Social Security Overview

Social Security Overview

RightCapital allows advisors to estimate or supply a client’s Social Security benefit amount within the Profile > Income tab of each financial plan. Social Security benefits can be tracked in the Retirement > Cash Flows > Summary tab, within the Income Inflows > Social Security column.

This is a knowledge base article, designed to give advisors an overview of Social Security income and how certain calculations are generated within RightCapital. For additional information on entering Social Security income or using the Social Security Optimization tool, please review the linked help center articles.

Social Security benefits are intended to replace a percentage of a worker’s pre-retirement income based on their lifetime earnings. The portion of pre-retirement wages that Social Security replaces is based on your highest 35 years of earnings and varies depending on how much you earn and when you choose to start benefits. The amount issued as monthly income replacement at full retirement age is referred to as the Primary Insurance Amount (PIA). The PIA value is issued to every eligible client by the Social Security Administration (SSA).

Eligibility for Social Security

Within RightCapital, Social Security income is generated by entering a client’s historical covered earnings, entering the start age and monthly benefit from a client's SS statement, or through a simplified estimate based on the client's salary card. These inputs are entered into the Profile > Income > Social Security income card. For clients who have already filed, advisors can check the "Already receiving" checkbox within this card to enter the monthly amount they are currently receiving.

Clients must qualify for Social Security benefits by earning at least 40 Social Security credits. Clients earn up to four Social Security credits per year when they work and pay Social Security taxes.

Credits are based on their total wages and self-employment income for the year. The number of earnings it takes to earn credits may change each year. In 2024, clients earn one Social Security or Medicare credit for every $1,730 in covered earnings. You must earn $6,920 to get the maximum four credits for the year.

Primary Insurance Amount (PIA)

RightCapital allows advisors to estimate or supply the Social Security PIA value within the Profile > Income area of each financial plan. In the estimated benefit amount dropdown menu, advisors can select ‘Based on SS Statement Value’ and input the full retirement age benefit PIA value. This will be increased or reduced based on the filing age.

The PIA value is the monthly Social Security benefit a client will receive if they file for income at their full retirement age. At full retirement age, the benefit is neither reduced by an early withdrawal penalty nor is it increased with a delay credit. The Social Security Administration will calculate and supply this amount for eligible clients.

Data Entry Pro Tip: “Based on SS Statement Value”

In addition to the client’s PIA at full retirement age, alternative start ages between 62 and 70 can also be entered when filling out a Social Security Income card by adjusting the ‘Start Age From Statement’.

How PIA is Calculated

When estimating a Social Security benefit in RightCapital, the client's birthday, earnings, and family profile will be used to estimate a PIA value for the plan. This PIA value is then adjusted for filing age and other adjustments.

The Social Security PIA value is based on each eligible client's averaged monthly earnings, adjusted for wage growth. The average indexed monthly earnings (AIME) are separated into three amounts, or "bend points". These amounts change based on when a client reaches age 62. Each amount is multiplied by a specific factor, and the sum of all three amounts will equal the client's PIA value which can be increased or decreased depending on other variables. Here are links that illustrate PIA bend points, and PIA Formula.

Bend points for a client who turns 62 in 2024
  1. The first bend point of the AIME is $1,174. Therefore all earnings up to this amount are multiplied by 90%.

  2. The second bend point represents AIME between $1,174 and $7,078 which is multiplied by 32%.
  3. While any remaining AIME above $7,078 is multiplied by 15%.
The total of all three amounts equals the PIA value.

PIA Recomputation

If a client receives large amounts of income into their 60s, the issued PIA value can be increased due to recomputation. For example, if a client decides to work until age 70; not only can they get delay credits on their retirement benefit, but their PIA can increase because their earnings between ages 60 to 70 are high enough to impact the highest 35 years of earnings used when calculating PIA.

RightCapital will only factor in recomputation when the client's estimated benefit is calculated using the "simple estimate" or the "historical covered earnings" approach. If a client is entering their assigned PIA value using the “SS statement value” option, RightCapital will not automatically factor in recomputation.

Retirement Benefit

RightCapital will allow clients to file for Social Security retirement benefits as early as 62 and as late as age 70. The income associated with the retirement benefit will flow from the Profile > Income > Social Security income card. The retirement benefit and any adjustments can be seen in the Retirement > Cash Flows > Summary tab, within the Income Inflows > Social Security column.

The filing age affects how much clients will receive in Social Security income. Clients who delay filing past their full retirement benefit will receive a delay credit, while those who file earlier will have their benefit reduced. In RightCapital, the client's birthday (entered in the Profile > Family tab) is used to determine their full retirement age.

Full Retirement Age

The full retirement age (FRA) is the age when clients will be able to collect their full retirement benefit amount. The FRA is 66 if clients were born from 1943 to 1954. FRA increases gradually if they were born from 1955 to 1960 until it reaches 67. For anyone born in 1960 or later, full retirement benefits are payable at age 67. You can find a client's full retirement age by birth year in the full retirement age chart.

Early Retirement Age

Clients can collect Social Security benefits as early as age 62. However, their benefit is reduced if they start collecting benefits before full retirement age. Advisors can use the following link to determine how claiming retirement benefits early will affect the benefit amount. The early withdrawal penalty when filing for Social Security benefits before the full retirement age ranges from 5% to 6.7% per year for every year before FRA, depending on the client’s birthday.

Delayed Retirement Age

When clients delay filing for Social Security beyond their full retirement age, the benefit amount will continue to increase until age 70. Advisors can use the following link to determine how delaying Social Security will affect the benefit amount. The delay credits applied to Social Security benefits range from 5.5% to 8% each year, depending on the client’s birthday.


Spousal Benefit

RightCapital will automatically generate a spousal benefit within financial plans when clients are eligible. Financial plans will include the greater of a client's retirement benefit or the spousal benefit in order to produce the best outcomes. If advisors would like to stop RightCapital from automatically including a spousal benefit, that client’s Profile > Income > Social Security income card can be set to "No Social Security".

Starting at age 62, spousal benefits are available to clients even if they never worked towards Social Security credits. If a client's spouse qualifies for Social Security the spousal benefit can provide 50% of the spouse's Primary Insurance Amount. The current plan's strategy will automatically include spousal benefits when appropriate.

Spousal benefits are subject to an early withdrawal penalty (5% to 8% per year), but not delay credits after full retirement age. Spousal benefits can be viewed in the Retirement > Cash Flows > Summary > Income Inflows > Social Security income area. Click the underlined column headers to reveal additional information including any spousal benefits.

Survivor Benefit

RightCapital will automatically generate a survivor benefit within financial plans when clients are eligible. When the "already receiving" checkbox is selected in the Social Security income card, RightCapital will use the listed initial filing age to determine the appropriate survivor benefits in the plan. To view survivor benefits in the future cash flows, advisors can visit the Retirement > Cash Flows > Summary tab, within the Income Inflows > Social Security column.

If a client receiving a retirement benefit passes away, the surviving spouse is eligible to receive a survivor benefit. The maximum monthly survivor benefit is 82.5% of the deceased spouse's benefit amount. The spouse can then take the greater of their retirement benefit, or the deceased client's retirement benefit.

An early withdrawal penalty of 4% to 6% per year is applied if the benefit is taken before the surviving spouse's full retirement age. No delay credits are available on survivor benefits. Financial plans in RightCapital will default to a strategy that includes survival benefits when appropriate.

Former Spouse Social Security

Within a single client plan in RightCapital, there is an additional option to project a client’s social security benefit based on a divorced or deceased spouse’s record. This can be added within a plan in the Profile > Income section, by clicking Add Income > Other > Spouse Social Security.

The Spouse Social Security card should only be used when a single client needs to document spousal/survivor benefits from a previous relationship.

If a client is divorced, they may be eligible to receive benefits based on their ex-spouse’s record. A divorced client can receive up to 50% of their ex-spouse’s full retirement benefit (PIA) starting as early as age 62, as long as the marriage lasted at least 10 years, the divorce occurred more than 2 years prior, and the client is unmarried.

If a client is a widow or widower, they may be eligible to receive a survivor benefit based on the earnings record of their deceased spouse. The amount the client will receive is based on the benefit amount the ex-spouse was receiving, or the ex-spouse’s Primary Insurance Amount (PIA) value if they had not started to receive benefits. If that amount exceeds the client’s own retirement benefit, the client will receive the difference as a survivor benefit.

Benefits from a Spouse Social Security card will be calculated using the rules for either a divorced spouse or a deceased spouse. The data inputs will adjust based on the relationship selected and whether the spouse was already receiving Social Security income. Benefits can be seen in the Retirement > Cash Flows > Summary tab, within the Income Inflows > Social Security column.

Child Benefit

In RightCapital, child benefits are automatically calculated and applied when there is a minor dependant child included in the Profile > Family area.

When a client files for Social Security benefits while listing a minor child as a dependent, there is an opportunity to receive additional benefits. The child can be biological, adopted, or a stepchild in the household. Within a family, a child can receive up to half of the parent’s PIA at full retirement age. Child benefits stop once the child reaches age 18.

When a client passes away with a minor dependant child in the plan, the child is eligible for a survivor benefit up to 75% of the deceased parent’s PIA. This can occur even prior to the client filing for benefits, and will stop once the child reaches age 18.

The following calculation is used to determine the child benefit amount used in a financial plan. The child benefit amount can be seen in the Retirement > Cash Flows > Summary > Income Inflows > Social Security column, listed under Child benefit.

Condition to receive Child Benefit

Child Benefit Amount

Client receives Retirement Benefit, and has a child under age 18

50% of Client PIA

Client receives Survivor Benefit, and has a child under age 18

75% of deceased spouse's PIA

Family Max Benefit

In RightCapital, there is a maximum Social Security benefit each family can receive. When adding up retirement benefits, spousal benefits, child benefits & survivor benefits, RightCapital will follow the rules to cap the total benefit at the family's maximum amount. Retirement benefits will not be reduced by the family max benefit; instead, other benefit amounts will be reduced pro-rata. For information on how the family max benefit is calculated view this link.

The formula used to compute the family maximum is similar to that used to compute the Primary Insurance Amount (PIA). The formula sums four separate percentages of portions of the worker's PIA. For 2024 these portions are the first $1,500, the amount between $1,500 and $2,166, the amount between $2,166 and $2,825, and the amount over $2,825. These dollar amounts are the "bend points" of the family-maximum formula. Thus, the family-maximum bend points for 2024 are $1,500, $2,166, and $2,825. See the table showing bend points for years beginning with 1979 (the table also shows PIA formula bend points).

For the family of a worker who becomes age 62 or dies in 2024 before attaining age 62, the total amount of benefits payable will be computed so that it does not exceed:

(a) 150% of the first $1,500 of the worker's PIA, plus

(b) 272% of the worker's PIA over $1,500 through $2,166, plus

(c) 134% of the worker's PIA over $2,166 through $2,825, plus

(d) 175% of the worker's PIA over $2,825.

Disability Benefit (SSDI)

For clients who may be receiving Social Security Disability Insurance, advisors can enter this into a plan in the Profile > Income section, by clicking Add Income > Other > Other Income. Within this card, the Taxes field can be set to ‘Social Security’ to ensure correct taxation.
Social Security Disability Insurance can pay benefits to clients and certain members of their family if they are "insured," meaning that they worked long enough and paid Social Security taxes. Not everyone gets the same amount; the benefit that the client is eligible for will depend on their work history and covered earnings during that time. RightCapital will not automatically calculate SSDI benefits- to reflect these in RightCapital, the annual benefit amount should be entered into an Other Income card with the Taxes field set to Social Security.

An Other Income card can also be used to enter social security retirement, spousal, or survivor benefits manually, rather than having RightCapital automatically calculate these benefits. To prevent automatic retirement / spousal / survivor benefit calculations from occurring, advisors can navigate to Profile > Income > Social Security, and set the Estimated Benefit Amount to “No Social Security”.

Annual Earnings Test Adjustment

RightCapital will also perform an annual earnings test if a client is working while taking their Social Security benefit. If benefits are withheld due to the earnings test, they are paid back once the client hits FRA. Advisors will see that amount added under the earnings test column within the Retirement > Cash Flows > Summary tab, within the Income Inflows > Social Security column. The annual earning test reduction stops after Full Retirement Age (FRA). The annual earning test reduction in RightCapital applies to all social security benefits including retirement, spousal, and survivor benefits.

When applying the annual earnings test, Social Security benefits are reduced by $1 for every $2 of earnings in excess of the lower exempt amount, and $1 for every $3 of earnings in excess of the higher exempt amount. For 2024, the lower threshold is $22,320. This is used for individuals reaching FRA after 2024. The higher threshold is $59,520. This is used for individuals attaining FRA during 2024, and applies only to earnings made in the months leading up to FRA. Earning thresholds are increased with inflation every year.

Example
  • The client retires at age 62.

  • The client starts Social Security retirement benefit at age 62, with a benefit equal to $1,000 a month.

  • The client works a part-time job at age 63, earning $24,000 a year.

  • The client's social security benefit might be reduced by $70 a month, to $930 per month.

  • In the month that the client reaches their FRA, the social security benefit goes back to $1,000 a month.

  • In each subsequent year, the client will receive an increased benefit based on the total amount withheld due to the earnings test adjustment. Over a typical lifespan, most individuals will recoup most or all of their benefits withheld before FRA.

The earnings test will not be applied if the client has earned income and the box is checked to “exclude from SS tax" under the Profile > Income > Salary card.

Government Pension Offset (GPO)

RightCapital allows advisors to apply a government pension offset for clients with non-covered pensions. If clients are subject to a Government Pension Offset (GPO) that reduces Social Security spousal benefits, check the Non-covered box on the Pension income card (entered in the Profile > Income section) to have that pension amount offset the spousal benefit.
The Government Pension Offset impacts individuals who are receiving government pensions and did not pay Social Security taxes. As a result of GPO, these individuals will see their spousal/survivor benefits reduced by 66% (or two-thirds) of the monthly non-covered pension amount. After checking the ‘non-covered’ box on the Pension income card, the impact of GPO on spousal benefits can be seen in the Retirement > Cash Flows > Summary tab, within the Income Inflows > Social Security column. In cases where GPO would completely eliminate a spousal benefit, the spousal benefit column will be entirely removed.
To indicate that a client’s salary is not subject to Social Security tax, check the “Exclude from SS tax” box on that client’s Salary income card.

Windfall Elimination Provision (WEP)

RightCapital will apply the WEP reduction to Social Security benefits when there is a non-covered pension income card entered. If clients are subject to the Windfall Elimination Provision that reduces Social Security retirement benefits, check the Non-covered box on the Pension income card (see above screenshot). This calculation will not impact Social Security income that is already being received, nor will it affect Social Security estimates when using “Based on SS statement value” as your estimated benefit amount. The WEP reduction will impact estimated SS benefits using the "simple estimate" or from "historical covered earnings". WEP can affect monthly SS benefits, spousal benefits, child benefits, family maximum benefits, and annual earnings test calculations within a financial plan. Survivor benefits will not be impacted by the Windfall Elimination Provision. RightCapital will also apply the WEP guarantee that restricts SS benefit reduction to half of the client's pension income.

When a client is eligible to collect a non-covered pension income and Social Security income, their Social Security benefit amount may be reduced. This reduction is referred to as the Windfall Elimination Provision. WEP applies to clients who have both worked jobs where they did not pay into Social Security since they receive a pension, as well as worked jobs where they did pay into Social Security and are eligible for SS benefits. WEP can reduce the percentage of pre-retirement earnings that are replaced by Social Security benefits up to the first income tier, or bend point. This has the potential to lower the client's income replacement from 90% to 40% within the first bend point. After checking the ‘non-covered’ box on the Pension income card, the WEP reduced Social Security benefit can be tracked in the Retirement > Cash Flow > Summary tab, within the Income Inflows > Social Security column.

For additional information on the Windfall Elimination Provision, please refer to the SSA Website.

Restricted Application

RightCapital will include a restricted application as one of the 700 different filing strategies analyzed to optimize Social Security for each client. If a client meets the requirements for restricted application and it produces the most Social Security income for the household, the details will be listed in the Retirement > Social Security > Action Items area. The strategy can be implemented in a proposed plan by choosing the Optimal Strategy in the Retirement > Analysis > Actions Items > Social Security Strategy dropdown menu.

If a client's spouse was born before January 2, 1954, and has already reached full retirement age, they can choose to receive only the spouse's benefit and delay receiving their own retirement benefit until a later date. This strategy is included in the optimal Social Security analysis in RightCapital.

If the spouse’s birthday is January 2, 1954, or later, the option to take only one benefit at full retirement age no longer exists. If the spouse files for one benefit, they will be effectively filing for all retirement or spousal benefits.

This strategy has been officially phased out as of January 2nd, 2024, as all individuals eligible for restricted application are now over age 70.

Tax on Social Security Income

Federal Tax

When a client's combined Income is higher than the threshold listed below, the social security benefit is taxable in RightCapital. Combined income is defined as the client's AGI plus non-taxable interest plus 50% of Social Security benefit.

Taxable Social Security for Single filer

Client's Combined Income

Single filer

Combined income < $25,000

Social Security benefit not taxable

$25,000 < Combined income < $34,000

50% of Social Security is taxable

Combined Income > $34,000

85% of Social Security is taxable

Taxable Social Security for Married Filing Joint

Client's Combined Income

Married filing Jointly filer

Combined income < $32,000

Social Security benefit not taxable

$32,000 < Combined income < $44,000

50% of Social Security is taxable

Combined Income > $44,000

85% of Social Security is taxable


Taxable Social Security Worksheet

The tax calculation details in RightCapital can be seen on the Taxable Social Security worksheet in the Tax > Tax Estimate > Details > Taxable Social Security area found in the "1040" dropdown menu. Total Social Security benefits are shown in box 6a on the 1040, while the Taxable Social Security amount is shown in box 6b.

State tax

Only certain states will tax a client's Social Security income. RightCapital will use the client's resident state, entered in the Profile > Family > Client card, to determine if their Social Security benefit is taxable at the state level. Below is a list of states that will tax Social Security benefits.

State

Taxable Social Security Benefit

Colorado

Yes

Connecticut

Yes

Kansas

Yes

Minnesota

Yes

Montana

Yes

New Mexico

Yes

Rhode Island

Yes

Utah

Yes

Vermont

Yes

West Virginia

Yes

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