Social Security Basics

When it comes to retirement planning, Social Security is one of the most important programs to understand. Knowing what you’re entitled to, and what could potentially increase or decrease your Social Security benefits, will help ensure that your post-retirement finances stay in the best possible shape.

Who Is Eligible for Social Security?

Your eligibility to receive Social Security benefits is determined by how many years you’ve spent doing full-time work. The exact calculations involve a system of credits to measure what you’ve paid into the system via payroll tax deductions, but it usually boils down to this: As a retired worker, you need to have 10 years of full-time work under your belt to qualify for Social Security. 

When Can I Receive Social Security Benefits?

You’re eligible to start receiving full retirement benefits between the ages of 65 and 67, depending on your birthdate. Anyone born prior to 1937 was eligible for Social Security benefits at age 65, those born between 1943 and 1954 can take full benefits at age 66, and those born after 1960 get full benefits at age 67. You can visit ssa.gov for a full list of age-based Social Security eligibility.

No matter your date of birth, it’s possibly to apply for Social Security when you reach 62 years old. However, receiving Social Security early will reduce the value of your benefits by around 25% or possibly more. This benefit reduction remains in place for as long as you’re receiving Social Security, which can amount to a significant dent in your potential post-retirement funds – so it’s a good idea to carefully consider your current and future finances, before choosing this option.

How Much Money Will I Receive?

Social Security benefits are based on how much money you earned during your working life, or in other words – how much you paid in Social Security taxes. The higher your lifetime career earnings, the more you’ll receive in Social Security benefits. As of 2021, the average Social Security benefit is $1,543 per month. A worker in the top percentile of earnings who has reached full retirement age can expect to receive $3,148 per month. The Social Security Administration offers online calculators and benefit estimations by phone (800-772-1213), but keep in mind that actual benefits may vary when it comes time to retire.

What If I Want to Retire Late?

As previously explained, taking early retirement means a reduction in Social Security benefits. However, postponing your benefits until after you reach full retirement age typically means a benefit increase. The increase will become bigger for every month that you delay retirement, up to age 70. At ssa.gov, you can find the exact calculations on this to see how your initial benefit amount would be affected if you choose to delay retirement benefits.

Can I Still Work While Receiving Social Security?

Yes. There’s no rule against simultaneously earning a paycheck while receiving Social Security benefits; and if you’ve already reached full retirement age, your benefits won’t be reduced. On the other hand, if you start taking Social Security before reaching full retirement age and continue to work, you’ll receive less money depending on what you’re earning. If this situation applies to you, the good news is that once you do reach full retirement age, adjustments will be made to your benefits to reimburse the funds that were withheld. You can find more information on earning limits at ssa.gov.

What If I’m Not a Retired Worker?

People without the requisite years of full-time work may still be eligible to receive Social Security. In fact, around 3 in 10 Americans with Social Security benefits are not retired workers. These beneficiaries include the spouses and ex-spouses of retirees; individuals with disabilities who can no longer support themselves due to an impairment; and children under 18 whose parents are disabled, retired, or deceased. Family members receiving benefits can get these at the same time as the retired worker, although there is a limit to how much total Social Security can be paid to the retired worker and their family – usually equal to up to 180% of the retiree’s benefit.

Final Thoughts

With so many different numbers and calculations involved in determining Social Security benefits, it can be tricky to understand exactly how much you’re eligible to receive and if there are any extenuating circumstances to be aware of. What’s more, benefit rules and limits often change, depending on federal legislation and adjustments for cost of living and inflation. In the end, the best thing you can do is educate yourself about the general Social Security system, and chat with a financial expert if you have any concerns about retirement finances.