As financial planners, it is our responsibility to keep our minds sharp and our eye on the ball when it comes to any upcoming changes in legislation regarding anything that might be important as it relates to your financial situation. In addition to that, it is also our responsibility and our privilege to look out for your financial wellness as it relates to changes and goings-on in your own personal lives. As you may know, there are three stages of your financial life. The first is known as “wealth accumulation”, which is the stage in which you focus on building wealth through saving and investing your hard-earned dollars with a primary goal of long-term growth. The second stage is known as “wealth preservation”, which typically occurs when you are nearing retirement. This stage involves shifting focus from aggressively growing your assets to protecting your accumulated assets and ensuring their long-term sustainability. The final stage of one’s financial life is referred to as “wealth distribution”. This is the most gratifying stage of all, and it is the stage that you are about to enter into! This phase of life begins at retirement, and it involves the distribution of your assets to generate income and meet all of your financial needs as you are entering into a life of more leisure and more fun!

This brings us to the point of this letter, which is that, even though you may need to begin drawing down on assets to supplement that foregone earned income, we want to make sure that you are aware of the incredible benefit known as Social Security. You already know what Social Security is – you have been paying some of those aforementioned hard-earned dollars into it for your entire career, after all! As financial planners and portfolio professionals, we believe that one of the most valuable benefits of the US Social Security program is that it gives you the ability to keep your portfolio withdrawals down and therefore allows for your investments to continue to grow. In other words, it can slow down your “wealth distribution”.

As you know, we are constantly monitoring your financial plan, and we are aware that you have not yet turned on your own Social Security benefits. The recommendation for when to turn on Social Security depends of course on your own personal financial circumstances, and it can vary from financial plan to financial plan. However, for the purposes of this letter, we want to ensure that you are informed about the current state of the program, the rules around your benefits, and the process of applying for your benefits when the time comes.

Before we get to the nitty-gritty, first: a brief history and explanation of Social Security in the United States. Social Security is a government-run social insurance program that provides financial support to retirees, individuals with disabilities, and the survivors of deceased workers. It was established on August 14^th, 1935 (happy 90^th, SS!) when President Franklin D. Roosevelt signed into law The Social Security Act of 1935 as a way to boost the economy after the severe economic impact of The Great Depression.

It is predominantly funded through payroll taxes collected from employees’ earnings. These taxes are known as Federal Insurance Contributions Act, or “FICA”, taxes. Eligible individuals can begin taking their benefits as early as age 62, or as late as age 70.

Social Security has undergone many changes since it was first enacted, but it has steadfastly remained an integral part of the economic system of the United States for all of those years. In more recent years, it has been called into question whether the program will survive or will become insolvent. It has been stated by the Social Security Administration that the most recent Social Security Trustees Report (2025) projects that the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Fund reserves will be depleted by 2034.  While this poses a significant funding shortfall, it does not mean that Social Security will just disappear. After 2034, Social Security could still pay approximately 81% of benefits using its income from FICA taxes, even if policymakers take no further steps to improve the program’s sustainability.

This unfortunate, but true, information has motivated us to encourage our age-eligible clients to look into their benefits and reach out to us for advice. Whether it be questions about what your benefits mean, when to apply for your benefits, or how to apply for your benefits, we as your financial planners are here and able to help you every step of the way.

As we mentioned above, Social Security benefits can start being taken anywhere from age 62 to age 70. For any individual born after the year 1960, Full Retirement Age is 67. If you choose to take your benefit before Full Retirement Age, your benefit will be reduced; if you choose to take your benefit after Full Retirement Age, your benefit will increase incrementally each year until age 70.

Social Security benefits can, and in most cases will, be subject to federal (and sometimes state) income taxes.  If you are an individual with income over $25,000, or a couple with a combined income of $32,000, you will have to pay taxes on your benefits. In this case, “income” is referring your adjusted gross income, tax-exempt interest income, and one-half of your annual Social Security benefits.

Individuals with income between $25,000 and $34,000 will have to pay taxes on up to 50% of their benefit; and individuals with income over $34,000 will have to pay taxes on up to 85% of their benefit. Couples with income between $32,000 and $44,000 will have to pay taxes on up to 50% of their benefit; and couples with income over $44,000 will have to pay taxes on up to their 85% of their benefit.

Regarding recent legislation, President Trump recently signed The One Big Beautiful Bill Act, which introduces a temporary tax deduction for seniors. This may indirectly reduce or even eliminate federal income taxes on Social Security benefits for some recipients. However, it’s important to understand the specific provisions and recognize that the deduction is not permanent. While headlines and political slogans have emphasized the idea that “Social Security taxes are gone,” the real story is more complicated.

Social Security has always been taxed based on beneficiaries’ income, which includes AGI, tax-exempt interest, and half of your SS benefits. The thresholds mentioned before have never been adjusted for inflation, meaning more and more retirees have entered into taxation territory each year.

With The OBBB, individuals (age 65 and older) can now claim an additional $6k deduction and married couples (both age 65 and older) can claim an additional $12k deduction. In essence, this means that a larger majority of seniors receiving Social Security will receive deductions that exceed their taxable Social Security, effectively reducing and in a lot of cases, eliminating taxes on their Social Security benefits. It is important to note that this tax relief, while revitalizing, is temporary. The Bill is only in force from 2025-2028. Unless future legislation extends the current provisions, retirees may revert to the previous rules starting in 2029.

With all of this being said, if you are planning on turning on your Social Security benefits soon, there are some steps you will need to follow to get the process started. First, we at Key Financial are here to advise you, so please reach out to us when you are thinking about applying. We are happy to run the numbers and see if it makes sense to start now or if it makes more sense to delay your benefits.

If you do decide that it is time to start receiving your benefits, you can apply up to 4 months before the date you want the benefits to begin. You will need to gather all of the necessary information and documents which are listed on the Social Security website. This would include your Social Security number, your birth information, marital history, bank account information, and (very important) your work history.  You can apply online, by phone, or in person at your local Social Security office, and payments will commence typically between 3-5 months after applying.

As you enter this new phase of life, Social Security will be a key player —so it’s important to understand how the program works and what it means for you. Key Financial is here for you and we are always available for questions, concerns, or thoughts. We’re committed to helping you make informed decisions and feel confident about your financial future every step of the way.

Top Three Social Security Questions Our Team Gets Asked:

1. When is the best time to take my Social Security benefits?
2. Is Social Security going away?
3. How much tax will I pay on my Social Security benefits?