Social Security Decoded

For many, Social Security is the foundation of an anticipated retirement income stream. But did you know that there are tax implications if you choose to take benefits early? Working with a financial professional can help you maximize your retirement income.

For example, when you begin collecting benefits, your spouse may also be able to receive a benefit up to 50% of your own. At first glance, this is good news. However, the rate at which your benefits will be taxed in retirement depend on your total annual income, defined as your modified adjusted gross income, or modified AGI:

Filing Status Modified AGI Taxable Up To
Married & Joint $32,000 - $44,000 50%
more than $44,000 85%
Single $25,000 50%
more than $34,000 85%

Social Security Administration, 2013.

Your filing status could affect the taxable rate of your benefits. Be sure to consult with your financial advisor or accountant to determine what’s best for you.

In addition, the more you earn during your working years, the greater your benefits will be in retirement. Social Security administrators use a formula based on your highest 35 years of earnings. First, your lifetime earnings are adjusted for inflation to be counted at their current value. Then, your highest 35 years of earnings are totaled and divided by 35 to get your average indexed monthly earnings (AIME). Your monthly benefit is based on your AIME.

Action Steps

  • Visit and use the calculators to see your expected monthly benefit, calculate your life expectancy, and more.
  • Talk with your financial advisor or accountant about the tax implications of your benefits.