Hey, welcome to VoraPrep Audio. Today we’re talking about Social Security claiming strategies. And look, I know this can feel a little dry, but for your clients, this is a huge deal. It’s often the biggest financial decision they make in their entire retirement. Getting this right can mean an extra hundred thousand dollars, or even more, for a couple over their lifetime. Getting it wrong... well, that’s why they hire you. On the CFP exam, they’re not just testing if you know the rules; they’re testing if you can guide a client to the best possible outcome.
So let's start with the two building blocks for every single Social Security question. First is the Primary Insurance Amount, or PIA. Think of the PIA as the baseline, the full retirement benefit a person has earned. It's calculated from their highest 35 years of earnings. The exam will always just give you this number, so you don't have to calculate it. The second piece is the Full Retirement Age, or FRA. This is the age when they can get 100% of that PIA. And here’s a key fact for the exam: for anyone born in 1960 or later, which is most of the scenarios you’ll see, the FRA is 67. Just lock that in. FRA is 67.
Now, the central trade-off is all about when you claim relative to that age. Your client can claim as early as 62, but their benefit is permanently reduced. If they claim at 62 with an FRA of 67, they only get 70% of their PIA. Forever. On the flip side, they can wait. For every year they delay past their FRA, up to age 70, they earn something called Delayed Retirement Credits.
Here’s a great way to think about it. These credits are like a guaranteed, risk-free investment from the government that pays 8% per year. You can’t find that in the market. So, by waiting from age 67 to 70, their benefit grows by 24% over their PIA. At age 70, they get 124% of their full retirement amount. That's the maximum. The growth stops at 70, so there's no reason to wait past that.
So when you see a Social Security question on the exam, it's really a puzzle. The first thing you need to do is find the client’s FRA based on their birth year. Again, it’s probably 67, but double-check. Then, you'll adjust their PIA based on the age they’re claiming. Are they early? Apply the reduction. Are they waiting? Apply the 8% annual Delayed Retirement Credits.
Once you have that basic benefit calculated, your next thought should be, "Is this person married, divorced, or widowed?" Because that opens up other options. This is a huge area for planning. A client is always entitled to the higher of their own benefit or a spousal benefit. The spousal benefit is worth up to 50% of the *other* spouse's full PIA. Notice I said PIA, not what they are actually receiving. That’s a common trick. The calculation is based on the higher earner's full retirement amount. For a surviving spouse, it's even more significant—they can be eligible for up to 100% of what their deceased spouse was receiving. So for couples, you always run the numbers both ways.
Here’s a quick mental check-in. Pause and ask yourself: If a client is eligible for both a spousal benefit and their own retirement benefit at their FRA, which one do they receive? They actually get their own benefit first. Then, if the spousal benefit is higher, Social Security adds an extra amount to bring the total payment up to that higher spousal level.
Okay, now for the part that trips up so many people: the earnings test. This is a classic exam trap. The rule is this: if your client is receiving benefits *before* their Full Retirement Age, and they are still working and have earned income, their benefits can be temporarily withheld. Notice I said *temporarily*. This is not a permanent loss. Once they hit FRA, Social Security actually recalculates their benefit to give them credit for any months the money was withheld.
Here are the numbers you need to know for 2026. If your client is under their FRA for the whole year, their benefits are reduced by $1 for every $2 they earn above $24,480. In the specific year they *reach* FRA, the rule is a little gentler. It’s a reduction of $1 for every $3 they earn above a much higher limit, $65,160, and that only counts earnings in the months *before* their birthday month. The most important thing to remember? Once they hit FRA, the earnings test disappears completely. They can earn a million dollars and it won’t reduce their Social Security check by a penny.
Let's walk through an example. Amelia is 64, so her FRA is 67. She plans to claim her benefit of $2,000 a month in 2026. But she’s also going to keep working part-time, earning $40,000 for the year. The question is, how much gets withheld?
First step: which limit applies? Amelia is 64 for the whole year, so she's under her FRA. We use the lower limit: $24,480. Second step: how much is she over the limit? We take her earnings of $40,000 and subtract that limit of $24,480. That gives us $15,520 in excess earnings. Third step: apply the formula. For someone under FRA, it's a $1 reduction for every $2 in excess. So we take that $15,520 and divide by 2. The answer is $7,760. That's the amount of her benefit that will be withheld for the year. If you got this wrong on the exam, it's probably because you used the higher limit and the $1-for-$3 rule, which only applies in the year she turns 67.
This brings us to the biggest pitfall: confusing the earnings test with the taxation of benefits. They are totally different things. The earnings test is based on age and *earned income*—like wages. Taxation is based on *provisional income*, which includes all sorts of other things, and it can happen at any age. On exam day, the first thing you check is the client's age. If they are at or past their Full Retirement Age, the earnings test is irrelevant. Don't even think about it.
Here’s a little memory aid for the earnings test ratios. Just think: "2-for-1 Before, 3-for-1 During." It’s a $1 reduction for every $2 of earnings in the years *before* you hit FRA. And it’s $1 for every $3 of earnings *during* the year you hit FRA.
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So, let's do a quick knowledge check before we wrap up. First question: A client was born in 1962 and claims Social Security at age 62. What percentage of her PIA will she receive? The answer is 70%. Her FRA is 67, so claiming five years early at 62 triggers the maximum 30% reduction.
Second question: David is 68. He's receiving Social Security and earns $100,000 from his consulting business. How much of his benefit is subject to the earnings test withholding? The answer is zero. Nothing. He's past his Full Retirement Age, so the earnings test does not apply.
To sum it all up: FRA is 67 for most of your clients. Claiming early means a permanent reduction; delaying to 70 means a big, permanent, guaranteed increase. Always check for spousal and survivor benefits, as they can provide a much higher payout. And finally, the earnings test is a temporary withholding that only applies to people working *before* their Full Retirement Age.
Master these rules, and you'll be able to solve any Social Security puzzle the exam throws at you—and give truly valuable advice to your future clients.
Keep up the great work. You’ve got this.