Social Security Planning: 8 Considerations for CPAs

By Al Kushner, Kushner Consultants – June 19, 2024
Social Security Planning: 8 Considerations for CPAs

In the complex landscape of retirement planning, Social Security remains a corner stone for most Americans. CPAs can play a pivotal role in guiding clients through the maze of Social Security benefits, ensuring they maximize their entitlements while complementing their broader financial strategy. Here are eight areas to consider.

  1. Understand the basics. Social Security benefits are funded through payroll taxes under the Federal Insurance Contributions Act (FICA). Benefits include retirement, disability, survivor ship and dependents benefits, offering a financial safety net to workers and their families. For retirement benefits, the eligibility age ranges from 62 to 70, with full retirement age (FRA) depending on the birth year. 
  2. Know the significance of timing. One of the most critical decisions in Social Security planning is deciding when to claim benefits. Claiming before the FRA results in permanently reduced benefits, while delaying claims beyond the FRA can increase benefits by up to 8% per year until age 70. CPAs should assess clients’ financial situations, health status and life expectancy to provide tailored advice on the optimal time to start receiving benefits.
  3. Be aware of spousal and survivor benefits. Understanding the intricacies of spousal and survivor benefits is essential. Spouses may be eligible for benefits based on their own work record or up to 50% of the higher-earning spouse s benefit at FRA. Widow(er)s can receive up to 100% of the deceased spouse s benefit, with various claiming strategies affecting the benefit amount. CPAs must navigate these options to optimize the household s total Social Security income.
  4. Investigate the tax implications. Social Security benefits may be subject to federal income taxes, depending on the recipient s combined income. In New Jersey, however, Social Security benefits are exempt from state income tax, providing a slight relief in the overall tax burden. It’s crucial for CPAs to incorporate tax planning into Social Security advice, potentially involving strategies to minimize taxes on benefits while considering the client s overall tax situation.
  5. Weigh the benefits of working while receiving benefits. Many retirees choose to work while receiving Social Security benefits. Earnings above certain thresholds can temporarily reduce benefits if the individual has yet to reach the FRA. CPAs should advise clients on the earnings test, its implications and strategies to mitigate any adverse effects on Social Security income.
  6. Coordinate with other retirement assets. A holistic approach to retirement planning involves coordinating Social Security benefits with other retirement assets, such as IRAs, 401(k)s and pen sions. CPAs should help clients develop a withdrawal strategy that optimizes the tax efficiency and longevity of their retirement savings, considering the timing of Social Security benefits as a key component.
  7. Be aware of special considerations for public employees. CPAs working with clients who are public employees need to be aware of the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). These rules can reduce Social Security benefits for individuals who also receive a pension from work not covered by Social Security. Navigating these provisions is crucial for accurate retirement planning.
  8. Engage in continuous education and client communication. The landscape of Social Security is subject to legislative changes, making continuous education essential for CPAs. Staying informed about the latest developments enables CPAs to provide up-to-date advice. Equally important is proactive communication with clients, educating them about their options and the implications of their decisions on their retirement security.

Social Security planning is a multifaceted challenge that requires a deep understanding of the system, strategic thinking and personalized advice. By mastering these aspects, CPAs can help clients navigate their retirement journey confidently, ensuring they maximize their Social Security benefits in harmony with their overall financial plan. 

Al Kushner

Al Kushner

Al Kushner is a corporate and individual Medicare speaker, trainer, consultant and award-winning author.

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This article appeared in the Summer 2024 issue of New Jersey CPA magazine. Read the full issue.