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Retirement

Social Security explained

15 minute read

Points to know

  • Social Security retirement benefits are a safety net for retirees.
  • Payroll taxes on employees and employers fund the Social Security program.
  • Your Social Security benefits should be considered an important part of your retirement income.

What is Social Security?

Social Security is a federal government program that provides a guaranteed monthly income adjusted for inflation for eligible recipients, generally in retirement. Once you begin claiming benefits, they last for the rest of your life. Although it's not intended to be your entire retirement solution, Social Security plays an important role in helping you create a retirement income stream.

About 1 in 4 Americans over age 65 rely on Social Security benefits for at least 90% of their income, according to the Social Security Administration.1 However, on average, Social Security will replace about 40% of your annual pre-retirement earnings.2

Who pays for Social Security?

While working, you contribute a percentage of your earnings through payroll deductions and your employer matches the same amount. The current rate is 6.2% for employees and 6.2% for employers (up to a wage cap of $168,600 in 2024 and $176,100 in 2025).3 These contributions fund benefits for current recipients, just as future workers will fund your benefits when you retire.

This is different from retirement accounts such as IRAs and 401(k) plans, which enable you to invest on your own with an opportunity for growth and then draw from your savings in retirement. Typically, retirees rely on both Social Security and retirement savings accounts for their retirement income.

Need help with your Social Security strategy? Our advisors are here for you.

Our professional advisors can help you create a personalized strategy for maximizing your Social Security benefits as part of your overall retirement plan. We'll work with you to determine the optimal time to claim benefits based on your unique situation and goals.

Explore professional advice options

How do you qualify for Social Security?

There are 4 ways you can qualify for Social Security.

1. Your earnings history

Social Security credits are the building blocks of your benefits. You need at least 40 credits to qualify—typically earned over 10 years of working. You can earn up to 4 credits each year based on your total wages and self-employment income. In 2024, you need $1,730 in earnings to get 1 Social Security credit ($6,920 for the maximum 4 credits). Credits permanently stay on your record, so you can add more at any time by continuing to work.

2. As a spouse

You can qualify for Social Security benefits based on your spouse's earning record, even if you've never worked in a job covered by Social Security. To receive Social Security spouse benefits, you must be at least 62 years old. If you plan to claim spousal benefits, keep these things in mind:

  • Benefits are reduced if claimed before your full retirement age (FRA). This is the age at which you're eligible for your full monthly benefits, also known as the primary insurance amount (PIA).
  • If you worked in a Social Security-covered job, it's advantageous to coordinate your benefits with your spouse's to help maximize the benefits. For example, when each spouse claims benefits on their own record, it usually makes sense for the higher earner to wait longer to collect because over time their increases will be worth more.  
  • If you never worked in a covered job, your FRA benefit equals 50% of your spouse's primary insurance amount (the basic benefit amount someone would get at their FRA before any adjustments for claiming early or late). However, a spouse can't collect spousal benefits until the higher-income spouse has claimed.

Learn about benefits for spouses

3. As a surviving spouse

If your spouse worked and paid Social Security taxes, you may be eligible for Social Security survivor benefits when they die. To receive survivor benefits, you must meet the following requirements:

  • You must have been married for at least 9 months, in most cases.
  • Your spouse must have worked the minimum required years (generally 10 years, depending on their age at death).
  • You can receive full benefits at your FRA or reduced benefits as early as age 60.
  • You may qualify based on other situations, like caring for minor children.

Learn about survivor benefits

4. As an ex-spouse

You might qualify for benefits based on your ex-spouse's record if:

  • Your marriage lasted at least 10 years.
  • You're currently unmarried.
  • Your ex-spouse is at least 62 and qualifies for Social Security.

Note: If your ex-spouse hasn't filed for benefits, you can still receive benefits if you've been divorced for at least 2 years.

Learn about benefits for ex-spouses

What determines your benefits?

Several factors determine your Social Security benefits. Here's how Social Security is calculated.


Birth date: Your birth date determines your full retirement age (FRA). You'll be eligible for 100% of your benefits at your FRA.

Lifetime earnings: The Social Security Administration uses your 35 highest-earning years to calculate benefits. Years with no earnings count as zeros in the calculation. Past earnings are indexed to account for average wage growth.

Start date: Your benefits depend on when you start collecting, which can be anytime between ages 62 and 70. The longer you wait to start collecting, the bigger your benefit will be. For example, if you were born in 1960 or later, your benefits look like this:

Social Security benefits by age

To collect Social Security, you need to be 62 or older and have paid into Social Security through your payroll deductions for a minimum of 10 years. But just because you can collect payments immediately doesn't mean you should. Here's why.

The amount of your Social Security benefit is influenced by 2 age-related factors: the year you were born and how old you are when you start collecting benefits. Your birth year determines your full retirement age (FRA)—the age at which you become eligible for 100% of your benefits. The FRA has been gradually increasing and is now 67 for people born in 1960 and later. The age at which you start collecting benefits—whether it's before or after your FRA—will affect your monthly payment amount, either increasing or decreasing it.

 

 

AGE YOU START COLLECTING PERCENTAGE OF BENEFITS
62 (earliest possible) 70%
63 75.0%
64 80.0%
65 86.7%
66 93.3%

67 (full retirement age)

 100.0%
68 108.0%
69 116.0%
70 (latest possible) 124.0%

 

AGE YOU START COLLECTING PERCENTAGE OF BENEFITS
62 (earliest possible) 70.8%
63 75.8%
64 81.1%
65 87.8%
66 94.4%
66 and 10 months (full retirement age) 100.0%
67 101.3%
68 109.3%
69 117.3%
70 (latest possible) 125.3%

 

AGE YOU START COLLECTING PERCENTAGE OF BENEFITS
62 (earliest possible) 71.7%
63 76.7%
64 82.2%
65 88.9%
66 95.6%

66 and 8 months (full retirement age)

 100.0%
67 102.7%
68 110.7%
69 118.7%
70 (latest possible) 126.7%

 

AGE YOU START COLLECTING PERCENTAGE OF BENEFITS
62 (earliest possible) 72.5%
63 77.5%
64 83.3%
65

90.0%
66 96.7%

66 and 6 months (full retirement age)

 100.0%
67 104.0%
68 112.0%
69 120.0%
70 (latest possible) 128.0%

 

AGE YOU START COLLECTING PERCENTAGE OF BENEFITS
62 (earliest possible) 73.3%
63 78.3%
64 84.4%
65 91.1%
66 97.8%

66 and 4 months (full retirement age)

 100.0%
67 105.3%
68 113.3%
69 121.3%
70 (latest possible) 129.3%

 

AGE YOU START COLLECTING PERCENTAGE OF BENEFITS
62 (earliest possible) 74.2%
63 79.2%
64 85.6%
65 92.2%
66 98.9%
66 and 2 months (full retirement age) 100.0%
67 106.7%
68 114.7%
69 122.7%
70 (latest possible) 130.7%

 

AGE YOU START COLLECTING PERCENTAGE OF BENEFITS
62 (earliest possible) 75.0%
63 80.0%
64 86.7%
65 93.3%
66 (full retirement age) 100.0%
67 108.0%
68 116.0%
69 124.0%
70 (latest possible) 132.0%

How to find out your Social Security benefits

The Social Security Administration (SSA) website provides estimates for how much you'll collect if you start receiving benefits at age 62, your full retirement age, and age 70.

Go to ssa.gov to get your Social Security estimates

Social Security retirement income

Social Security represents a significant source of retirement income for most Americans. According to government statistics, benefits replace about 40% of an average retiree's pre-retirement income. Yet about half of beneficiaries age 65 or older received at least half of their income from Social Security.4

Even for top earners, however, the benefits are relatively modest. The maximum Social Security benefit at full retirement age (FRA) in 2024 is $3,822 per month.

When you choose to claim your benefit will have a lasting impact on the amount you'll receive each month, and it can mean a difference of thousands of dollars over your lifetime. The easiest way to increase your monthly payments is to delay collecting. You won't get 100% of your benefits unless you wait until your FRA to claim. After your FRA, your benefits will keep increasing by ⅔ of 1% each month (or 8% a year) for each month you delay until you turn 70.

Should you consider a Social Security break-even analysis?

The question many people wrestle with in trying to decide when to take Social Security is: When will I come out ahead?

The decision as to the "right" time to claim Social Security has often been based on a break-even analysis of a retiree's expected benefits, if claimed at different ages, versus their life expectancy. The break-even point is the age at which the benefit amounts intersect.

In other words, will the money you'll get by claiming early and getting smaller checks for potentially a longer period be more than what you'll get by waiting and getting larger checks for potentially a shorter period?

A break-even analysis can help you determine when to start collecting Social Security benefits. It calculates the point at which the total value of higher benefits (from delaying collection) exceeds the value of lower benefits taken earlier.

Let's say John is 61 and his full retirement age (FRA) is 67. He would receive the following monthly payments depending on his age:

Here are his break-even points for claiming at various ages, assuming a 2% cost-of-living adjustment:

  • Age 77 if John claims at age 62 versus FRA.
  • Between ages 78 and 79 if John claims at age 62 versus age 70.
  • Between ages 80 and 81 if John claims at FRA versus age 70.

In addition to a break-even analysis, consider your life expectancy, current health, family history, and your other assets in deciding when to collect Social Security.

Social Security factors to consider

Retirement planning

Your Social Security benefits should be a vital component of your overall retirement strategy. Coordinate Social Security with your other retirement income sources, including pensions, retirement accounts, and personal savings. Consider how your benefits fit into your overall retirement strategy and income needs.

Ask yourself whether you can afford to wait until your full retirement age (FRA)—or even longer—to claim Social Security. Having sufficient income from other sources can allow you to delay taking Social Security so you can maximize your lifetime Social Security benefits.

Marital status

Your marital status is an important consideration in figuring out the best time to claim Social Security.

Married. Married couples have unique opportunities to maximize their Social Security through careful timing. Consider having the higher-earning spouse delay benefits while having the lower-earning spouse claim earlier to provide immediate household income. Learn about benefits if you're married

Never married. Your best strategy may be to wait as long as possible to collect benefits so you can get as big of a benefit as possible. Learn about benefits if you've never married

Divorced. You may be able to collect benefits on your ex-spouse's record if you were married for at least 10 years and haven't remarried. Learn about benefits for ex-spouses

Surviving spouse. You may be able to collect benefits as soon as age 60 for a reduced benefit (or at age 50 if you're disabled). You can switch to your own benefits starting at age 62 and as late as age 70. Learn about benefits for surviving spouses

Health history

Your health and family history of longevity can impact your decision about when to claim benefits. Generally, the longer your life expectancy, the more advantageous it is to put off taking Social Security to get the highest payout.

On the other hand, if you have a serious medical condition or develop an unexpected medical issue, it may be prudent to take Social Security as soon as you can or when you need it to receive immediate income.

Life expectancy has steadily risen. According to the Social Security Administration:

  • A typical 65-year-old man today can expect to live, on average, until age 84, a woman until she's 87.5
  • About 1 out of 3 of today's 65-year-olds will live past age 90.
  • About 1 out of 7 of today's 65-year-olds will live past age 95.

Estimate your life expectancy

If you decide to claim early, remember that you won't qualify for Medicare until you're 65. You'll need to account for where you'll get health insurance until then.

Learn about Social Security & Medicare

Risk tolerance

Consider your comfort with investment risk. Social Security provides guaranteed income, backed by the U.S. government, which is especially valuable if you're conservative with other investments.

Social Security benefits last as long as you live. For every year you wait to collect past your FRA, your benefits are guaranteed to rise by 8% (or ⅔ of 1% per month) until age 70, when the increase stops. That's a 24% increase if your FRA is age 67. Better yet, you receive regular cost-of-living increases so you can maintain your purchasing power and keep up with inflation.

Your benefits can help you avoid dipping into other retirement investments to meet your basic living expenses.

Tax consequences

Is Social Security taxable? A big surprise for many retirees is that Social Security benefits and retirement investments are subject to taxes. Social Security benefits follow a graduated system for taxation based on "provisional income." For individual filers, when your provisional income exceeds $25,000, up to 50% of the benefit above this threshold may be taxable. When provisional income exceeds $34,000, up to 85% of the excess benefits may be taxable.6

For married couples filing jointly, these graduated rates apply at thresholds of $32,000 and $44,000, respectively. Like marginal tax rates, these percentages apply only to the income above each threshold, not to the entire benefit. For example, only 85% of provisional income above the $34,000 threshold may be taxable.

In fact, about 40% of Social Security recipients pay federal income taxes on their benefits.6 The good news is that while a portion of your benefits may be subject to federal taxes—and possibly state taxes—it's never 100%.

Nonetheless, consider tax implications when deciding when to claim and how to coordinate with other retirement income.

Work status

If you claim benefits before FRA while still working, your benefits may be temporarily reduced if your earnings exceed certain thresholds. After FRA, there's no penalty for working while receiving benefits.

About 19% of Americans 65 and older are working, according to a recent survey,7 with many working part-time. If you're going to keep working in any capacity, it's important to factor in those plans in deciding when to collect Social Security.

You can earn as much as you want after you reach full retirement age without affecting your Social Security benefits. On the other hand, your earnings before you reach FRA are subject to an earnings test. If your earnings exceed certain limits, some of your benefits will be temporarily withheld until you reach FRA.

Want to learn more?

Learn how to maximize your Social Security Benefits

What if you change your mind?

Say you claim Social Security and then change your mind. Perhaps you're still working, you take a part-time job, or you get an unexpected windfall.

If you think you no longer need the benefits, you have 2 options:

The "reset" rule

If you start collecting reduced benefits before your full retirement age (FRA), you can "reset" your benefits and erase the reduction.

  • You must withdraw your benefits claim within 12 months of filing.
  • You must repay all benefits your family received based on your earnings record.
  • By deferring your benefits, you'll receive the increased benefit amount when you reapply for Social Security.

Pros and cons of the "reset" rule

Pros
  • You can repay benefits interest-free.
  • There's no penalty for repayment.
  • You have flexibility if your situation changes.
Cons
  • You must repay the money in a lump sum.
  • You may only reset your benefits once.

The voluntary suspension rule

If you started collecting reduced benefits before your FRA and missed the reset deadline, you can suspend your benefits once you reach FRA and restart them later.

  • You start claiming Social Security benefits before reaching your FRA.
  • Upon reaching FRA, you decide you don't need the money and suspend your benefits.
  • You can delay resuming benefits as late as age 70.

Pros and cons of the voluntary suspension rule

Pros
  • Your benefits grow 8% a year between FRA and when you resume collecting. If you wait the full 3 years (for those whose FRA is 67) before you restart, you could boost your benefits by 24%.
  • The delayed benefits also include the program's annual cost-of-living adjustments for inflation, if any.
  • You have flexibility if your situation changes.
Cons
  • When you resume receiving benefits, the higher payout will be calculated based on the reduced benefit you locked in when you first claimed Social Security. (It will still be higher than if you hadn't suspended your benefits at FRA.)
  • The "stop" period will fully suspend any benefits your family may be receiving. Their benefits will resume when you restart yours.

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Learn the basics of retirement planning

1Irena Dushi, Howard M. Iams, and Brad Trenkamp. The Importance of Social Security Benefits to the Income of the Aged Population. 2017. Accessed November 6, 2024, at https://www.ssa.gov/policy/docs/ssb/v77n2/v77n2p1.html.

2Social Security Administration. Retirement Ready: Fact Sheet for Workers Ages 61-69. Accessed November 6, 2024, at https://www.ssa.gov/myaccount/assets/materials/workers-61-69.pdf (PDF).

3Social Security Administration. Accessed November 6, 2024, at https://www.ssa.gov/oact/cola/cbb.html.

4Irena Dushi, Howard M. Iams, and Brad Trenkamp. The Importance of Social Security Benefits to the Income of the Aged Population. 2017. Accessed November 6, 2024, at https://www.ssa.gov/policy/docs/ssb/v77n2/v77n2p1.html.

5Jim Borland. Why Social Security Retirement is Important to Women. 2019. Accessed November 6, 2024, at https://blog.ssa.gov/why-social-security-retirement-is-important-to-woman/.

6Social Security Administration. Accessed November 6, 2024, at https://www-origin.ssa.gov/benefits/retirement/planner/taxes.html.

7Pew Research Center. Accessed November 6, 2024, at https://www.pewresearch.org/social-trends/2023/12/14/the-growth-of-the-older-workforce/.

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