What you need to know about Social Security
Social Security is an important source of income for most retirees. According to the Social Security Administration (SSA), one in every six U.S. residents collected Social Security benefits last year.1 But understanding which Social Security benefits you qualify for and how they play into your financial future can be a challenge.
Factors that influence your benefit
Different types of Social Security benefits are intended for specific circumstances and have complex qualification criteria.
To understand what benefits you qualify for and the amount of money you’ll receive, you need to know how many Social Security credits you’ve earned during your career. The SSA counts these credits based on wages or self-employment income reported on your taxes. For example, in 2021, every $1,470 made earns one Social Security credit.2 You can earn a maximum of four credits per year.
Another factor that influences the amount of benefit you’ll get is full retirement age. Full retirement age is the age at which you can receive your full retirement benefits. Collecting benefits before you reach full retirement age results in a lower benefit amount overall. Your full retirement age will vary depending on when you were born.
Types of Social Security benefits
Here are some general guidelines to give you an idea of what benefit options might be available to you.
The majority of social security recipients in the U.S. receive retirement benefits. To qualify, you need to have earned at least 40 Social Security credits—the equivalent of 10 years of work for most people.2
The SSA calculates the amount of money you receive based on your earnings throughout your career. Generally speaking, the more you’ve earned, the bigger the benefit (at least up to a certain amount). Additionally, if you claim benefits at age 62—the earliest you possibly can—your benefit will be lower than if you wait until full retirement age or until you reach age 70, whichever comes first.2
Your spouse is entitled to up to 50 percent of your full retirement age amount. If your spouse is entitled to their own retirement benefits, the SSA will pay those first. The remaining benefit will be a spousal benefit. When combined, they equal 50 percent of your full retirement age amount.
This assumes that your spouse waits until full retirement age to take their benefit, which is when spousal benefits begin. If your spouse files for their benefit early, your spousal benefit will also be reduced. If your spouse delays filing, their spousal benefit won’t increase like their retirement benefit—it will stay 50 percent of your full retirement age amount.
A former spouse may also qualify. Qualifications for this can be found on the Social Security Administration website.
Children may also qualify to receive up to half of your benefit if they’re under age 18, under age 19 and attending high school, or an adult that was disabled before age 22.
The Social Security Survivor benefit offers support for your spouse and children after you pass away. Parents and former spouses sometimes qualify as well.
The survivor benefit consists of one payment between $225-$255, as well as monthly benefits.2 There are many factors that affect the benefit amount, including the number of Social Security credits you have, your relationship with the beneficiary, how long you’ve worked, and more.
The disability benefit covers people who can’t work because of a medical condition that’s expected to last over a year or result in death. The disabled worker is typically the beneficiary, but in some cases, the worker’s family may also qualify.
Using Social Security benefit calculators
The SSA provides useful online tools that estimate different types of benefits based on your Social Security earnings record and other factors.
While helpful, these calculators aren’t precise. You won’t receive an exact benefit amount until you apply because your benefit can change due to future earning fluctuations, cost-of-living adjustments, and regulation changes.
Bottom line: Social Security is a benefit you have paid into, so despite the complexity, you want to understand your options and the best fit for you.
How to maximize your Social Security benefits
Planning for your Social Security benefit isn’t just about estimating the monthly check you’ll receive in the mail. There’s a right way and a wrong way to look at Social Security.
- The wrong way--I need this money as soon as possible because I paid into the system and deserve it.
- The right way--I need to get the most money that I can over the long haul.
Social Security benefits are essentially pre-paid annuities that are adjusted for inflation and issued by the most financially secure insurance company on the planet: the federal government. You need to consider how to protect against the key risks of retirement and maximize this valuable income stream so you can meet your financial goals.
Delay claiming your benefits
If you claim your benefits as soon as possible, you’ll only receive a percentage of your full benefit. This is why most smart strategies for maximizing Social Security benefits involve some form of delay.
Your benefit is partially influenced by your full retirement age, which is determined by the year that you were born. You can find your full retirement age by visiting the Social Security Administration website or talking to a financial professional.
Ideally, you’d wait until your full retirement age to claim, but you can maximize your benefit even further. With every year after that you wait to claim after your full retirement age, the Social Security Administration (SSA) adds a yearly 8% delayed retirement credit to your monthly payout until age 70.2
If you wait until age 70, you may have to tap into your retirement savings until it’s time to claim. This creates risk—if you don’t live past 70, you’ll never benefit from the system you paid into. But the risk of claiming early generally outweighs the risk of claiming later.
For example, if a married couple with retirement savings waits until age 70 to claim, but doesn’t live that long, their quality of life is unlikely to suffer—even if they never receive their Social Security benefits. But if the same couple lives into their 90’s, receiving more money after age 70 instead of claiming a smaller benefit at age 62 could help ensure a consistent quality of life.
Take an honest inventory of your health
With that being said, no strategy is one-size-fits-all. The ideal time to apply depends on your personal circumstances.
When considering the best time to claim, you should also take inventory of your health and lifestyle. What’s your personal and family health history like? Do you have an acute or chronic condition that could affect your longevity? If you don’t expect to live for a long time due to severe illness or other factors, applying for benefits earlier may be right for you.
Review your records online
Create a my Social Security account online to monitor your future benefits and start to plan.
Once you set up the account, review your Social Security earnings record regularly. Your full retirement benefit is determined by the 35 years of your life that you earned the most income. If your record is wrong, you have a limited amount of time to correct it and ensure that your benefit will be accurate.3 Reviewing your records may also help you see how much waiting to claim benefits could increase your monthly Social Security income.
Speak with a professional
Social Security is complex and there are many ways to maximize your benefits. Speak with a qualified financial professional who can help you get the most out of your benefits, evaluate the personalized risks of retirement, and tailor your plan to your financial goals.
Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
- “Policy Basics: Top Ten Facts about Social Security.” Center on Budget and Policy Priorities, 2020. August 13. https://www.cbpp.org/research/social-security/top-ten-facts-about-social-security. Back
- “Understanding the Benefits.” Social Security Administration, 2021. January 1. https://www.ssa.gov/pubs/EN-05-10024.pdf. Back
- “Time Limit for Correcting Earnings Records.” Social Security Administration, 2009. September 1. https://www.ssa.gov/OP_Home/handbook/handbook.14/handbook-1423.html. Back
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