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Everything You Need to Know About Social Security Retirement Benefits

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Knowing the ins and outs of Social Security benefits — including how much you can expect to collect each month and the best age to claim your benefits — is important. But while most of us spend years dreaming of retirement, we might not start thinking about our Social Security until the last minute.

A little bit of planning and knowledge can help you get the most from your benefits. Social Security payments are a nearly universal part of retirement — nearly nine in 10 retired Americans age 65 and older receive these benefits. For many older Americans, it makes up a huge part of the income they rely on. Among elderly recipients, 48% of married couples and 69% of unmarried persons receive 50% or more of their income from Social Security. Even so, misunderstandings about the program frequently cause people to lose out on income.

Here, we’ll discuss exactly what Social Security is, who is eligible to receive Social Security, how the amount you receive is determined, and the best ways to maximize your benefits.

What are Social Security benefits?

When the Social Security Act was signed into law in 1935, American workers could suddenly look toward a more secure financial future. While retirement for many once meant poverty or relying entirely on family for support, the act created a process that let workers pay into the system during their employment years, then benefit from those payments when they retired. Later, the system added disability coverage, dependent benefits and survivor benefits. 

In 2019, about 64 million Americans received Social Security benefits, and the Social Security Act is credited with keeping more Americans out of poverty than any other program. 

How exactly does Social Security work?

While you’re employed, your employer automatically deducts taxes from your paychecks for Social Security — you pay 6.2% and your employer pays 6.2%. The Social Security Administration uses those funds to pay benefits to current retirees, people who are disabled, survivors of workers who have died and dependents of beneficiaries. Any extra money goes into the Social Security trust fund.

The Social Security Administration tracks how much you earn during your life, using your Social Security number. At retirement, your benefits will depend on how much you earned: more earnings mean higher benefits. You’ll need 10 years of work to qualify for retirement benefits. 

As you near retirement, you can decide when you want your benefits to start. You must be at least 62 years old, but you’ll receive higher benefits the longer you wait to start receiving them. Full Retirement Age, the age when you’re eligible to receive 100% of your retirement benefits, is considered age 65 if you were born before 1960 and age 67 if you were born in 1960 or later. 

how to qualify for retirement benefits

You’ll receive monthly Social Security payments electronically, usually through a direct deposit to your bank account. In 2019, the average retiree earned $1,461 a month in Social Security benefits. The payments continue for the rest of your life.

Who is eligible for retirement benefits

If you’re a U.S. citizen or legal resident who has paid Social Security taxes for at least 10 years over your work career, you are eligible for earned benefits starting at age 62. Specifically, you receive one credit for each $1,360 of annual earnings, as of 2019, up to a maximum of four credits per year. You need 40 credits to be eligible for retirement benefits. This means even part-time workers often earn enough credits to be eligible.

Additionally, three groups of people can be eligible for benefits even if they did not work enough to qualify or pay any Social Security taxes at all: spouses, former spouses and children of those who are eligible for benefits. 

People who worked or retire abroad can still be eligible for benefits

Even if you retire abroad, you can still collect your Social Security benefits. And if you worked part of your life abroad and don’t have the required 40 credits, you still may be able to collect benefits under “totalization agreements” that the United States has with some other countries. This situation requires you to have at least six credits of work in the United States, but the remaining 34 can come from another country. The specific countries and more details can be found on the Social Security Administration website.

Not everyone pays into Social Security and there are some workers who are not eligible for Social Security benefits when they retire. That includes some teachers; some employees of state and local governments; most federal employees hired before 1984; and railroad employees with more than 10 years of service. These employees often receive a pension from their employer.

What are the different types of Social Security retirement benefits?

When people think of Social Security, it’s usually earned benefits that come to mind.

Those are the benefits you personally earn through working. But Social Security also extends benefits in some cases to spouses, ex-spouses and children.

The three main types of Social Security retirement benefits are:

  1. Earned Benefits, or those based on your own earnings record.
  2. Spousal Benefits, or those based on your spouse’s or ex-spouse’s earnings record.
  3. Survivor Benefits, or those based on your deceased spouse’s earnings record.
 

Earned benefits

These are the benefits you’re eligible for if you’re between ages 62 and 70 and have paid Social Security taxes for 10 years or more over your lifetime.

How the benefit is calculated:

Your earned benefits are based on your age, your earnings and when you claim your benefits.

  • The Social Security Administration adds your earnings for the 35-highest-earning years of your career, after adjusting for inflation. If you worked fewer than 35 years, all your working years will be used. The maximum amount of earnings you can use toward Social Security changes every year, but was $132,900 for 2019.
  • This 35-year number is then divided by 12 to reach the average indexed monthly earnings.
  • This figure is then used in a formula. For 2019, the formula gives you $0.90 for every dollar up to $926 in average indexed monthly earnings, plus an additional $0.32 for every dollar of extra earnings from $926 to $5,583, plus an extra $0.15 for every dollar of earnings above $5,583, to determine your primary insurance amount (PIA). Your PIA is the amount you’d receive every month if you decide to start collecting Social Security at your Full Retirement Age.  
 

Your Full Retirement Age is calculated based on your birth year:

What is my Full Retirement Age

When you can claim:

You can claim as early as age 62, but if you claim before your Full Retirement Age, your monthly benefits will be lower. If you claim later than Full Retirement Age, your benefits will be higher. 

Let’s take an example. Say you were born between 1943 and 1954… If you claim at the earliest possible age of 62, your benefit is reduced by the maximum amount, which is 25%. If you claim at your Full Retirement Age of 66, your monthly benefit is the primary insurance amount. If you wait until age 70, your monthly benefit is the maximum it can ever be, as much as 132% higher than at your Full Retirement Age. Every year you wait to retire, your retirement credits go up 8%.

Spousal benefits

If you meet certain criteria, you may be entitled to spousal benefits based on your spouse’s earnings. To qualify: 1) your spouse must be eligible for Social Security earned benefits; 2) you have to be married for at least one yearand 3) you must be at least 62 years old. 

The spousal benefit can be considered a supplement to your earned benefit, but at most you’ll get an income that equals half of your spouse’s PIA. If your earned benefit is over half of what your spouse earned, it’s unlikely you will receive spousal benefits (but you’ll still receive your own benefits). If you earned about the same amount as your spouse, you won’t receive spousal benefits, though you’ll still receive your own.

How the benefit is calculated:

Spousal benefits are based on your spouse’s earnings and when you claim.

  • The Social Security Administration first pays out benefits on your own earnings record. 
  • It then calculates half of your spouse’s PIA and adjusts it based on when you claim spousal benefits. (As with earned benefits, you’ll receive less than the full benefit if you decide to claim them before full retirement age. But unlike earned benefits, you don’t receive more if you wait to claim them past full retirement age. In fact you’ll actually be forfeiting some money by waiting longer.) Spousal benefits aren’t affected by your spouse claiming his or her benefits before or after full retirement age, since spousal benefits are based on your spouse’s PIA and your age when claiming them. 
  • If half of your spouse’s PIA, minus any adjustments, is below your earned benefit, then you are not entitled to spousal benefits. You will only receive your own earned benefit. If your earned benefit is over half of what your spouse earned, it is unlikely you will receive spousal benefits. 
  • Note: any benefits you receive as a spouse won’t decrease your spouse’s retirement benefit.
 

When you can claim:

You can claim between age 62 and your Full Retirement Age. There used to be a loophole where a couple could file for earned benefits and spousal benefits separately, but Congress closed that for anyone born after 1953. Now when you file for benefits, you have to file for all benefits you are entitled to (called “deemed filing”). That means that if you file for your spousal benefit, you have to file for your earned benefit as well, and vice versa. There are numerous things to consider when trying to maximize your benefits as a married couple.


Spousal benefits for people who are divorced

Even after divorce, you can still potentially receive benefits based on your former spouse’s earnings record. You must be: 1) divorced; 2) age 62 or older; and 3) have not remarried (your former spouse can be remarried). You marriage to your ex-spouse also must have lasted 10 years or longer.

If your own earnings entitle you to a higher Social Security benefit than what you could receive on your former spouse’s record, you receive benefits based on your own record. If you were divorced multiple times, your benefit can be based on the highest-earning spouse.

How the benefit is calculated:

Your benefits are based on your former spouse’s earnings and whether you are full retirement age or not.

  • Your benefit is equal to one-half of your ex-spouse’s full retirement amount (or disability benefit) if you start receiving benefits at your full retirement age. The benefits do not include any delayed retirement credits your ex-spouse may receive. So, again, there is no reason not to wait to claim these benefits past your full retirement age.
  • The spousal benefits you receive don’t reduce the amount your former spouse will receive.
  • If you continue to work while receiving benefits, the retirement benefit earnings limit still applies until your full retirement age. If you also receive a pension based on work not covered by Social Security, such as government work, your Social Security benefit on your ex-spouse’s record may be affected.
 

When you can claim:

The major difference with spousal benefits if you are divorced is that your ex-spouse doesn’t have to file for retirement benefits for you to be able to collect spousal benefits. That means you can claim spousal benefits if your ex has reached the age where he or she could possibly claim and you are over 62 years old.

Survivor benefits

If your spouse or ex-spouse dies and has earned benefits that are higher than yours, you may be eligible for survivor benefits. One big difference with survivor benefits is that the Full Retirement Age is different than for other Social Security benefits. The Full Retirement Age (for survivors) by birth year is as follows:

How the benefit is calculated:

Your survivor benefit depends on the earnings of your spouse, your age and whether the spouse was receiving reduced benefits. The Social Security Administration provides some examples:

  • A spouse or ex-spouse who has reached full retirement age or older would receive 100% of the deceased worker’s benefit amount.
  • A spouse or ex-spouse between age 60 and full retirement age would receive between 71.5% and 99% of the deceased worker’s basic amount.
  • A disabled spouse or ex-spouse between ages 50 and 59 would receive 71.5%.
  • A spouse or ex-spouse of any age who is caring for a child under age 16 would receive 75%.
  • In addition, a surviving spouse can receive a special lump-sum death payment of $255 in certain circumstances.
 

When you can claim:

You can claim as early as age 60, but you’ll receive more if you wait until full retirement age. If you qualify for retirement benefits under your own earnings record, you can switch to those benefits at age 62 or later.

Children’s benefits

A child under age 18 (or if they’re 18 or 19 and still in high school) is eligible for benefits if their parent is disabled or retired and entitled to Social Security benefits; or if the parent died after paying Social Security taxes for a set amount of time. In addition, in some circumstances, stepkids, grandkids and adopted kids are eligible for benefits. If a child under 18 is disabled, two other programs could help: Supplemental Security Income for low-income families and/or Social Security Disability Insurance if a parent paid into Social Security for a long enough period. 

How the benefit is calculated:

If the parent is retired or disabled, a child can receive up to half of the parent’s full retirement or disability benefit. If the parent has died, a child can receive up to 75% of the late parent’s basic Social Security benefit. However, there is a limit on the amount of Social Security a family can receive. The maximum family payment can be from 150% to 180% of the parent’s full benefit amount. If the total amount payable to all family members exceeds this limit, each person’s benefit is reduced (except the parent’s) until the total equals the maximum allowable amount.

What if you work during retirement?

Great news: you can work during retirement and still collect full benefits as long as you’ve reached Full Retirement Age. Before Full Retirement Age, your benefit may be reduced if you earn over a certain amount. Here’s how it works:  

  • If you are collecting Social Security early and not going to reach Full Retirement Age this year: Take any wages over $18,240 (for 2020 – and the number can change each year) and divide the number by 2. This is the amount that will be withheld in benefits.
  • If you are collecting Social Security early and are reaching Full Retirement Age this year: Take any wages over $48,600 (for 2020) and divide the number by 3. This is the amount that will be withheld in benefits.
 

In both cases, the Social Security Administration will recalculate your benefits after you reach Full Retirement Age, and you’ll receive credit for the time you didn’t receive a benefit because your earnings were too high. In addition, the years you worked and collected Social Security could count toward your 35 highest-earning years, therefore raising your eventual benefit.

Working during retirement could also affect spousal benefits. The benefits could be withheld if either the person receiving the benefits or the person whose earnings record the benefits are based on is working. 

Tax implications

About 40% of people who get Social Security have to pay federal taxes on their benefits, according to the Social Security Administration. This usually happens only if you have significant income, a pension, IRA or 401(k) withdrawals or other taxable income, in addition to your Social Security benefits. The good news is that if you do owe taxes on your benefits, only 85% of your benefits are taxable.

Here is how to figure out if you owe taxes on your Social Security retirement income:

If you’re single:

  • Take your adjusted gross income. 
  • Add your tax-exempt interest, such as interest from municipal bonds.
  • Add half of your Social Security benefits.
  • If the resulting number is less than $25,000 (as of 2019), you won’t owe taxes on your benefits. 
  • If the number is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits.
  • If the number is more than $34,000, up to 85% of your benefits may be taxable.
 

If you’re married:

  • Take your combined adjusted gross income. 
  • Add your tax-exempt interest, such as interest from municipal bonds.
  • Add half of your Social Security benefits. 
  • If the resulting number is less than $32,000 (as of 2019), you don’t have to pay taxes on your benefits.
  • If the number is between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits.
  • If the number is more than $44,000, up to 85% of your benefits may be taxable.
 

In addition, the following states also impose a tax on Social Security in some cases: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, North Dakota, Vermont, Utah and West Virginia. Contact your state tax agency for more details.

Unlike with many Social Security issues, your age doesn’t matter when it comes to paying taxes on your benefits.

For everything you need to know on Social Security and taxes, we recommend reading more here.

How to maximize your Social Security benefits

Perhaps the most complicated but most important consideration of your Social Security payments is how to maximize your benefits. For example, every month you wait to retire between ages 62 and 70 bumps up the amount of your monthly payment. If your Full Retirement Age is 67 and you retire at that time, you’ll get 100% of your retirement benefits. But if you wait to claim your benefits until age 70 (the last year when you get late retirement credits), your benefit continues to go up. If you were born in 1943 or later, you can get a delayed retirement credit of up to 8% for every year you push retirement from age 62 to age 70.

There are several strategies you can pursue to maximize your benefits:

  • Work for at least 35 years. Because Social Security is based on the highest 35 years of your salary, working for less than 35 years will lower your average.
what are delayed retirement credits
  • Earn more. While that’s easier said than done, that could merely involve staying in a high-paying job an extra year or two, so that you replace some previous low-earning years when Social Security computes your highest-earning 35 years.
  • Delay receiving your benefits. You can start receiving benefits when you are 62 years old, but you’ll receive more if you wait until your full retirement age, and even more if you wait longer. After age 70, there’s no financial reason to delay taking benefits. Let’s say you were born in 1957, so your full retirement age is 66 and 6 months. Let’s also say you’d receive $1,000 a month at that point. If you filed early, at age 62, you would instead receive $725 a month. If you waited until age 68, you’d receive $1,120. If you waited until age 70, that number would rise to $1,280.
  • If you’re single: Research has found it can pay off to delay receiving benefits until you’re age 70, if you can afford it. 
  • If you’re married: One strategy is for the lower-earner spouse to claim early, and the higher earner to delay for as long as possible, up to age 70.
  • If you’re eligible for survivor benefits: If you haven’t claimed your own benefit, it may pay off to take the survivor benefit early and delay taking your own benefit for as long as possible, up to age 70.
 

SSI vs. SSDI

The Social Security Administration manages two programs that provide benefits for people who are disabled: the Social Security Disability Insurance (SSDI) program and the Supplemental Security Income (SSI) program. Some people are eligible for both. To qualify, you must be unable to do the work you did before and unable to adjust to other work because of your medical condition. In addition, your disability must be expected to last at least a year, or to eventually be fatal. Note that the programs do not cover short-term disability. 

SSDI provides benefits to people who worked long enough and paid Social Security taxes but became disabled before their Full Retirement Age. Benefits are based on your earnings. Your dependents may also be eligible based on your earnings. In general, you need 40 credits, 20 of which came in the last 10 years. But younger workers could qualify even if they don’t have the 40 credits. Your benefits could be reduced if you receive workers’ compensation or other disability benefits.

You are allowed to do some work while you receive SSDI, but for 2020, you can’t earn more than $1,260 a month, or $2,110 if you’re blind. There’s usually a cost-of-living increase to your benefit each year. Keep in mind you can’t collect Social Security retirement benefits and SSDI at the same time. Instead, your SSDI will automatically convert to retirement benefits at your retirement age, though the amount will be the same.

The SSI program, on the other hand, makes payments to people who are over 65, blind or disabled (including children) who have very limited resources. More than 8 million people get monthly payments from the SSI program, and it’s funded from general taxes, not Social Security. Eligibility is not based on someone’s earnings record. Instead, to get SSI, a person’s belongings, not including their home and household goods, must be worth no more than $2,000; a couple’s resources can be worth up to $3,000. Here’s how the benefit is calculated:

  • Start with the federal benefit rate of $783 for an individual and $1,175 for a couple, for 2020. This figure usually adjusts every year based on the cost of living.
  • Compute total income, minus deductions allowed by the Social Security Administration, for a “countable income.”
  • Subtract the countable income from the federal benefit rate.
  • The base SSI payment is reduced by one-third if a person or couple is living in another person’s home and getting food and shelter from that person. 
 

All states except Arizona, Mississippi, North Dakota and West Virginia supplement the federal SSI with additional funds. Depending on the state, these funds either arrive with the federal payment or separately.

It’s possible to receive both SSI and some Social Security retirement benefits at the same time.

Do you need a calculator?

Calculators where you simply plug in your numbers can be helpful in all kinds of matters, from estimating a mortgage payment and how much your student loans will cost over time to, yes, your Social Security benefits. 

Here’s what a good Social Security benefits calculator will include:

  • Considers all major Social Security benefits
  • Retirement insurance benefits
  • Spouse’s insurance benefits
  • Divorced spouse’s insurance benefits
  • Widow(er)’s insurance benefits
  • Divorced widow(er)’s insurance benefits
  • Child’s insurance benefits
  • Covers all major Social Security benefits rules
  • Early benefit reductions
  • Delayed retirement credits
  • The earnings test
  • Adjustment of the reduction factor after FRA when benefits are reduced for earnings
  • Re-computation of benefits
  • Family maximum
  • Combined family maximum
  • RIB LIM on widow(er) benefits when deceased spouse claimed early
  • Windfall Elimination Provision (WEP)
  • Government Pension Offset (GPO)
 
(We think ours is the best out there!)
 

How to apply for Social Security benefits

The easiest and quickest way to apply for retirement benefits or spousal benefits with the Social Security Administration is online. But you can also call 1-800-772-1213 (TTY 1-800-325-0778) or visit a local Social Security office. The documents and information you’ll need to provide include:

  • Your date and place of birth and Social Security number
  • The name, Social Security number and date of birth or age of your current spouse and any former spouse. You should also know the dates and places of marriage and dates of divorce or death (if applicable)
  • The account number and routing number for your bank account
  • Your citizenship status
  • Whether you or anyone else has ever filed for Social Security benefits, Medicare or Supplemental Security Income on your behalf 
  • Whether you have used any other Social Security number
  • If you are applying for retirement benefits, the month you want your benefits to begin
  • If you are within three months of age 65, whether you want to enroll in Medicare Part B
  • The name and address of your employer(s) for this year and last year
  • The amount of money earned last year and this year. If you are filing for benefits in the months of September through December, you will also need to estimate next year’s earnings
  • A copy of your Social Security Statement or a record of your earnings
  • The beginning and ending dates of any active U.S. military service you had before 1968
  • Whether you became unable to work because of illnesses, injuries or conditions at any time within the past 14 months. 
  • Whether you or your spouse have ever worked for the railroad industry
  • Whether you have earned Social Security credits under another country’s social security system
  • Whether you qualified for or expect to receive a pension or annuity based on your employment with the federal, state or local government.

 

Other documents, such as a birth certificate or W-2, might be necessary. If you apply online, you’ll receive a letter in the mail with the Social Security Administration’s decision.

How to Make an Appointment at a Social Security Office

It is not possible to schedule an appointment at a Social Security office online. Keep in mind, though, that you do not need an appointment to file for benefits or appeal a disability decision. You can file for the following benefits online:

 

If you do not want to apply for benefits online, or you need to speak to a Social Security representative for any other reason, you can schedule an appointment by:

  • Calling 1-800-772-1213 (TTY 1-800-325-0778) between 7 a.m. and 7 p.m., Monday through Friday; or
  • Contacting your local Social Security office.
 

If you think Social Security benefits will be a key part of your retirement plans,  it’s important to figure out how much you will receive, which benefits you’re eligible for, the optimal time to claim your benefits and how much money you will need each month to live. Arming yourself with knowledge is a great step to making smart decisions about your benefits.

Helpful links to avoid common mistakes: