Social Security and Your Retirement Plan

Editor’s note: Originally published July 23, 2020. Updated October 9, 2026 with current Social Security statistics, the current early-claiming reduction, corrected spousal benefit wording and the current required minimum distribution (RMD) starting age.

About 88% of Americans age 65 or older receive monthly Social Security payments. While it probably isn’t enough to live on, it will likely be a significant part of your financial plan.

The statistics are clear: Social Security benefits represent about 31% of the income of Americans over age 65. Moreover, 39% of men and 44% of women age 65 and older receive 50% or more of their income from Social Security. Your financial plan should account for your total monthly income including the Social Security benefits for yourself and your spouse.

Understand How Your Benefits Are Calculated

The Social Security Administration uses a formula to figure your annual benefit. The formula adjusts your reported past income for inflation and then averages together the 35 highest income years. You can then get that amount divided into 12 monthly payments, but your age makes a big difference in how much you actually receive.

Know Your Options

Your primary insurance amount (PIA) is what you can receive if you’ve reached full retirement age (FRA, 66 for folks born between 1943 and 1954, higher thereafter). The amount will be less if you start taking payment at a younger age (starting at age 62) or greater if you wait beyond FRA (up to age 70). If you start at age 62, your benefit is reduced by about 30% if your full retirement age is 67, and the reduction shrinks the longer you wait. Your benefit increases annually by 8% for each year you wait after your FRA. Spousal benefits can be up to half of the other spouse’s PIA.

Making Up the Shortfall

A common rule of thumb is that you’ll need around 70% of your pre-retirement income to have a comfortable retirement. But if you have big plans for travel and other expensive activities, you may need 100% or more of your pre-retirement income. Once you understand the limits of Social Security benefits, you have a good indication of how much you’ll need from other sources to support your desired lifestyle.

Required Minimum Distributions (RMDs)

You can start receiving penalty-free distributions from your IRA and 401(k) at age 59½. Under the SECURE 2.0 Act, RMDs now generally begin at age 73 (age 75 for those born in 1960 or later). If you’re still working, you may be able to delay RMDs from your current employer’s 401(k), but not from IRAs or old 401(k)s

A Holistic Plan Is Crucial

The earlier you work out your financial plan for retirement, the better able you’ll be to take the steps necessary to meet your goals. If you’re looking for a financial advisor and advocate who will look at your unique personal situation, needs and goals to provide solutions and a personal touch, then please reach out.

I recognize I'm not a good fit for everyone, and that's ok. That’s why I offer a complimentary introductory meeting so that we can be open and honest from the outset to ensure the best results based on our mutual compatibility.

Laryssa Freeman, CFP®, is the founder of Meritage Wealth Management, a fee-only fiduciary financial planning firm headquartered in Tamarack, Idaho, with a second office in Carlsbad, California. For more than 25 years she has helped retirees and pre-retirees plan for retirement income, taxes, investments, and their estates. Laryssa meets with clients in person in Carlsbad and Tamarack and virtually across the country, and she specializes in serving financially successful individuals and couples, particularly women facing a major transition such as retirement, widowhood, or divorce. She is a member of NAPFA and the XY Planning Network.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific situation with a qualified advisor.