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How Do Social Security Benefits Work

To Wait Or Not To Wait

How Social Security Works

Consider taking benefits earlier if . . .

  • You are no longer working and can’t make ends meet without your benefits.
  • You are in poor health and don’t expect the surviving member of the household to make it to average life expectancy.
  • You are the lower-earning spouse, and your higher-earning spouse can wait to file for a higher benefit.

Consider waiting to take benefits if . . .

  • You are still working and make enough to impact the taxability of your benefits.
  • Either you or your spouse are in good health and expect to exceed average life expectancy.
  • You are the higher-earning spouse and want to be sure your surviving spouse receives the highest possible benefit.

Can You Work And Claim Social Security Benefits

If youve already reached full retirement age, feel free to work away if you choose. Your benefits wont be affected, no matter how much you earn.

But if you take Social Security early, your benefits will be reduced by $1 for every $2 you earn above $19,560 in 2022. You get more leeway during the year you reach full retirement age: Youll have $1 withheld for every $3 you earn above $51,960, and then once you actually hit that age, your benefits will no longer be reduced.

Continuing To Work May Reduce Your Benefits

Another consideration when determining whether to take Social Security benefits before your full retirement age is that your work activity during this time may decrease your benefit payments.

After you reach your full retirement age, you can earn as much as you like and still receive your full Social Security benefits. However, the rules for how work affects your benefits are complicated if you would like to work while receiving benefits, you should contact the Social Security Administration before making any decisions.

Note: You should apply for Medicare at age 65, even if you decide to continue working. If youre still working, you might need just Part A of Medicare your local Social Security office can tell you whether taking Part B is a good idea. In some cases, waiting to apply will result in higher premiums.

Generally, Social Security recipients who have not yet reached full retirement age will see their benefits reduced by $1 for every $2 they earn over an annual limit. Once recipients reach the year in which they attain their full retirement age, the reduction changes to $1 for every $3 they earn over a different limit. Once recipients reach the month and year of full retirement age, there is no limit on work activity.

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Whats The Average Monthly Social Security Benefit

The average Social Security benefit is $1,657 per month in January 2022. The maximum possible Social Security benefit for someone who retires at full retirement age is $3,345 in 2022. Someone who waits until age 70 can receive up to $4,194 per month.

Remember, of course, that only the highest-earning workers will qualify for maximum benefits.

Average The Highest 35 Years

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The Social Security benefits calculation uses your highest 35 years of earnings to calculate your average monthly earnings. If you do not have 35 years of earnings, a zero will be used in the calculation, which will lower the average. In the table below, the highest 35 years are listed in Column G.

Total the highest 35 years of indexed earnings, and divide that amount by 420, which is the number of months in a 35-year work history, to find the Average Indexed Monthly Earnings.

For our example worker, who was born in 1953 and turned 60 in 2013, the highest 35 years of wages total $1,919,040. Divide by 420 to get an AIME of $4,569.

How to Calculate Your AIME for Social Security Benefits

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Can I Still Collect Spouse And Survivor Benefits After Divorce

You may be eligible for spousal benefits based on your ex-spouses earnings history if you were married for at least 10 years, have been divorced for at least two years, and both you and your ex-spouse have reached age 62.

These benefits include the same 50% that applies to married couples. But as with survivor benefits, if you earned a government pension while not paying into Social Security, your benefit could be reduced as a result.

Should your ex-spouse pass away, you may also be eligible for survivor benefits. You could receive the same benefits as a widow or widower, without affecting the benefits of other survivors. Similarly, if your ex-spouse remarries, you can still receive benefits without impacting the benefits of his or her current spouse.

List Each Year’s Earnings

Your earnings history is shown on your Social Security statement, which you can now obtain online.

In the table below, sample earnings for a hypothetical worker born in 1953 are shown in Column C. Only earnings below a specified annual limit are included. This annual limit of included wages is called the “Contribution and Benefit Base” and is shown as Max Earnings in Column H in the table.

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Earn The Equivalent Of The Annual Wage Cap For 35 Years

Social Security’s main source of revenue is payroll taxes. In fact, the whole reason President Biden keeps talking about implementing payroll taxes on earnings above $400,000 is that he wants to pump more money into the program and prevent benefit cuts.

See, part of the problem is that workers don’t pay Social Security taxes on all of their wages. If they were to do that, Social Security would have more revenue to look forward to. Instead, there’s a wage cap that’s put in place every year, and earnings beyond that point aren’t taxed for Social Security purposes. They also don’t count toward calculating retirement benefits.

This year, the wage cap is set at $147,000, and it’s expected to rise by a few thousand dollars next year. To snag the maximum monthly Social Security benefit, your annual earnings must reach or exceed the wage cap for 35 years.

How Does Social Security Work 12 Questions Answered

Can you work if you are receiving Social Security Disability benefits?

Social Security isnt just a retirement program. It also provides for people who are disabled, the survivors of workers who have died and the dependents of recipients.

However, because retirees are by far the largest group of people to receive benefits, were focusing on Social Security retirement benefits in this article.

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Here’s When The Social Security Increase For 2023 Will Be Announced

The White House predicted seniors could see $140 more on average in their Social Security checks in 2023.

Dan Avery


Dan is a writer on CNET’s How-To team. His byline has appeared in Newsweek, NBC News, The New York Times, Architectural Digest, The Daily Mail and elsewhere. He is a crossword junkie and is interested in the intersection of tech and marginalized communities.

Each year, Social Security benefits are recalibrated with a cost-of-living adjustment, or COLA. Retirees’ checks went up 5.9% this year, reflecting ongoing economic instability. The bump for 2023, though, is expected to be even larger — potentially the largest since 1981.

The adjustment is based on the US Bureau of Labor Statistics’ Consumer Price Index, the change in prices for goods and services, for the third quarter of the year before. The CPI hit 8.5% in July and 8.3% in August.

In a briefing today, White House Press Secretary Karine Jean-Pierre cited analysts who forecast an increase of $140 per month, on average, equal to about 8.5% more than the average monthly check for 2022.

For more on Social Security, learn how much next year’s increase could be, how benefits are calculated and how to access your benefits online.

Beware The Social Security Earnings Test

Bringing in too much money in earned income can cost you if you continue to work after claiming Social Security benefits early. With what is commonly known as the Social Security earnings test for annual income, you will forfeit $1 in benefits for every $2 you make over the earnings limit, which in 2022 is $19,560. Once you are past full retirement age, the earnings test no longer applies, and you can make as much money as you want with no impact on benefits.

Any Social Security benefits forfeited to the earnings test are not lost forever. At your full retirement age, the Social Security Administration will recalculate your benefits to take into account benefits lost to the test. For example, if you claim benefits at 62 and over the next four years lose one full years worth of benefits to the earnings test, at a full retirement age of 66 your benefits will be recomputed and increased as if you had taken benefits three years early, instead of four. That basically means the lifetime reduction in benefits would be 20% rather than 25%.

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What If I Dont Work For A Few Years

Your monthly benefit is based on your 35 highest-earning years of work. If you dont work for a few years or have fewer than 35 years of earnings, those years will be factored in as $0 for determining your highest 35 years of earnings. For example, if you worked a total of 30 years, those years will be used to determine your average in addition to five years of zero pay.

Other Pensions Might Reduce Your Social Security Benefits

How Do Social Security Retroactive Benefits Work?

Your benefits will be affected if you have a pension from a job that didnt have Social Security taxes taken out of your paycheck. Common examples include people who worked for a public education system, railroad workers and Federal government employees hired before 1984 who are covered by the Civil Service Retirement System .

Two complicated provisions will affect your claiming strategy: the Windfall Elimination Provision and the Government Pension Offset . The WEP reduces your own benefits by a discounted factor based on how many years you worked in jobs that did not withhold Social Security taxes. The GPO reduces your spousal and survivor benefits by two-thirds of the amount of your noncovered pension.

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Is Your Condition Severe

Your condition must significantly limit your ability to do basic work-related activities, such as lifting, standing, walking, sitting, or remembering for at least 12 months. If it does not, we will find that you do not have a qualifying disability.

If your condition does interfere with basic work-related activities, we go to Step 3.

How Do Benefits Work And How Can I Qualify

While you work, you pay Social Security taxes. This tax money goes into a trust fund that pays benefits to:

  • Those who are currently retired
  • To people with disabilities
  • To the surviving spouses and children of workers who have died

Each year you work, youll get credits to help you become eligible for benefits when its time for you to retire. Find all the benefits Social Security Administration offers.

There are four main types of benefits that the SSA offers:

  • Learn about earning limits if you plan to work while receiving Social Security benefits

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How Much Will I Get

Your Social Security retirement benefits will depend on how much money you earned during your working years and your age at the time you start collecting benefits. Similarly, your Social Security disability benefits are based on your eligible lifetime average earnings.

The Social Security Administration sends out annual benefit statements, and yours should include an estimate of how much money you’ll get once you reach your full retirement age. You can also use the Social Security online benefits calculator to estimate your monthly benefits. Keep in mind that the younger you are, the less accurate your estimate is likely to be, since your future earnings could affect your overall payout.

How Inflation Impacts Your Pia

How Does Social Security Work?

Your PIA is calculated at age 62. If you wait beyond age 62, cost-of-living adjustments will be applied to your PIA for each year afterward.

If you have already had most of your 35 years of earnings, and you are near age 62 today, the age 70 benefit amount you see on your Social Security statement will likely be higher due to these cost-of-living adjustments. Many people do not account for this when doing their own calculations, which can lead them to think that taking Social Security early is a better deal, when waiting is often the better deal.

In the table below, our hypothetical worker, born in 1954, is eligible for full retirement at age 66. The column on the right shows the effect of inflation for waiting beyond age 62 to take their benefits.

Effect of Age on Claiming Benefits

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Factors That Affect How Much Youll Get In Retirement

Gordon Scott has been an active investor and technical analyst of securities, futures, forex, and penny stocks for 20+ years. He is a member of the Investopedia Financial Review Board and the co-author of Investing to Win. Gordon is a Chartered Market Technician . He is also a member of CMT Association.

Most retirees rely on Social Security. One in four gets 90% of their retirement income from the program. About half rely on it for 50% of their income.

Although Social Security is only one part of a secure retirement plan, its helpful to get a rough idea of how much you can expect. If youre eligible for Social Security, your monthly benefit is based on two factors:

  • How much money you earned during your working career
  • The age you choose to start getting payments

Lets look at how each of these affects your future Social Security income.

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So 124% Of My Lifes Pay Goes Towards Social Security

Not entirely because it depends on your income. Any wage income below the Social Security Wage Base* after qualified insurance and reimbursement account is subject to the 12.4% tax. Any income you earn beyond the Social Security wage base cap amount is not subject to the tax.

*This figure is subject to inflation-based increases on an annual basis. For FY 2021, it was $142,800 and $147,000 for FY 2022.

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Effect Of Delaying Retirement Benefits

1Represents Full Retirement Age based on DOB January 2, 1960

2PIA = The primary insurance amount is the basis for benefits that are paid to an individual

That higher baseline would last for the rest of your retirement and serve as the basis for future increases linked to inflation. While it’s important to consider your personal circumstancesâit’s not always possible to wait, particularly if you are in poor health or can’t afford to delayâthe benefits of waiting can be significant.

Be aware that if you decide to wait past age 65, you may still need to sign up for Medicare. In some circumstances your Medicare coverage may be delayed and cost more if you don’t sign up at age 65. If you start Social Security benefits early, you’ll automatically be enrolled into Medicare Parts A and B when you turn age 65.

Your annual Social Security statement will list your projected benefits between age 62 to 70, assuming you continue to work and earn about the same amount through those ages. If you need a copy of your annual statement, you can request one or view it online on the Social Security Administration portal.

If You’re Not Sure Why You Received A Payment

How Do Social Security Retroactive Benefits Work?

If you receive a check or direct deposit payment from the Treasury Department and do not know what its for, contact the regional financial center that issued it. Only the agency that authorized the payment can explain why you received it.

If you received a check, look for the RFCs city and state at the top center. Then contact that RFC to find out which federal agency authorized the payment. It will be one of these:

If you received payment byelectronic funds transfer , or direct deposit, follow the directions under Find Information About a Payment.

Use the Treasury Check Verification System to verify that the check is legitimate and issued by the government.

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How Much Social Security Will I Get

Your retirement benefit payment is based on how much you earned during your working career at jobs where you paid Social Security taxes.

Basically, the higher your lifetime earnings, the more money youll receive in retirement benefits. But the formula Social Security uses to calculate your full retirement benefit is designed to also help lower-income workers by replacing a higher percentage of their monthly salaries.

For example, lets say that Sarah had a $100,000 average annual salary throughout her career while her friend Laura averaged $40,000 per year. Sarah probably gets a larger monthly payment from Social Security in retirement, but Lauras monthly payment replaces a larger portion of her working income.

And remember your age when you decide to claim your retirement benefits also affects your benefit. The earlier you start taking benefits, the less money youll get each month.

How Do You Become Eligible For Social Security Benefits

To be eligible for Social Security benefits in retirement, you must earn at least 40 “credits” throughout your career. You can earn up to four credits each year, so it takes 10 years of work to qualify for Social Security.

In 2022, you must earn $1,510 to get one Social Security work credit and $6,040 to get the maximum four credits for the year. And yes, that means that it is possible to have money withheld for Social Security and never get it back. The minimum is the minimum.

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