How Do I Fit Social Security Into My Retirement Planning?

Like most Americans, you've probably paid into Social Security during your entire working life. In return, you can begin to receive monthly income from this federal program once you retire. You have some control over when and how you receive payments. These choices and other sources of retirement income can impact your benefits and the total amount of income you'll get to enjoy during retirement, but oftentimes there are questions about how to fit it into your overall retirement plan.

Can You Receive Social Security and Another Pension?

If you worked for a private employer who withdrew Social Security payroll taxes, your pension may not have any impact upon your Social Security benefits later. On the other hand, "non-covered" employers may not have withheld these payroll taxes, and that might reduce Social Security payments. Typically, this only happens with some government employers. If your pension, other earnings, and Social Security push your income over IRS limits, you may have to pay taxes on a portion of your Social Security.

Will Social Security Run Out of Money?

According to Social Security, the program's current funding will last intact until 2037. Even after that, they predict that payroll taxes can account for 76 percent of funding. By that point, Congress may decide to take one of these actions to fully fund Social Security for at least another 75 years after 2037:

  • Reduce overall benefits by about 13 percent
  • Increase payroll tax rates by two percent
  • Means test the benefits with graded benefits for high income earners

It's impossible to predict what decisions legislators will make about Social Security in the future. That's why prudent retirement planners will also have other sources of retirement savings and income.

Overall, it's best to budget for retirement savings, so you don't have to only rely upon Social Security.

How Does Earned Income Affect Social Security Payments?

People can certainly continue to work after they begin to collect retirement earnings from Social Security. Still, those who begin collecting Social Security before they reach their full retirement age (FRA) may have their payments reduced if they exceed a maximum amount of earned income.

For example, in 2021, the FRA will be 66 years and 10 months for people born in 1959. The FRA varies by birth year. For another example, FRA is exactly 66 for people born between 1943 and 1954.

Examples of how earned income impacts Social Security:

  • Before full retirement age: Until Social Security recipients reach full retirement age, they will have one dollar withheld for every two dollars earned over $18,960 for the year. For instance, if one of these people began withdrawing Social Security at age 62 and made $19,960 for the year, they would have $500 taken out of future checks.
  • The year you turn your FRA: In the year you turn your full retirement age, the earnings limit increases to $48,600. Also, Social Security will only deduct a dollar in benefits for every three dollars earned over the limit.
  • Once you reach your FRA: Once you've reached or passed your full retirement age for the entire year, Social Security won't impose any more earnings limits.

Social Security will use net income for self-employed people but gross pay for employees to determine earnings. Also note that the earnings limit only applies to earned income, so pensions and other unearned income won't impact it.

You won't completely lose any money withheld because you exceeded the maximum earnings. Instead, Social Security will increase checks once you reach your FRA to make up for money withheld before. If you have a chance to keep earning income through work, you might look at it as a way to help increase your Social Security checks later, when you may not want to or be able to work.

Should You Delay Taking Social Security Retirement Income?

Deciding when to take retirement benefits from Social Security can present a complex challenge for some people. Below is the difference between taking Social Security early, taking it at full retirement age, or waiting until age 70:

  • When people reach their FRA, Social Security gives them 100 percent of their full retirement benefits.
  • Qualified recipients can start taking benefits as early as age 62; however, they might sacrifice as much as 30 percent of their full benefit. They'll collect more checks, but each check will be smaller.
  • In contrast, people can still increase their full retirement benefit by as much as 132 percent by delaying benefits until age 70. They will collect fewer checks over their lifetime; however, each check will be larger.

Each person has a different financial situation, so there's not one best time to tell you to apply for Social Security. Some people may benefit by collecting checks earlier, even if they're smaller. Others can delay benefits to get higher checks in the future.

These are some important things to remember:

  • If you still plan to earn a substantial income, you should consider the possibility of exceeding the maximum earnings threshold and having money withheld. If you're still able to work and don't need the extra income, you may decide to delay until full retirement age or even later.
  • Also, you may end up getting taxed on a portion of your Social Security if your earned and unearned income exceeds IRS limits. As an example, a married couple who earned more than $32,000 a year may have half their Social Security benefits taxed. If that same couple earned over $44,000, the IRS might tax up to 85 percent.
  • On the other hand, having Social Security income now might benefit you more than waiting. For example, you might use some of the extra income to grow your retirement savings or settle debts. Since there's no foolproof way to predict how long you will live and continue to get Social Security income, it's also impossible to predict exactly how much you will collect.

If you have a substantial income, you might consider delaying Social Security. Like most people, you probably wouldn't relish sending some of your benefit money back to the government at tax time. As mentioned on FedSmith, it's usually better to delay as long as possible to maximize benefit payments. The smaller payment at age 62 might appear sufficient if you're still working; however, it might not go very far when you're older and it's the only income source.

The Role of Social Security in your Retirement Plan

Obviously, the more money you can save before retirement, the less you will need to depend upon Social Security benefits. Besides enjoying a larger retirement income, this added security can give you more flexibility, so you won't feel compelled to take your benefits early because you need the money to live comfortably.

At Medallion Group, we like to think of Social Security as an inflation protected, joint and survivor annuity insured by the U.S. government. In our practice, we have seen Social Security payouts provide anywhere from a very insignificant part to a major piece of a client’s retirement income. The combination of several factors must be considered as you begin to think about retirement:

  • Life Expectancy
  • Total Retirement Assets: TSP, IRA, and Other Investments
  • Health / Long-term Care Expenses
  • Expected Income Needs
  • Inflation Expectations
  • Pension Benefits
  • Tax Rates


Keep in mind that Social Security decisions should be part of a comprehensive financial plan that addresses all the areas of your unique financial position. We encourage everyone considering retirement to take the time to create a plan that looks at your retirement situation holistically.

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At Medallion Financial Group, we believe financial planning is about Family. We have been helping families invest in the future since 1987 through a holistic planning approach. We recognize there are a variety of needs when it comes to retirement planning, plan rollovers, annuities, college planning, life insurance options, and investment management. It is easy to get lost in a sea of choices. Our financial advisors help with the basics and beyond to enable our clients to get the education, advice and management they need to retire with confidence.

Our focus is twofold: first and foremost, we are fiduciary advisors. We stand against any violation of laws, values, and ethics. Second, we treat our clients as part of our family, not only those who call Maryland and Georgia home, but clients across the US who have benefited from our reputation of personal service, integrity, and expertise.

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