm’s advice with the specific best interests of its clientele. 

You can watch Paul sharing his market insights on business channels like CNBC, Fox Business, and Yahoo Finance. In addition, he’s a sought-after voice for quotes in the media. The publications range from the Wall Street Journal to financial planning publications.

Paul and the Heritage Capital team are driven by the results that they produce for their clients.  For Paul, leaving Wall Street wasn’t an end; it was the beginning of something far more fulfilling: making a real difference in people’s financial lives. 

Connect with our team to learn more about retirement planning for 2024 and beyond. 

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Paul Schatz, President, Heritage Capital