Social Security Strategy 2025: Optimizing Your Claim & Tax Impact
By Brian Seay, CFA | Capital Stewards
One of the most critical—and often misunderstood—pillars of retirement planning is Social Security. Whether you are a few years away from retiring in Huntsville or are already mapping out your income strategy, how you handle Social Security can make a six-figure difference in your total lifetime income.
1. Understanding Claiming Ages: The Cost of "Early"
The most common question we get as fee-only fiduciary advisors is, "When should I turn on the tap?" The window to claim spans eight years, but the financial difference is stark.
Age 62 (The Earliest Option): You can claim benefits as early as 62, but doing so results in a permanent reduction of your monthly check—up to 30%.
Full Retirement Age (FRA): For most people retiring today, FRA is 67. This is the baseline for receiving 100% of your earned benefit.
Age 70 (The Maximum Benefit): If you can afford to wait, delaying benefits until age 70 earns you "delayed retirement credits." This can increase your monthly payout by up to 32% compared to your FRA benefit.
The Takeaway: While cash flow needs sometimes dictate an early claim, patience pays off. A 32% permanent raise is a guaranteed return that is hard to beat in the investment markets.
Important Note: The Earnings Test A frequent question we get is, "Can I work and collect Social Security at the same time?" The answer is yes, but there is a catch.
If you claim benefits before your Full Retirement Age (FRA) and continue to work, you are subject to the Earnings Test. In 2025, if you earn more than $23,400, Social Security will withhold $1 in benefits for every $2 you earn above that limit.
Good News: These withheld benefits aren't lost forever. They are credited back to you once you reach FRA.
Bad News: It can cause a serious cash-flow crunch in the meantime. If you plan to consult or work part-time, let's calculate if claiming early really makes sense.
2. Spousal Strategies: Coordinating for Maximum Income
Social Security isn’t just about your work record; it’s about your household’s total income. A nonworking or lower-earning spouse is often eligible for a spousal benefit equal to up to 50% of the higher earner’s FRA benefit.
However, maximizing this requires coordination.
Timing Matters: It sometimes makes sense for one spouse to claim early while the higher earner delays until 70. This creates some cash flow now while growing the larger benefit for later.
Survivor Benefits: Remember, if the higher earner passes away, the survivor generally keeps the higher of the two checks. Delaying the higher earner's claim acts as a form of life insurance, ensuring the surviving spouse has the maximum possible income for life.
For Federal Employees: The WEP & GPO Factor Living in Huntsville, we work with many families impacted by the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO).
If you or your spouse receive a pension from a job where you did not pay Social Security taxes (like older Civil Service CSRS roles), your Social Security benefits may be reduced—sometimes significantly.
WEP: Can reduce your own retirement benefit.
GPO: Can reduce (or eliminate) spousal or survivor benefits by two-thirds of your pension amount.
Warning: Your Social Security statement often does not reflect these reductions. We can help you calculate your real expected benefit so you aren't blindsided.
3. 2025 Tax Update: The OBBBA Bill
Many seniors were hoping for major changes to Social Security taxation in the One Big Beautiful Bill Act (OBBBA) passed this past July. While the bill did introduce helpful changes, it did not eliminate taxes on Social Security.
Here is what you need to know about the 2025 tax landscape:
Higher Standard Deduction: The OBBBA provided a larger standard deduction for seniors, which helps reduce overall taxable income.
Social Security is Still Taxable: The rules regarding benefit taxation remain unchanged. Up to 85% of your Social Security benefits may still be taxable depending on your "combined income" (Adjusted Gross Income + Nontaxable Interest + 1/2 of your Social Security benefits).
Planning Opportunity: Because Social Security taxation is based on income thresholds that are not indexed for inflation, tax planning is essential. Delaying benefits may allow you to lower your taxable income in your early retirement years (60–67). This creates "headroom" in your tax bracket to perform Roth Conversions at a lower tax rate before Social Security kicks in.
Myth Buster: Will Social Security Go Bankrupt?
You see the headlines every year: "Social Security Trust Fund Depleted by 2033." Does this mean your checks will stop?
No. Even in the worst-case scenario where the trust fund reserves reach zero, the system relies on incoming tax revenue from current workers. That revenue is projected to cover roughly 80% of scheduled benefits. While a benefit cut is a risk Congress needs to address, the system is not going to $0. Don't make panic-based decisions to claim early because of scary headlines
Final Thoughts
There is no "one-size-fits-all" answer for Social Security. Your optimal strategy depends on your health, other assets, marital status, and tax bracket.
If you are in the Huntsville area and want to ensure you aren't leaving money on the table, we can help you run the numbers. We view your claiming decision through the lens of your entire financial plan, ensuring your Social Security strategy supports your long-term goals.