7 Key Steps to Prepare for Social Security and Retirement Income
Are You Retirement Ready?
Whether retirement is just around the corner or still years away, planning for it isn’t something to leave to chance. Retirement doesn’t begin on a magical date—it’s a process that requires intention well before the milestone and continued planning once you're living it.
If you’re a farmer, agribusiness owner, or self-employed individual, understanding how Social Security works and how your income affects your retirement benefits is essential. Below are seven key areas to consider when preparing for retirement, especially when it comes to understanding Social Security benefits.
1. Work Credits
No matter your age, if you’re earning income (typically from wages or self-employment), you’re accumulating Social Security credits—also called work credits. These credits are based on your annual earnings, and the threshold adjusts each year.
To qualify for Social Security retirement benefits, you must earn at least 40 work credits in your lifetime, with a maximum of four credits earned per year. In 2025, earning four credits requires $7,240 of earned income, which can be earned throughout the year, or you might earn enough for all four credits in less time in the year.
While earning more than 40 credits doesn’t increase your benefit, those 40 credits are your “ticket to the game.” Without them, you cannot collect retirement benefits.
2. Wage Cap
Each year, Social Security sets a limit on the amount of income subject to the Old-Age, Survivors, and Disability Insurance (OASDI) tax, commonly known as the wage cap or taxable maximum.
For example, in 2025, earnings up to $176,100 are taxed for Social Security. Any income above that, is not. The current OASDI tax rate is 6.2% for employees and 12.4% for self-employed individuals. That means a self-employed farmer or agribusiness owner earning at or above the wage cap would contribute just over $10,900 annually to the program.
Fun fact: when Social Security began in 1937, the wage cap was just $3,000. It’s adjusted annually to reflect the national wage index.
3. Social Security Bend Points
Social Security calculates benefits based on your Average Indexed Monthly Earnings (AIME), which averages your highest 35 years of earnings (commonly called your “high 35”), adjusted for inflation.
To determine your benefit at Full Retirement Age (FRA)—currently 67 for those born in 1960 or later—the Social Security Administration uses a formula that includes “bend points.” These thresholds determine how much of your AIME contributes to your Primary Insurance Amount (PIA)—the monthly benefit you’re eligible for at FRA.
For example, in 2025, the bend points are:
- 90% of the first $1,226 of AIME
- 32% of the next $6,165
- 15% of any amount above that (up to the wage cap)
The takeaway: working longer, especially in higher-earning years, can replace lower-earning years in your 35-year average and boost your future benefits. Delaying your benefit beyond FRA can increase it by up to 8% per year until age 70.
4. Earnings Limit
Planning to work while collecting Social Security? Be aware of the earnings limit, which may reduce your benefit if you collect before your FRA.
In 2025, those under FRA who have chosen to collect Social Security benefits can earn up to $23,400 without penalty. Earnings beyond that reduce your Social Secuity benefits by $1 for every $2 earned.
If you reach your FRA within the year, the limit increases (e.g., $62,160 in 2025), and the reduction is $1 for every $3 over the limit. After you reach FRA, there is no earnings limit, and you can earn any amount without reducing your benefits.
5. Cost-of-Living Adjustment (COLA)
Social Security benefits are adjusted annually to keep pace with inflation, using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The COLA for 2025 was 2.5%.
Delaying retirement not only increases your base benefit—it also compounds the effect of COLA increases, resulting in larger dollar adjustments over time.
6. Taxation of Benefits
Since 1984, Social Security benefits have been taxable based on your income. The IRS uses Provisional Income to determine whether (and how much) of your benefits are taxable.
Provisional Income = Adjusted Gross Income (AGI) + Tax-free interest + 50% of your Social Security benefits
For single filers, benefits become taxable if Provisional Income exceeds $25,000. For joint filers, the threshold is $32,000. Up to 85% of your benefits may be taxable.
This formula hasn’t been adjusted for inflation since its inception, so more recipients are being taxed today than ever before.
7. IRMAA: Medicare’s Income Surcharge
The Income-Related Monthly Adjustment Amount (IRMAA) is a surcharge added to Medicare Part B and Part D premiums if your income exceeds certain thresholds. For 2025, those are:
- $106,000 (single filer)
- $212,000 (married filing jointly)
IRMAA is based on your income from two years prior—so your 2023 tax return determines your 2025 Medicare premiums.
And be warned: IRMAA thresholds use a “cliff” model. If your income is even $1 over the threshold, you move into the next bracket—and both spouses will pay the higher premium if enrolled in Medicare.
Planning Ahead
Whether you’re a full-time farmer, agribusiness operator, or planning to retire from off-farm income, understanding how Social Security works is a vital part of your retirement strategy. From knowing your earning thresholds to planning when to claim benefits, every decision can impact your long-term financial security.
Horizon Farm Credit understands the importance of future planning—from growing your operation today to securing your tomorrow. Our team is here to help you navigate your financial journey at every stage, including retirement. Want to talk about what retirement planning looks like for your operation or how our financial services can support your long-term goals? Contact us today.