Surprising Social Security Advice for High-Income Retirees
If you have a high net worth and retirement income, the surest bet may be taking benefits ASAP.

Q: My wife and I are both 65 and will be retiring later this year. Over the course of our careers we’ve worked hard at saving and will both have good pensions. Our plan had always been to wait until age 70 to start Social Security, but given our high annual retirement income (almost $200k), we are concerned that we may lose some of our Social Security if the government ever decides to introduce means testing. What are your thoughts on this? Should we wait until we are 70, or should we take the money now?
A: There are a couple of ways you should address Social Security. One is to simply crunch the numbers based upon current assumptions. The other, which speaks to your concern about means testing, is to consider the possibility that Social Security benefits may be reduced in the future for high-income retirees.
Because almost every article I read primarily deals with the financial calculations, without taking into account the very real possibility of changes to benefits, I’d like to primarily address the likelihood and repercussions of means testing.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
One thing we know is that Social Security, in its current form, cannot continue forever. There simply aren’t going to be enough workers to pay for the benefits of all the projected retirees (according to AARP, some 75 million Americans will be over the age of 65 by 2030). Payroll taxes will either have to increase, or benefits will have to be reduced. (And, there could actually be a combination of both.)
Before you begin to think that I’m crazy for believing that future benefits will be cut, simply consider that Congress has already cut benefits a number of times. Sure, the reductions haven’t been exactly direct, as in everyone being forced to take a 10% cut, but they have happened indirectly through increased taxation.
Most people forget that for its first 45 years, or so, Social Security income was entirely tax-free. The money the government sent you each month was yours to do with as you pleased. But in 1983, Congress decided to tax the Social Security receipts of wealthier retirees. The Amendment to the Social Security Act began taxing up to 50% of the benefits for retirees with provisional incomes in excess of $25,000 for singles and $32,000 for married couples.
That taxation was clearly a reduction in benefits to wealthy retirees.
Taxation of Social Security got worse in 1993 with the passage of the Omnibus Budget Reconciliation Act. This law increased from 50% to 85% the portion of Social Security income that is subject to taxation. As a result, higher-income retirees had to give up a still-greater portion of their Social Security income.
As federal income taxes have increased this past decade, from a top rate of 28%, to a top rate of 39.6%, this too has had an impact on the benefits of wealthier retirees. For those in the top income tax bracket, the taxation has caused a 33% reduction in benefits. In other words, after taxes have been deducted, a Social Security income of $1,000 has been reduced to $667.
As the pressure to preserve Social Security for the masses mounts, due to the obvious strains on the system, it would seem to me that high-income retirees are again going to be the target. It would be hard for lawmakers to make the case that the Donald Trumps of the world should collect Social Security benefits while young working families are forced to pay a greater share of their income to payroll taxes.
So, if I were a betting man, and I had to place a wager on Social Security income for the top 10% of retirees, my bet would be that future benefits will be reduced, either via higher taxes or by outright means testing.
Given your situation, it would be foolish for both of you to wait until age 70 to collect benefits. At a minimum, one of you should “file and suspend” your benefits so that your spouse can begin collecting a spousal benefit. By doing this, you would both be deferring benefits until age 70, thus allowing your benefits to grow each year. However, one of you would be receiving a spousal benefit equal to 50% of the other’s full retirement amount. At age 70, the spouse can stop receiving the spousal benefit and apply for his or her own Social Security.
Now, if you are concerned that your future benefits may be reduced, either through means testing or through increased taxation, it may be best for at least one of you to start your benefits as soon as you retire. One could receive their normal, full retirement benefit, while the other collects a spousal benefit. As in the previous scenario, the spouse can switch to his or her own benefit at age 70.
Remember, almost anything is possible. If for any reason you have a sense that wealthy retirees will lose all of their Social Security income within the next few years, then you’d obviously both want to start receiving benefits right away. (Frankly, I can’t see that exact scenario happening, but the state of Social Security is worrisome, and it’s impossible to predict what Congress might do.)
As a general rule of thumb, for those who will be reliant upon Social Security for a large portion of their retirement income (the majority of Americans), if at all possible, I recommend they defer their benefits until age 70. This maximizes what they will receive. But for those people who have a high income and substantial net worth, the surest bet may be to begin taking benefits as soon as they can.
Scott Hanson, CFP, answers your questions on a variety of topics and also co-hosts a weekly call-in radio program. Visit MoneyMatters.com to ask a question or to hear his show. Follow him on Twitter at @scotthansoncfp.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Scott Hanson, CFP, answers your questions on a variety of topics and also co-hosts a weekly call-in radio program. Visit HansonMcClain.com to ask a question or to hear his show. Follow him on Twitter at @scotthansoncfp.
-
Ten Cheapest Places to Live in Texas
Property Tax Looking for a cheap place to live in Texas? Look no further. These counties have the lowest property tax bills in the Lone Star State.
-
AI Is Missing the Wisdom of Older Adults: What It Means for You
AI will increasingly affect your healthcare and finances, but young workers are primarily designing the systems and getting most of the jobs.
-
A Financial Adviser's Guide to Solving Your Retirement Puzzle: Five Key Pieces
If retirement's a puzzle you're struggling with, try answering these five questions. The answers will guide you toward a solution.
-
You're Close to Retirement and Cashed Out: How Do You Get Back In?
If you've been scared into an all-cash position, it's wise to consider reinvesting your money in the markets. Here's how a financial planner recommends you can get back in the saddle.
-
What the HECM? Combine It With a QLAC and See What Happens
Combining a reverse mortgage known as a HECM with a QLAC (qualifying longevity annuity contract) can provide longevity protection, tax savings and liquidity for unplanned expenses.
-
My Professional Advice: When It Comes to Money, You Do You
This is how embracing the 'letting others be' and 'learning to surrender' mindsets can improve your relationship with money.
-
Direct Indexing Expert Explains How It Can Be a Smarter Way to Invest
Direct indexing provides a more efficient approach to investing that can boost after-tax returns, but is it right for you?
-
Smiley Faces in Serious Places: Emoji Use Pops Up in Legal Battles Over Inheritances
Estate planning attorney notes how emojis are crossing over from casual conversation to litigation. What was once dismissed as 'just an emoji' is now carefully scrutinized.
-
When Downsizing, Does a Continuing Care Retirement Community Make Sense?
The idea that you'll never have to move again may sound tempting, but how about the costs? A financial planner explores the pros and cons of this style of retirement living.
-
An Expert's Guide to the Estate Planning Documents Everyone Needs
Estate planning is more than just writing a will. These are the documents you'll need in order to protect your family if you're seriously injured or worse.