Maximize Your Social Security Benefits

Think you’re ready to collect Social Security? Here’s what you need to know about your Social Security retirement benefits.

While you worked to build a career, raise a family, and meet your own retirement savings goals, your Social Security payroll taxes were supporting the people who retired during those years. Now, it’s your turn. Time to understand what you are entitled to in Social Security retirement benefits.

A Federal Safety Net: Social Security

Social Security was developed in the 1930s to help provide economic security for the elderly. President Franklin D. Roosevelt recognized that postindustrial changes in the American family structure practically eliminated the family support earlier generations of elderly had counted on. His vision included a retirement benefit paid to workers who contributed to the fund through payroll taxes, allowing them to stop working at age 65 and receive a continuing income for the rest of their lives.

The Social Security retirement program has undergone several changes since then, but the basic structure remains principally the same. Since the beginning of your career, you’ve contributed to Social Security through pre-tax payroll deductions. When you retire, you should be entitled to a monthly benefit from Social Security for the rest of your life.

Social Security Eligibility

To qualify for Social Security retirement benefits, you must earn 40 lifetime credits. You may earn four credits maximum per year, which means you must work at least 10 years to qualify. A credit is earned every year that you work a job in which you contributed to Social Security. Credits are based on your income. Each year, a minimum income is set for one credit. In 2022, the minimum income is $1,510 for one credit.

If you take some time off from earning, like to raise a family or go back to school full time, you can still qualify for Social Security retirement benefits. The credits you earned will remain on your account. When you return to work, you can continue earning credits toward your retirement.

Calculating Your SS Benefit

The amount of your Social Security retirement benefit is based on the number of years you work, how much you earn, and at what age you retire. A benefit cannot be calculated until you’ve reached at least 40 credits, although earning more than 40 credits does not increase the amount of your benefit. If you retire before you earn 40 credits, you will not receive a retirement benefit from Social Security.

Social Security considers your top 35 years of earnings when calculating your retirement benefit. If you have fewer than 35 years of qualified work, the years without earnings will count as zero, bringing down your average monthly earnings. The Social Security Administration (SSA) also sets a maximum earning standard. If your wages for the year exceed that maximum, the maximum amount will be used to calculate your benefits, not your actual income.

For example, assume you earned $165,000 in salary in 2021. The taxable maximum for 2021 was $142,800. That means you paid Social Security tax on only $142,800 of your income. When it’s time to calculate your retirement benefit, only $142,800 will be included for 2021. The taxable maximum puts a cap on both the amount you can pay into Social Security and the size of your retirement benefit.

Wage Indexing

SSA uses the National Average Wage Index to adjust your retirement benefit calculation for the rate of change in wages over the years you worked. Called wage indexing, the adjustment accounts for the general rise in the standard of living from the time you began working to the year of your retirement.

Wage indexing begins by determining what year you will turn 62, since this would be the first year you are eligible to collect your Social Security benefit. Wages earned two years before you turn 62 and in the years immediately before would be indexed to reflect near-current wage levels. Wages from your 62nd year forward are taken at face value.

After indexing, your wages are averaged, resulting in your average indexed monthly earnings (AIME). Your AIME will be applied to the primary insurance amount (PIA) formula to establish your base benefit. Finally, your benefit amount is reduced or increased based on your age when you retire.

Determining Basic Benefits

The base amount of your Social Security retirement benefit is called the primary insurance amount or PIA. The PIA formula is based on the year you turn 62 and predetermined “bend points” established by the SSA. Using the PIA formula, you add up a certain percentage of each of the three segments of your income to determine your monthly benefit amount.

Each year, the SSA defines a scale for dividing your income into three segments. The PIA formula is 90% of the first segment, 32% of the second segment, plus 15% of the third segment. For example, if you turn 62 in 2022, the bend points would be $1,024 and $6,172. To apply the PIA formula to your AIME, you would add 90% of your first $1,024, 32% of AIME between $1,024 and $6,172, and 15% of anything over $6,172.

If your AIME is $11,430 and you turned 62 in 2022, your PIA would be $3,357.60.

  • (90% of $1,024) + (32% of $5,148) + (15% of $5,258) = $3,357.66
  • $921.60 + $1,647.36 + $788.70 = $3357.66
  • SSA rounds down to the nearest $0.10, which is how we got $3,357.60 for this example

Age at Retirement Adjustments

Once your PIA is determined, it will be reduced or increased based on when you choose to start collecting your benefits. For example, someone who retires at age 62 in 2022 will collect only 75% of their PIA. If that same person waited until age 64, they would receive 80% of their PIA. The SSA publishes a chart to guide you through the percentage of your PIA you can collect based on your year of birth and the age at which you begin collecting. Those who wait until after their full retirement age receive more than 100% of their PIA in benefits.

Family Benefits

When you collect Social Security retirement benefits, some members of your family may also be eligible to collect based on your earnings record. Your children who are unmarried, under age 18, or disabled before age 22 and your spouse, who is younger than 62 and cares for your child under age 16 or disabled before age 22 may be able to collect a Social Security benefit when you retire. The amount of their benefit would be based on the amount of yours. Your spouse who is 62 or older and your divorced spouse may also be eligible to collect a benefit.

Benefits paid to eligible children and spouses can each be up to half of your retirement benefit amount. If you have multiple family members who qualify for benefits, the total amount of benefits to your family members can be capped at about 150% to 180% of your own benefit. Family Social Security retirement benefits do not kick in until you, the wage earner, begin collecting your retirement benefit. Your Social Security retirement benefit amount is not affected by the benefits paid to your family members.

After you die, your family members may be able to collect your Social Security retirement benefits. A widowed spouse of full retirement age might be entitled to up to 100% of the wage earner’s retirement benefit. If you are survived by dependent children, dependent parents, or a divorced spouse, they could be eligible to collect Social Security based on your earnings record.

When Can You Collect SS?

You have three major milestones for when you can start collecting Social Security: early, at age 62; when you are of full retirement age (see chart below); or when you are 70. You may choose to begin collecting Social Security any time after your 62nd birthday; each month you wait, your benefit will be a little higher.

The amount of your Social Security checks will be calculated based on how much money you earned during your career, what year you were born, and your age when you start claiming your benefit. Once you start collecting, the amount you receive each month will not change, except for periodic cost of living adjustments.

Full retirement age used to be 65 for everyone but that age is slowly increasing to 67. For those born in 1937 or earlier, the original retirement age applies. The SSA established a graduated scale for those born between 1938 and 1959. For anyone born in 1960 or later, full retirement age is 67. See the chart below for full retirement ages based on year of birth.

Year of BirthFull Retirement Age
1937 and before65
1938-194265 plus 2 months for each year past 1937
1955-195966 plus 2 months for each year past 1954
1960 and later67

The next milestone the SSA established is age 70. No matter what year you were born, when you reach age 70, waiting any longer to collect Social Security will not increase your benefit.

It is not easy to understand the complexities of Social Security retirement benefits. As you get closer to retirement, you will want to speak with an expert to figure out what you are entitled to and how and when to claim your Social Security benefits.

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