4 Things Every Investor Should Know About Social Security

Get the most out of your benefits.

By Andy Fass
Senior Vice President
Wealth Management Branch Manager
Hilltop Securities Inc., member NYSE/FINRA/SIPC


No matter your financial status, Social Security is something that affects us all. In June 2018, the Social Security Administration reported that about 175 million people paid Social Security taxes as workers, and about 46 million retirees received benefits.

The decisions you will make during what we call your Retirement Risk Zone, five to 10 years before and after retirement, can have a significant impact on both your income and the quality of your retirement. Because of this, it’s best to work with an experienced advisor to help you get the most out of your benefits.

To protect your financial future, here are some of the most important facts you should know about Social Security:

  1. What is Social Security?
    The program we now know as Social Security was established by President Franklin D. Roosevelt during the Depression to tackle America’s economic insecurity. On August 14, 1935, Roosevelt signed the Social Security Act into law as a long-term solution and today, we continue to use the contributory program to assist older Americans, dependent children, and the unemployed.

    At its core, Social Security is an intergenerational transfer of wealth among working and retired Americans, meaning the generation behind you will pay your Social Security benefits. When workers pay taxes, the Social Security Administration uses those funds to pay retirees, disabled persons, and the family of deceased contributors’ monthly benefits. During retirement, Social Security benefits—determined by your age at retirement and earnings history—provide a source of steady income.

  2. When to start taking Social Security
    Although you can receive benefits as early as age 62 or as late as 70, there are consequences to filing before reaching full retirement age. If you start benefits early, they are reduced by a fraction of a percent from your full retirement age. For example, if your full retirement age is 67 and you start benefits 36 months prior at age 64, you will get 80 percent of your benefits each month.

    As far as the ideal time to start taking benefits—other than waiting for full retirement age—that’s up to your discretion. Depending on your state of health nearing retirement age, you may conclude that you’ll either enjoy a long retirement, or be around for only five-10 years (apologies, discussions around Social Security benefits can be a reality check). This will be a good indicator of when you should start taking benefits.

    According to the Census Bureau and Bureau of Labor Statistics, 10.6 million people past the age of 65 continue to work or look for work. If you’re part of this group and haven’t yet reached full retirement age, you can still receive Social Security payouts. However, the benefit will be smaller while you’re still working. For example, if you continue to earn more than $17,640, your benefit will be reduced $1 for every $2 above that limit.1 Conversely, if you’re at full retirement age, you’re free to earn as much as you’d like without affecting your benefits.

  3. Your benefits can be taxed
    How much your benefits are taxed varies and is based on your income level and filing status. According to the Social Security Administration, you will pay income tax on up to 50 percent of your benefits if you file a federal tax return as “individual” and your combined income (a special calculation used to determine the amount of taxable Social Security benefits) is between $25,000 and $34,000. And if your combined income is more than $34,000, the percentage can spike up to 85 percent.1

    The IRS can tax married couples filing individually the same way. The thresholds change if you file your tax return jointly with your spouse. If your combined income is between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits. And if your combined income exceeds $44,000, up to 85 percent of your benefits can be subject to taxation.1

    Your financial advisor may be able give you a better idea of the kinds of taxation you should expect to help you reach your goals.

  4. Your benefits are protected from creditors

    Your bank is in charge of protecting your benefits from creditors and will be responsible for reviewing the last two months of account activity if they receive an order to settle your unpaid debt. Because they can freeze part of your account if they find an excess to your benefits payments, many people maintain a separate bank account to direct deposit your Social Security.

Making Informed Decisions
Investors should be equipped with the knowledge to make informed decisions for their retirement. Having these kinds of conversations with your advisor can help you plan for your future to help ensure you’re right on track.


1 For tax year 2019

Hilltop Securities Inc. (HTS) is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Additionally, Group and Individual Health Insurance products are not offered through HTS. Material presented herein is for informational use only and reflects the views of only the author. This information may not be duplicated or redistributed without prior consent of HTS, and distribution or publication of this material does not represent a solicitation to complete a financial transaction with the firm. Though information was prepared from sources believed reliable, HTS does not guarantee its accuracy or completeness. Securities offered by HTS (1) are not insured by the FDIC (Federal Deposit Insurance Corporation) or by any other federal government agency; (2) are not bank deposits; (3) are not guaranteed by any bank or bank affiliate; and (4) may lose value. HTS is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 1201 Elm Street, Suite 3500, Dallas, Texas 75270, 214.859.1800. Past performance is no guarantee of future results.