How Social Security Is Calculated
After eligibility determination, Social Security calculates your monthly average earnings via the 35 years in which your taxable wages were highest, although these amounts are adjusted for inflation. If you did not work for a total of 35 years, Social Security enters zero for the years you did not receive wages. For example, if you worked for 30 years, Social Security would enter zero for five years when making calculations.
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
Can You Get Social Security Benefits Without Working
The only people who can legally receive benefits without paying Social Security are the family members of the workers who did. Non-working spouses, ex-spouses, children, or parents may be eligible for spouse, survivor, or child benefits based on the skilled workers earnings record.
What happens if you dont have enough credits for Social Security?
If you dont have the 40 credits, you wont withdraw any pensions. You cannot borrow or buy credits from another worker, nor can you earn retirement benefits contingent on future earnings and credits.
Who typically Cannot receive Social Security?
About 4 percent of the elderly population never receive Social Security benefits. These never-beneficiaries include higher proportions of women, Hispanics, immigrants, the never-married, and widowers than the beneficiary population never-beneficiaries are also comparatively less educated.
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How Much Do You Have To Earn To Claim The Maximum Social Security Benefit
Social Security taxes phase out once you reach the maximum wage base for a given year. If you earn above that maximum, you wont have to pay any more Social Security tax for that year. However, you also wont earn any additional credits for your Social Security retirement benefit. To qualify for the maximum Social Security payout, youve got to be a top earner. In fact, youll have to earn at least the maximum wage base for at least 35 years. For 2021, the Social Security wage base was $142,800. This number is indexed for inflation, so back in 1985, the wage base was just $39,600.
Myth #: You Must Claim Your Social Security Benefit At Age 62
Some people think you have to start claiming your Social Security benefits at age 62. That’s a myth: 62 is the earliest age you can claim your benefit, but it’s not the only age to do so.
Your base benefit is calculated according to your “full retirement age,” or FRA, and your FRA is determined by your date of birth. The Social Security Administration calculates your base Social Security benefit based on your average indexed monthly earnings during the 35 years in which you earned the most .
Tip: You’ll find your FRA at Social Security’s website, SSA.gov, or on a paper statement mailed to you by the SSA. If you were born in 1960 or later, your FRA is 67.
If you claim Social Security benefits any time before your FRA, you lock in a permanent reduction in monthly income. Claiming at 62 translates to a reduced monthly income of 30%, relative to your FRA monthly benefit . That means you may receive a lot less monthly retirement income, every year, for potentially several decades. A key consideration for when you claim Social Security benefits is maximizing your income for a retirement that could last longer than 30 years.
Wait until age 70 and lock in a “bonus”:
- Waiting to claim Social Security after age 62 comes with a bonus: roughly 8% additional monthly income per year for each year you delay claiming .
- If your FRA is 67, your monthly income would increase 24% by waiting from 67 to 70.
- If your FRA is 67, your monthly income would increase around 77% by waiting from 62 to 70.
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Fact #: Social Security Is Particularly Important For People Of Color
Social Security is a particularly important source of income for groups with low earnings and less opportunity to save and earn pensions, including Black and Latino workers and their families, who face higher poverty rates during their working lives and in old age. The poverty rate among Black and Latino older adults is roughly 2.5 times as high as for white seniors. There is a significant racial retirement wealth gap, leading older adults of color to face more retirement insecurity than their white counterparts. Black and Latino workers are less likely to be offered workplace retirement plans, and they are likelier to work in low-wage jobs with little margin for savings. Social Security helps reduce the economic disparities between older white adults and older adults of color.
What Happens To My Social Security If I Stop Working At 55
If you stop work before you start receiving benefits and you have less than 35 years of earnings, your benefit amount is affected. We use a zero for each year without earnings when we calculate the amount of retirement benefits you are due. Years with no earnings reduces your retirement benefit amount.
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Making The Most Of Benefits
Make the most of your Social Security benefits by waiting as long as possible to claim them. People taking benefits before their full retirement age receive a lesser amount than they would have had they waited until qualifying for full retirement.
Wait until age 70 to take benefits, and you will receive benefits 32 percent higher than had you taken them at full retirement age.
Who Is Eligible To Collect Social Security Benefits
The specific eligibility requirements for Social Security benefits vary depending on the type of benefits, the age of the person filing the claim and, if you are claiming as a dependent or survivor, the age of the worker.
There is one general requirement, however, that applies to all Social Security programs except for SSI : The worker on whose earnings record the benefit is to be paid must have worked in “covered employment” for a sufficient number of years. This means that the worker must have earned enough of what Social Security calls “work credits” by the time he or she claims retirement benefits, becomes disabled, or dies .
For Social Security retirement benefits, you must be between the ages of 62 and 70 to start collecting benefits.
To check on your eligibility, see Nolo’s article Checking you Social Security Earnings and Benefits or call the Social Security Administration at 800-772-1213.
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Can You Collect Social Security At 62 And Still Work
Yes. You can work while you receive Social Security retirement or survivors benefits.
However, if you collect benefits before your full retirnement age, and you earn more than a yearly limit, Social Security may reduce your benefit amount.
For 2022, that limit is $19,560.
In the year you reach full retirement age, Social Security will deduct $1 in benefits for every $3 you earn above a different limit.
In 2022, this limit on your earnings is $51,960.
They will only count your earnings up to the month before you reach your full retirement age, not your earnings for the entire year.
What Is The Highest Social Security Payout
For 2021, the top Social Security payout was $3,895 per month. As youll see below, attaining this maximum benefit is not easy, and is based on a combination of your lifelong earnings record and your age when you claim your retirement benefit. The good news is that you have at least some control over these factors, meaning you have the ability to boost your future Social Security benefit.
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Does My Wife Get Social Security If She Never Worked
Even if you have never worked on Social Security, your spouse may be eligible for benefits if you are at least 62 years old and you are receiving retirement or disability benefits. Your spouse may also be eligible for Medicare at age 65.
Is the housewife entitled to Social Security? Even if a housewife has never contributed anything to Social Security in her life, if her spouse is eligible for Social Security benefits, she is entitled to Spouse Social Security benefit when she reaches full retirement age. Your benefit amount is half of your spouses benefit.
Finding Your Social Security Benefits
Your Social Security benefit payment is based on a sliding scale that accounts for your income, how many years you worked, and what age you start receiving your benefits.
One of the best ways to find out how much you will be receiving in Social Security is to go straight to the source. If you create a My Social Security account on the Social Security website, you can see your past earnings, get a Social Security Statement and more. There are a number of useful tools on that site to help you plan, like:
Retirement Age Calculator to find your full retirement age
Retirement Estimator to see monthly benefits based on earnings
Windfall Elimination Provision Calculator to see if youre eligible for a pension based on work that was not covered by Social Security GPO Calculator to estimate spouse benefits in a case where someone received an untaxed government employment pension
Detail Calculator to see estimates of retirement, survivor, and disability benefits
Early or Late Retirement Calculator to see the effect on benefits for retiring early or late
Earnings Test Calculator to see how income would affect your payments
Benefits for Spouses Calculator to find the impact on a spouses benefits if you retire early or late
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Can I Buy Social Security Credits
You can’t buy Social Security credits, the income-based building blocks of benefit eligibility. You can’t borrow them or transfer them from someone else’s record. The only way to earn your credits is by working and paying Social Security taxes. In 2022, you earn one credit for each $1,510 in income from covered work.
Who Receives The Minimum Social Security Benefit
The special minimum benefit for Social Security has historically been paid to workers who earn lower incomes over their lifetime. This benefit was designed to help those workers get a larger Social Security benefit than they might otherwise be entitled to, based on their earnings. The use of this calculation is less common, however, with fewer than 50,000 Americans receiving the special PIA as of 2019, the most recent year for which data was available.
The main reason is that the standard PIA calculation for Social Security benefits typically yields more money. The special minimum PIA is adjusted using price-based inflation as a guide instead of the wage index. As a result, the special minimum Social Security benefit tends to be less than what regular Social Security pays.
As of January 2022, for example, the estimated average monthly benefit payable from Social Security for retired workers is $1,657. This includes a 5.9% cost of living adjustment. A married couple receiving benefits together gets an estimated average of $2,753. A low-income worker retiring today could likely collect a larger benefit under the standard calculations than they would be using the special minimum benefit formula.
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Can I Retire At 55 And Collect Social Security
So can you retire at 55 and collect Social Security? The answer, unfortunately, is no. The earliest age to begin drawing Social Security retirement benefits is 62. … Once you turn 62, you could claim Social Security retirement benefits but your earnings from consulting work could affect how much you collect.
Earn Ssa Work Credits In Some Countries
You may not have enough credits from your work in the United States to qualify for retirement benefits. But, you may be able to count your work credits from another country. The SSA has agreements with 24 countries. If you earned credits in one of those countries, they can help you qualify for U.S. benefits.
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Before You Make Your Decision
There are advantages and disadvantages to taking your benefit before your full retirement age. The advantage is that you collect benefits for a longer period of time. The disadvantage is your benefit will be reduced. Each person’s situation is different. It is important to remember:
- If you delay your benefits until after full retirement age, you will be eligible for delayed retirement credits that would increase your monthly benefit.
- That there are other things to consider when making the decision about when to begin receiving your retirement benefits.
Minimum Social Security Benefit Summary
Heres the bottom line:
Social Securitys special minimum benefit is an alternative benefit formula that increases benefits paid toworkers who had low earnings for many years, and to their dependents and survivors.
The special minimum benefit is based on the number of years a person has worked with earnings at orabove a certain threshold.
The regular Social Security benefit formula is based on a workers average lifetime earnings.
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How Can I Get Social Security Credits Without Working
No. You cannot buy Social Security credits, the building blocks based on income eligibility for the benefit. You cannot borrow them or transfer them from someone elses record. The only way to earn your credits is to work and pay Social Security taxes.
Can you get Social Security if you dont have enough credits? You can get Social Security benefits based on your earnings record if you are age 62 or older, or you are disabled or blind and have sufficient work credits. Family members who qualify for benefits on their work record do not need work credits.
Can I Collect More Than One Type Of Benefit At A Time
No. You may qualify for more than one type of Social Security benefit at a time, but you can collect just one. For example, you might be eligible for both retirement and disability, or you might be entitled to benefits based on your own retirement as well as on that of your retired spouse. You can collect whichever one of these benefits is higher, but not both.
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How Much Social Security Will I Get At Age 63
Although the earliest full retirement age is 66, you can start collecting the benefits at age 63. However, applying for Social Security benefits before the full retirement age will reduce your monthly benefit amount.
If you start collecting the benefits at age 63 when your full retirement age is 66, you would only receive 80 percent of what you would be eligible for at full retirement. Similarly, if you start taking the benefits at 63 when your full retirement age is 67, you would only receive 75 percent of your eligible amount at full retirement.
Recently, the average monthly Social Security retirement payment was $1,565. The maximum amount is $3,895. The Social Security monthly benefit amount gets adjusted annually in step with inflation. In 2022, the monthly benefit amount will increase by about 6 percent. That will add more than $90 to average earners’ checks and more than $200 to the top earners.
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Social Security At Age 62
The table below shows the effect of early retirement on Social Security benefits for both a retired worker and his/her spouse if they start collecting benefits at age 62.
For this illustration, a Social Security benefit amount of $1,000 at Full Retirement is used.
As you can see from the table above, depending on the year you were born, youll receive between 20 and 30 percent less per month if you collect Social Security benefits at age 62 than if you wait until full retirement age to begin collecting benefits.
Additionally, if you are claiming benefits as a spouse, youll receive between 25 and 35 percent less per month if you collect Social Security benefits at age 62 than if you wait until full retirement age to begin collecting benefits.
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The Basics Of Social Security’s Minimum Benefit
Social Security’s special minimum benefit offers an alternative way for recipients to calculate their benefits. The idea is to offer a higher number to certain low-income participants than the traditional benefit formula would produce, resulting in bigger monthly checks.
A worker has to have at least 11 years of earnings to qualify for the special minimum benefit, with a minimum amount earned each year. That minimum gets changed every year based on inflation. For 2019, a person would have to earn at least $14,805 to get credit for the year for special minimum benefit purposes.
If you have a long enough work history, then you’re entitled to minimum benefits under Social Security. The longer you’ve worked, the higher your minimum benefit will be, as this table of benefits for 2019 shows.
Years of Coverage