Decisions about retirement, including understanding your Social Security benefits, are among the most important ones you will ever make. This Financial Guide provides the information you need about Social Security benefits to help you plan for your retirement years.
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When you work and pay Social Security taxes (referred to as FICA on some pay stubs), you earn Social Security credits. Most people earn a maximum of four credits per year. In 2021, you earn one Social Security or Medicare credit for every $1,470 in covered earnings each year. You must earn $5,880 to get the maximum four credits for the year. The number of credits you need to get retirement benefits depends on your date of birth. If you were born in 1929 or later, you need 40 credits (10 years of work). People born before 1929 need fewer than 40 credits (39 credits if born in 1928, 38 credits if born in 1927, etc.).
If you stop working before you have enough credits to qualify for benefits, your credits will remain on your Social Security record. If you return to work, later on, you can then add credits so that you may qualify. No retirement benefits can be paid until you have the required number of credits.
If you are like most people, however, you will earn many more credits than you need to qualify for Social Security. While these extra credits do not increase your Social Security benefit, the income you earn while working will increase your benefit.
Your benefit amount is based on your earnings averaged over most of your working career. Higher lifetime earnings result in higher benefits. If you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily.
Your benefit amount is also affected by your age at the time you start receiving benefits. Your benefit will be lower if you start your retirement benefits at age 62 (the earliest possible retirement age) than if you wait until a later age.
You can also use the Retirement Estimator on the Social Security Administration website.
Your actual benefit amount cannot be determined until you actually apply for benefits.
Social Security law provides for automatic cost-of-living increases. Once you start receiving benefits. The amount will go up automatically as the cost of living rises.
Persons in the Social Security system who retire at "full retirement age" receive the full retirement benefit. Your full retirement age depends on when you were born.
Because of longer life expectancies, the full retirement age starts at age 65 for those persons born 1937 or earlier and increases gradually until it reaches age 67 for those born 1960 or later. The chart below shows what your full retirement age will be:
You can start your Social Security benefits as early as age 62, but your benefit amount will be less than your full retirement benefit. If you take early retirement, your benefits will be reduced based on the number of months you will receive checks before you reach full retirement age. If your full retirement age is 66 and 10 months (for example, one born in 1959 and retiring in 2021 at age 62), the reduction for starting your Social Security at 62 may be as much as 30 percent.
In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month. For example, if the number of reduction months is 60 (the maximum number for retirement at 62 when the normal retirement age is 67), then the benefit is reduced by 30 percent. This maximum reduction is calculated as 36 months times 5/9 of 1 percent plus 24 months times 5/12 of 1 percent.
Delayed retirement credit is generally given for retirement after the normal retirement age. To receive full credit, you must be insured at your normal retirement age. No credit is given after age 69. If you retire before age 70, some of your delayed retirement credits will not be applied until the January after you start benefits.
If you decide to continue working full-time beyond your full retirement age, you will increase your Social Security benefit in two ways:
If you plan to start your retirement benefits at age 62, contact Social Security in advance to determine the best retirement month to claim your benefits. In some cases, your choice of a retirement month could mean additional benefits for you and your family.
If you plan to start collecting your Social Security when you turn 62, you should apply for benefits three months before the date you want your benefits to start.
Many people do not realize that widows and widowers can begin receiving Social Security benefits at age 60 (or age 50 if disabled) on the deceased spouse's account. If you are receiving widows/widowers (including divorced widows/widowers) benefits, you can switch to your own retirement benefits (assuming you are eligible, and your retirement rate is higher than your widow/widower's rate) as early as age 62.
In many cases, a widow or widower can begin receiving one benefit at a reduced rate and then switch to the other benefit at an unreduced rate at age 65. Since the rules vary depending on the situation, talk to a Social Security representative about the options available to you.
A Retirement Earnings Test limits the amount of Social Security benefits a person between age 62 and his or her full retirement age (see below) can receive while still working.
For those reaching full retirement age in 2021, $1 in benefits will be deducted for every $3 in earnings above an annual limit up to the month of full retirement age attainment. For 2021, that limit is $50,520. This applies to months before full retirement age. No limit applies beginning the month full retirement age is reached.
For those under full retirement age throughout 2021, $1 in benefits will be deducted for each $2 in earnings above the limit of $18,960. These limits generally increase in future years.
If other family members receive benefits on your Social Security record, the total family benefits will be affected by your earnings. Not only will your benefits be offset, but those payable to your family will be offset as well. If a family member works, however, the family member's earnings affect only his or her benefits.
A special rule applies to your earnings for one year, usually your first year of retirement. Under this rule, you can receive a full Social Security check for any month you are retired, regardless of your yearly earnings. Your earnings must be under a monthly limit. If you are self-employed, the services you perform in your business are taken into consideration as well.
If you earn more than the earnings limit and receive Social Security benefits, you must report this to Social Security. You do not have to fill out a report if you are full retirement age all year.
If you are receiving retirement benefits, some members of your family can also receive benefits. Those who can include:
The full benefit for a spouse is one-half of the retired worker's full benefit. However, if your spouse takes benefits between age 62 and their full retirement age, the amount will be permanently reduced by a percentage based on the number of months up to his or her full retirement age, unless she or he is taking care of a child who is under 16 or disabled.
If you are eligible for both your own retirement benefits and for benefits as a spouse, you will be paid your own benefit first. If your benefit as a spouse is higher than your retirement benefit, you will get a combination of benefits equaling the higher spouse benefit.
A divorced spouse can get benefits on a former husband's or wife's Social Security record if the marriage lasted at least 10 years and the divorced spouse is 62 or older and unmarried. For the divorced spouse to get benefits, the worker also must be 62 or older. If divorced for at least two years, the divorced spouse can get benefits even if the worker is not retired. This two-year waiting period is waived if the worker got benefits before the divorce. The amount of benefits a divorced spouse gets does not affect the amount of benefits a current spouse can get.
If you have children eligible for Social Security, each child will receive up to one-half of your full benefit. However, there is a limit to the amount of money that can be paid to a family. If the total benefits due your spouse and children exceed this limit, their benefits will be reduced proportionately - but your benefit will not be affected.
You can apply for benefits by telephone or by going to any Social Security office. Depending on your circumstances, you will need some or all of these documents:
You will need to submit original documents or copies certified by the issuing office. You can mail or take them to Social Security, which will make photocopies and return your documents.
If you disagree with a decision made on your claim, you can appeal it. The steps you can take are explained in the fact sheet, The Appeals Process (Publication No. 05-10141), which is available from Social Security. You have the right to be represented by an attorney or another qualified person of your choice. More information is in the fact sheet, Social Security and Your Right to Representation (Publication No. 05-10075), also available from Social Security.
Less than one-third of people who get Social Security pay taxes on their benefits. This provision affects only people who have substantial income in addition to their Social Security.
At the end of each year, you will receive a Social Security Benefit Statement (Form SSA-1099) in the mail showing the amount of benefits you received. You can use this statement when you are completing your income tax return to find out if any of your benefits are subject to tax.
If you get a pension from work where you paid Social Security taxes, it will not affect your Social Security benefits. However, your Social Security benefit may be lowered or offset if you get a pension from work that was not covered by Social Security (for example, the Federal civil service or some State or local government employment).
If you are a U.S. citizen, you can travel or live in most foreign countries without affecting your eligibility for Social Security benefits. Your checks can be sent there. However, there are a few countries where Social Security will not send your checks. If you work outside the United States, different rules apply in determining whether you can get your benefit checks.
Most people who are neither U. S. residents nor U.S. citizens will have up to 15 percent of their benefits withheld for federal income tax.
Medicare is a health insurance plan for people who are 65 or older. People who are disabled or have permanent kidney failure can get Medicare at any age. Medicare has four parts:
Most people are already getting Social Security benefits when they turn 65 and their Medicare starts automatically.