Social Security Planning

Benefits are based on your highest 35 years of earnings, adjusted for inflation. The Social Security Administration calculates your Average Indexed Monthly Earnings (AIME) and applies a progressive formula to determine your Primary Insurance Amount (PIA), the benefit you receive at full retirement age. Years with zero or low earnings pull down the average, which is why working at least 35 years matters.

A spouse can receive up to 50% of the higher earner's PIA at full retirement age, even if they have little or no work history of their own. To qualify, the marriage must have lasted at least one year (or 10 years for divorced spouses). Spousal benefits are reduced if claimed before full retirement age. The higher earner must have filed for their own benefits before spousal benefits become available.

If you claim benefits before full retirement age and continue working, the earnings test reduces your benefit by $1 for every $2 earned above the annual limit ($23,400 in 2025). In the year you reach full retirement age, the reduction is $1 for every $3 above a higher limit. After full retirement age, there is no earnings test. The withheld benefits are not lost permanently. Your benefit is recalculated upward once you reach full retirement age.

The surviving spouse is entitled to the higher of their own benefit or 100% of the deceased spouse's benefit (assuming full retirement age). This means the household drops from two Social Security checks to one, which can significantly affect income and tax planning. Survivor benefits can be claimed as early as age 60 (50 if disabled). Strategic planning around this transition is often overlooked.