Key Rules for Maximizing Your Social Security Benefits

Summary: Social Security and Medicare are the cornerstones of most retirement planning strategies. Social Security provides an income stream that you cannot outlive, while Medicare provides health insurance when you are most likely to need it. Understanding how Social Security and Medicare work is essential for making informed decisions about your retirement. Knowing the rules and regulations for each program can help you maximize your benefits and ensure that you receive the coverage you need.

Guide to Maximizing Social Security and Medicare for Retirement

Rules of Thumb for Collecting Social Security

If you’re planning to collect Social Security, here are some rules of thumb to remember:

  • Rule of Thumb 1: If your full retirement benefit exceeds your spousal benefit, you may want to wait until age 70 to collect Social Security.
  • Rule of Thumb 2: If your age 70 retirement benefit is less than your spousal benefit, you should start taking it at full retirement age because your benefit probably won’t be increased by waiting until age 70.
  • Rule of Thumb 3: The situation gets tricker if your full retirement benefit is below your spousal benefit but will be greater at age 70. Some software programs may help with this scenario.

How Your Social Security Payment Is Determined

The Social Security Administration takes your highest 35 years of reported income, adjusts them for inflation, adds them up, and divides them by 35 to arrive at your average income. Then a sliding scale is used to determine what percentage of that average income you will receive as a monthly income, called your primary insurance amount (PIA). The higher your average, the less of a percentage Social Security will replace. The standard amount replaced is around 42% of your average income.

Birth Year Determines Full Retirement Age (FRA)

The year you were born determines the age when you can retire and start receiving your full Social Security. It is age 66 for those born up to 1954, 67 for those born in 1960 and later, and scales up by 2 months per year between those years.

Suppose you decide to start receiving your Social Security benefit at the earliest time: age 62. In that case, you will receive somewhere around 70% of your full retirement benefit. (A percentage reduces your retirement benefit for every month that you receive your benefit prior to your FRA.) In contrast, anyone who delays receiving their Social Security after their full retirement age sees their payment increase by 8% per year until age 70. After age 70, the 8% increase ends.

The breakeven point for someone whose FRA is age 66 but takes Social Security at 62 occurs if the individual lives to 78. After that age, the total payments received would have been larger if they had waited until age 66 to start their payments. People who start taking their benefit when they reach their FRA of 66 instead of waiting until age 70 and getting the additional 8% a year bump the breakeven to age 82 1/2.

Spousal Benefits

An individual claiming a benefit based on a spouse’s work record must be at least 62 years old. The maximum spousal benefit is 50% of the spouse’s FRA benefit; at age 62, it is 35%. For a citizen to receive Social Security based on the spouse’s work record, the spouse with the work record must also be taking Social Security payments. Many people are usually eligible for a more significant payment based on their employment history; Social Security pays the higher of the two.

Suppose you are eligible for both your own social security benefit and an additional benefit from your spouse. In that case, you will only receive the additional spousal top-off when your spouse begins taking their own benefit. Keep in mind that the Social Security Administration always pays your benefit first. For example, say you retire early at age 62 and begin taking a reduced social security benefit based on your work history. Your higher-earning spouse who happens to be the same age works until age 67 retires and receives their full retirement benefit. If half of their benefit is greater than your current benefit, Social Security will add to your benefit. If, however, your work-based benefit is greater than half of your spouse’s Primary Insurance amount there is no spousal benefit eligibility.

Now let’s take the same example, except you both retire at full retirement age. If the lower-earning spouse’s primary insurance amount on their work record is less than half of their spouse’s primary insurance amount, the most they can receive is that half (Rule of Thumb 2). So all the payments the lower-earning spouse made into the program didn’t increase their benefit because their spousal benefit is greater. It gets kind of muddled because Social Security pays the lower earner their benefit and then tops off with a spousal benefit, but the amount received remains the same.

Delaying the receipt of Social Security benefits until age 70 can result in higher payouts for spouses who earn more and can also provide protection for the lower-earning spouse in case the higher-earning spouse passes away. This is because the benefit of the lower-earning spouse would switch to that of the higher-earning spouse, which would be higher due to the age 70 benefit plus inflation (Rule of Thumb 1).

Divorced Spouses

An individual who is divorced and was married for at least ten years without remarrying may be eligible to receive a benefit based on the record of their former spouse. However, this is only possible if the ex-spouse is already receiving or eligible to receive benefits. Additionally, if the divorced spouse isn’t receiving benefits, the divorce must have been finalized for at least two years.

It’s important to note that if a person is eligible for benefits based on their work history, their maximum spousal or divorced spouse benefit of 50% may be less than the amount eligible on their own work record.

When applying for divorced spousal benefits or spousal benefits, it’s crucial to remember that you must file for your own benefit. For example, if you file for a divorced spousal benefit at age 62, you will also be filing to receive your own benefit, thus exposing both your work-generated benefit and spousal benefit to permanent reductions.

Those who choose to receive their benefits before reaching full retirement age will experience a reduction in the amount they receive. However, waiting until after full retirement age does not provide any advantage because, unlike individual benefits, it does not increase by 8% each year up to age 70.

Widows and Widowers

A widow or widower is eligible to receive benefits from their deceased spouse’s Social Security account. If the deceased spouse started receiving Social Security payments early, say at age 62, then the surviving spouse if at full retirement age would be eligible to receive that same amount, or 82.5% of their spouse’s full retirement age (FRA) benefit, whichever is higher.

If the deceased spouse had not yet started receiving Social Security payments, then the surviving spouse’s benefit would be equal to the deceased spouse’s . If the deceased spouse was over the FRA, then the surviving spouse’s benefit would be equal to the full amount plus any delayed retirement credits.

Widows and widowers can start receiving benefits at age 60, which is two years earlier than the earliest age for other Social Security benefits. Like most benefits, claiming a widow or widower benefit before reaching full retirement age can result in a reduced benefit. Additionally, they can receive their survivor’s benefit while allowing their earned Social Security benefit to continue growing until age 70. This is called a restricted application.

For example, a widower at age 60 who started receiving benefits would receive 71.5% of the amount they would have received at full retirement age. However, they are not deemed to be receiving their own benefit, so they can continue to allow their benefit to increase, including the annual 8% increase someone is eligible for if they do not start taking their benefit at full retirement age.

To be eligible for a survivor’s benefit, the surviving spouse must be unmarried or have married after age 60. Divorced spouses may also be eligible if they have been married for more than ten years and are unmarried or remarried after age 60.

Restricted Application and File and Suspend

In 2016, a rule change that affected most people’s ability to file for a restricted application was introduced. The 2016 rule change requires Social Security filers to claim both their own benefit and any spousal benefits, known as deemed filing. There were couples after the law changed who were grandfathered, but seven years after the rule change, the number of eligible couples is now nearly zero. Couples today must time their applications well.

However, as mentioned above, widows or widowers can still use this strategy. Additionally, filers cannot file and suspend their benefit, which previously allowed their spouse access to a spousal benefit, while both filer’s benefits increased to age 70.

Receiving Social Security While Working

After you reach your full retirement age (FRA), you can earn any amount without reducing your Social Security payment. However, if you have yet to reach your FRA, making more than a certain amount could significantly decrease your Social Security benefit.

In 2024, you can earn up to $22,320 without reducing your Social Security payment. If you make more than that, one dollar of your Social Security payment will be withheld for every two dollars you earn. For example, if you earn $40,000 in 2024 ($17,680 over the limit), $8,840 of your Social Security payments will be withheld.

In the year when you reach your FRA, you can make as much as $59,520 a year ($4,960 a month) in those months without reducing Social Security. If you make more than that, the reduction is $1 for every $3. Once you reach the FRA, you can make any amount without any reduction in Social Security. 

It’s important to note that the money from these reductions is not lost. The Social Security Administration adds back what was withheld to your future payments, which will be paid when you reach your FRA. Only wages, self-employment earnings, and some other incomes count as earnings for the earnings test. Income from pensions, IRAs, and other retirement account distributions, dividends, interest income, and capital gains do not count.

Certain Limits Apply in the Year of Retirement

The year you retire is called the “grace year” and has its own set of rules regarding your earnings. During this year, the annual earnings limit changes to a monthly limit and only applies to the income earned after retirement.

If the year you start drawing Social Security is before your FRA, then you can make as much as you want in the months before you get your first payment. In the subsequent months of that year, if you make less than $1,860 a month (less than $22,320 a year), you can keep all your Social Security for that month. If you make more than that, you will receive no Social Security that month.

Suppose you retire in the year when you reach your full retirement age. In that case, you can earn any amount of money before you retire, and in subsequent months, you can earn up to  per month without reducing your Social Security benefits.

Please note that the special earnings rule mentioned earlier only applies in the grace year. If you are under your full retirement age in the subsequent years, the annual earnings test will be applicable. However, if you cross your full retirement age after your grace year, you can earn as much as you want without reducing your Social Security payment.

Taxes on Social Security Payments

Low earners do not pay taxes on their Social Security earnings; high earners do, but only on 85% of it. To determine if your Social Security is taxable, take your gross income and any tax-free income and one-half of your Social Security benefit.

If you are single and your sum is less than $25,000, you owe no taxes on your Social Security. If you are married and filing jointly and make less than $32,000, you owe no Social Security taxes.

Interestingly, the income tax thresholds are not adjusted for inflation, so more and more people will end up paying taxes on their Social Security over time.

Medicare Parts A, B, C, and D

Medicare consists of four components: Parts A, B, C, and D. Remember that you and your spouse will each have your own plans; there are no family plans.

Part A covers hospitalization and has no cost to the participant. It pays for hospitalization for 60 days. After that, the participant must pick up part of the price. It has a reasonably good-sized deductible, which someone might end up if they are readmitted after their initial 60 days.

Part B is medical insurance and is voluntary. It has a premium based on your income and a copayment of 20%. It covers doctors’ costs, testing, and other medical costs separate from hospitalization.

Part C replaces Parts A and B with a private plan that looks like the kinds of insurance you get from an employer. You still must pay the Part B premium and a premium to your Part C provider. Some Part C plans provide for prescription drugs.

Part D is the newest component. It pays for medical drugs, is voluntary, and has a premium. However, it does not pay all costs. Once you and your plan spend a total of $5,030 on medications in 2024, you enter the donut hole. In this phase, you are required to pay up to 25% of the cost of all covered medications out of your pocket. If you spend $8,000 on covered drugs out of your pocket in 2024, you will then leave the donut hole.

Special Enrollment Period

Most people become eligible for Medicare when they reach age 65. If they happen to be on Social Security already, then they are automatically enrolled in Medicare. If not enrolled in Social Security, it is highly recommended that an individual contact Social Security three months before age 65 to discuss their Medicare options.

If not automatically enrolled, an individual has three opportunities to sign up for Medicare. The initial enrollment period is at age 65. The special enrollment period is for individuals over 65 who are still working and have health insurance from their work or their spouse’s work. They can sign up for Medicare without penalty when their employment or insurance ends.

Medigap Plans

There are Medigap or Medicare supplement plans that fill in some of the Medicare gaps, such as the Part A limit on the number of days allowed in a hospital, the 20% copay in Part B, or the fact that Medicare does not pay for foreign care. However, these plans are private.

If you are over 65 but are still working with health insurance through your work or your spouse’s work, you cannot be denied coverage for a preexisting condition or be charged a higher premium because of that condition.

Remember that the ability to sign up for Medicare after age 65 and enroll in a Medigap plan without regard to preexisting conditions happens when you have health insurance from your work or your spouse’s work, not from having retiree health insurance.

Social Security Planning

I am here to assist you in making informed decisions about your Social Security. As part of my services, I provide you with scenarios for early retirement, full retirement age, and age 70. If you are married, we also review spousal benefits and survivor benefits. If one of the spouses is a public employee in a state where they don’t pay into Social Security, we also consider windfall elimination and the government pension offset. We review working while receiving Social Security benefits and any reductions in benefits. Additionally, we check when and how your Social Security become taxable.

Works Cited

 Landis, Andy, “Social Security the Inside Story”, An Expert Explains Your Rights and Benefits, CreateSpace Independent Publishing Platform, North Charleston, SC 2016 Edition,, Andy Landis Website

Piper, Michael, “Social Security Made Simple”, Copyright 2022 Simple Subjects, LLC,

Carroll, Devin, “Social Security Basics” 9 Essentials That Everyone Should Know, 2021 Revised Edition,

Kotlikoff, Laurence, Moeller, Paul, & Solman, Paul, “Get What’s Yours, Revised The Secrets To Maxing Out Your Social Security, Simon & Schuster,

How much can I earn in the year I reach full retirement age without losing Social Security benefits? AARP, Updated December 23, 2020

Anspach, Dana, How to Avoid the Social Security Earnings Limit, Sensible Money, December 10, 2020,,in%202020%20it%20was%20%2448%2C600.)

Backman, Maurice, In 2021, you could earn up to $18,960 without having it impact your Social Security benefits, Motley Fool, Oct 25, 2020,

Retirement Benefits Securing today and tomorrow,, 2021,

When can I buy Medigap?,

Are social security benefits taxable? H&R Block,

Retirement Benefits Special Earnings Limit Rule, Social Security,,regardless%20of%20your%20yearly%20earnings.&text=Reach%20full%20retirement%20age%20in,substantial%20services%20in%20self%2Demployment.

Securing today and tomorrow, How Work Affects Your Benefits,, 2021,

These are the opinions of Financial Advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted upon as individualized investment advice. Content provided via links to third-party sites should not be considered an endorsement of content that we cannot verify completeness or accuracy of.

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