Date: August 23, 2023

The Ultimate Guide to Understanding Your Social Security Benefits

Understanding how to manage your Social Security benefits is crucial to your overall retirement planning success as you approach retirement. As the owner of a Registered Investment Advisory firm in Woodbridge, CT, and a fiduciary financial advisor, I get to help individuals prepare for a successful retirement by answering questions such as:

  • When should I start taking Social Security benefits?
  • Can I still work while collecting Social Security?
  • Will my Social Security benefits be taxed?
  • How do withdrawals from retirement accounts affect Social Security benefits and taxes?
  • What is the impact of state taxes on my retirement income?

In this guide, we’ll explore these questions in more detail so you can leverage your Social Security benefits when the time is right. 


Read our newest Quick Guide, “High Net Worth Retirement Strategies in Woodbridge, CT.”


When Should I Start Taking Social Security Benefits?

Deciding when to start taking Social Security benefits is one of the more critical decision-making processes when you plan for retirement in Connecticut. Your decision is highly personal and depends on your health, life expectancy, financial condition, and need for retirement income. 

You can start receiving Social Security retirement benefits at age 62. Still, if you start receiving benefits before your full retirement age (between age 66 and 67 for most people), your benefit amount will be substantially lower over your lifetime. 

On the other hand, if you wait until your full retirement age (70) to begin collecting benefits, the benefit amount will be substantially higher. Delaying retirement credit can significantly affect your total lifetime benefits.

If you are healthy and have a longer life expectancy, waiting until your full retirement age or even later can result in higher lifetime benefits. However, if you’re in poor health or have a shorter life expectancy, it may be beneficial to start receiving benefits sooner rather than later. 

Last but not least, consider the tax implications of your decision because Social Security benefits may be taxable depending on your income level. We’ll discuss this in a minute. 

Can I Still Work While Collecting Social Security?

You can work while receiving Social Security benefits, but it may affect your benefit amount if you have yet to reach full retirement age. 

  • For those born on or after January 2, 1960, the designated age for full retirement concerning retirement benefits is age 67. If you are of full retirement age or older and still working, you are entitled to retain all your benefits, regardless of your earnings. 
  • Effective in 2023, if you are not of full retirement age for the entire year, a $1 deduction will be applied to your benefits for every $2 earned above $21,240. Conversely, if you reach full retirement age during 2023, a $1 deduction from your benefits will be made for every $3 earned over $56,520 until the month you attain full retirement age.

Will My Social Security Benefits Be Taxed?

Whether or not your Social Security benefits will be taxed depends on your total income and filing status. Tax laws are extremely complex, and their application can change based on your circumstances:

  • If Social Security benefits are your only source of income, then your benefits are generally not taxable.
  • If you have other sources of income, a portion of your benefits might be taxable. To determine this, you need to calculate your “combined income,” which includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits:
  • If you’re an individual filer and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your Social Security benefits
  • If your combined income is more than $34,000, up to 85% of your Social Security benefits are subject to income tax
  • If you’re married filing jointly, and you and your spouse have a combined income between $32,000 and $44,000, you may have to pay income tax on up to 50% of your Social Security benefits
  • If your combined income is more than $44,000, up to 85% of your Social Security benefits are subject to income tax


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How Do Withdrawals From Retirement Accounts Affect My Social Security and Taxes?

Withdrawing funds from your retirement accounts can impact your Social Security benefits and tax situation. It’s a nuanced scenario that depends on several factors, such as the type of retirement account you have, the amount you withdraw, your total income, and the timing of your withdrawals. You must consider all your income sources, lifespan, healthcare costs, tax planning, and lifestyle factors.

For example, suppose you have substantial savings or a significant income source like a defined benefit pension plan (rare, but still out there). In that case, you might rely on something other than Social Security for income, giving you flexibility in deciding when to take your benefits. On the other hand, if social security is your primary income source, delaying taking benefits as long as possible may be beneficial to maximize your monthly payout.

Here are some retirement planning considerations:

Impact on Social Security: Your Social Security benefits can become taxable based on your “combined income,” as we noted above.  Combined income is the sum of your adjusted gross income, nontaxable interest, and half of your Social Security benefits.

Withdrawals from retirement accounts like traditional IRAs and 401(k)s contribute to your adjusted gross income, which may increase your combined income and make more of your Social Security benefits subject to taxation.

Impact on Taxes: Withdrawals from tax-deferred retirement accounts such as a traditional IRA, 401(k), or 403(b) are taxed as ordinary income. Therefore, large withdrawals in a single year can push you into a higher tax bracket.

Conversely, Roth IRAs and Roth 401(k)s are funded with after-tax dollars; thus, qualified withdrawals from these accounts are tax-free and don’t affect your taxable income.

Balancing Social Security and Retirement Account Withdrawals: Social Security benefits and retirement account withdrawals can be complex. It’s crucial to consider strategically using your resources to fund your retirement needs. Here are some considerations:

  • Your monthly benefit amount will increase by delaying your Social Security benefits until age 70. You can draw down from your retirement accounts to meet your living expenses during this period. This strategy allows for a larger Social Security benefit later in retirement and gives you more flexibility to manage your income for tax purposes.
  • Withdrawing from your retirement accounts earlier in retirement or initiating strategic Roth conversions can lower your retirement account balance and reduce required minimum distributions (RMDs) in the future. Lower RMDs mean a lower taxable income in your later retirement years, which helps manage the taxation of your Social Security benefits.

What is the Impact of State Taxes on My Retirement Income?

State taxes can significantly impact your retirement income, including Social Security benefits. For instance, if you live in Connecticut, those with income below certain thresholds can avoid state taxes on their Social Security benefits.

About Heritage Capital:  

As a fiduciary financial advisor in Woodbridge, CT, I provide personalized advice on these matters, considering all your resources, expectations, and goals. Looking at your entire financial picture, we can create a retirement plan to ensure you can maintain your lifestyle and enjoy the fruits of your hard work.

A fee-only financial advisor like myself will act in your best interest, offer unbiased advice, and charge transparent fees, aligning our advice with your goals.

Deciding when to take social security is an individual decision that can significantly impact your later retirement years. With the right guidance and a comprehensive retirement income plan, you can optimize your Social Security benefits and pursue the type of retirement you’ve worked so hard to prepare for. Connect with us to learn more about our retirement planning services.

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Paul Schatz, President, Heritage Capital