Social Security

Retirees often want to know how Social Security fits into their retirement in terms of timing and amount of income.

By Financial Advisor Peter Egolf

When does Social Security start?

Social Security full retirement begins around age 66 to 67 depending on your year of birth:

  • 66 years for those born between 1943-1954.
  • 66 years and 2 months of age for those born in 1955.
  • 66 years and 4 months of age for those born in 1956.
  • 66 years and 6 months of age for those born in 1957.
  • 66 years and 8 months of age for those born in 1958.
  • 66 years and 10 months of age for those born in 1959.
  • 67 years for those born in or after 1960.

You can take Social Security as early as age 62, regardless of birth year. However, each month earlier than the normal retirement age will reduce your benefits up to a potential maximum reduction of 30% and your spouse’s benefit up to 35%.1

Alternatively, you can delay taking Social Security beyond your full retirement age up to age 70 to maximize your benefit.

How much of my income will Social Security replace?

Social Security is calculated by using the average indexed monthly earnings over 35 years of earnings.2 Your average income over that period will dictate how much income Social Security will produce. Social Security will replace:

  • 75.3% for someone with “very low” earnings (defined as average annual working earnings of $15,006).
  • 54.8% for someone with “low” average earnings ($27,011 annually).
  • 40.7% for someone with “medium” average earnings ($60,024 annually).
  • 33.6% for someone with “high” average earnings ($96,039 annually).
  • 26.7% for someone with “maximum” average earnings ($147,775 annually).

As you can see, Social Security has a high-income replacement for very low-income earners (up to 75.3%) and a low-income replacement (up to 26.7%) for maximum-income earners at full retirement age.

These replacement figures are lower for those who claim Social Security earlier than the full retirement age (e.g., age 62 vs. 67).

How is Social Security Taxed?

Social Security is taxed based on your income at the federal level. For an individual with income between $25,000 to $34,000, you may pay income tax on up to 50% of your benefits and up to 85% if your income is more than $34,000. For a joint return with income between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits and up to 85% if your combined income is more than $44,000. It’s important to note that income is defined as your adjusted gross income + nontaxable interest + plus ½ of your Social Security benefits.4 Thus, if you have other significant income sources (e.g., pension, IRA distributions, wages, self-employment, interest, dividends, etc.), you will likely pay federal tax on up to 85% of your benefits.

Social Security may or may not also be taxed at the state level. Here are two examples:

  • Pennsylvania does not tax Social Security income.
  • Vermont fully taxes Social Security payments at adjusted gross incomes at or above $60,000 for single filers ($75,000 or above for joint filers). However, for people with lower incomes Vermont either partially or fully exempts Social Security income from state income tax, depending on the adjusted gross income level.

How should I plan my retirement income?

When it comes to retirement, there may be multiple sources of income to use, including Social Security. Your and your spouse’s income earned and savings built during your working years will dictate your expected retirement income. For most retirees, this is Social Security and their investments. It is critical to consider what your income needs will be and the timing around these sources of income. For example, if you plan to retire before you are eligible for Social Security, will you withdraw from your taxable or tax-advantaged retirement accounts? A fiduciary financial advisor can help you develop a plan for retirement income, including deciding when is an appropriate time to begin taking Social Security payments based on your specific needs and which investment accounts to withdraw from.

The One Day In July office in Wayne, Pennsylvania provides investment management services as fee-only fiduciary financial advisors to the greater Philadelphia area, the Main Line, and surrounding communities, including Villanova, Radnor, St. Davids, Wayne, Strafford, Chesterbrook, Devon, Berwyn, Paoli, Malvern, King of Prussia, Valley Forge, Havertown, and more.

If you need assistance with your retirement investments, contact us today to set up a free consultation. We can meet in person if you're in the area or set up a phone call or Zoom meeting if you prefer.


1. Starting Your Retirement Benefits Early – Social Security Administration
2. Social Security Benefit Amounts - Social Security Administration
3. Replacement Rates for Hypothetical Retired Works - Social Security Administration
4. Income Taxes and Your Social Security Benefit - Social Security Administration
5. Vermont’s Social Security Exemption


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