Social Security Benefits Explained: What You Need to Know

Social Security will likely be one of your most significant sources of retirement income. The average retired worker receives about $1,900 per month, but when and how you claim can dramatically affect your lifetime benefits.

Understanding how Social Security works helps you make smarter decisions about when to claim and how to maximize what you receive.

How Social Security Works

Social Security is a federal program funded by payroll taxes (FICA). You and your employer each pay 6.2% of your wages, up to the taxable maximum ($168,600 in 2025).

Earning Credits

To qualify for retirement benefits, you need 40 credits (about 10 years of work). In 2025, you earn one credit for every $1,730 in wages, up to four credits per year.

How Benefits Are Calculated

Your benefit is based on your highest 35 years of earnings, adjusted for inflation. If you worked fewer than 35 years, zeros are averaged in, which lowers your benefit.

The calculation:

1. Your earnings history is adjusted for wage inflation
2. Your highest 35 years are averaged to find your Average Indexed Monthly Earnings (AIME)
3. A formula converts AIME to your Primary Insurance Amount (PIA)—your benefit at full retirement age

💡 Pro Tip: Working additional years with high earnings can significantly boost your benefit by replacing lower-earning years or zeros in your calculation.

Full Retirement Age (FRA)

Your Full Retirement Age depends on when you were born:

At your FRA, you receive 100% of your calculated benefit (your PIA).

When to Claim: The Big Decision

You can claim Social Security retirement benefits as early as 62 or as late as 70. Your claiming age dramatically affects your monthly benefit.

Claiming Age Impact

The Math in Action

If your benefit at FRA (67) is $2,000/month:

Waiting from 62 to 70 increases your benefit by 77%.

📌 Key Takeaway: For each year you delay past FRA (up to 70), your benefit increases by about 8%. That's a guaranteed return you won't find in any investment.

Should You Claim Early or Wait?

There's no universal right answer—it depends on your situation.

Reasons to Claim Early (62-64)

• You need the income now
• Poor health or shortened life expectancy
• You've lost your job and need income
• You have no other retirement savings
• You want to use benefits while still active

Reasons to Wait (FRA-70)

• You're still working and don't need the income
• You're in good health with longevity in your family
• You want to maximize lifetime benefits
• You're the higher-earning spouse (affects survivor benefits)
• You have other savings to live on while waiting

The Break-Even Point

If you claim at 62 instead of 70, you receive eight extra years of payments. However, your monthly benefit is much smaller.

Break-even calculation:
Typically, you "break even" around age 80-82. If you live longer, waiting was better. If you die earlier, claiming sooner was better.

Since the average 65-year-old today lives to about 85, delaying often makes sense—but no one knows their actual lifespan.

⚠️ Warning: If you claim before FRA while still working, your benefits may be temporarily reduced if your earnings exceed certain limits ($22,320 in 2024).

Spousal Benefits

If you're married, you may be eligible for benefits based on your spouse's work record.

How Spousal Benefits Work

• You can receive up to 50% of your spouse's PIA (benefit at their FRA)
• Your spouse must have filed for their own benefits first
• You must be at least 62 (or caring for a qualifying child)
• You'll receive the higher of your own benefit or the spousal benefit—not both

Divorced Spouse Benefits

If your marriage lasted at least 10 years and you're currently unmarried, you may qualify for benefits on your ex-spouse's record:

• Same rules as spousal benefits
• Your ex doesn't need to have filed yet (if divorced 2+ years)
• Claiming doesn't affect your ex's benefit

Survivor Benefits

When a spouse dies, the surviving spouse can receive survivor benefits.

Key Points

• Survivor benefits can be 100% of the deceased spouse's benefit (if claimed at survivor's FRA)
• Available as early as age 60 (50 if disabled)
• Reduced if claimed before survivor's FRA
• You can switch between survivor and your own benefit to maximize income

Strategy for Couples

If one spouse earned significantly more, the higher earner should generally delay claiming to maximize the survivor benefit. The surviving spouse will receive the larger of the two benefits, so delaying increases lifetime household income.

💡 Pro Tip: A surviving spouse can claim reduced survivor benefits early while letting their own benefit grow, then switch to their own higher benefit at 70.

Social Security and Taxes

Federal Taxes

Your Social Security benefits may be taxable depending on your "combined income" (adjusted gross income + nontaxable interest + half of Social Security benefits).

State Taxes

Most states don't tax Social Security benefits, but some do. Check your state's rules.

Strategies to Maximize Benefits

1. Work at Least 35 Years

Zeros in your earnings history lower your average. Working additional years (especially high-earning years) can boost your benefit.

2. Maximize Earnings

Higher earnings mean higher benefits (up to the taxable maximum). Career advancement, side income, and raises all help.

3. Delay Strategically

If you can afford it, delaying past FRA increases your benefit by 8% per year until 70.

4. Coordinate with Spouse

Married couples should plan together:

• Higher earner often benefits most from delaying
• Consider the impact on survivor benefits
• Sometimes one spouse claims early while the other waits

5. Continue Working (Carefully)

Working while collecting benefits before FRA can reduce your current payments, but you get credit for those reductions later.

6. Consider Health and Longevity

Family health history and your own health matter. Those with shorter life expectancies may benefit from earlier claiming.

Common Social Security Myths

Myth: Social Security is going bankrupt

Truth: Social Security faces funding challenges but isn't disappearing. Worst case, if nothing changes, benefits could be reduced to about 80% after the trust fund is depleted (projected around 2034). Reform is likely before then.

Myth: You should always wait until 70

Truth: Waiting is often wise, but not always. Your health, need for income, and other factors all matter.

Myth: Working in retirement always reduces benefits

Truth: Only if you're under FRA and exceed earnings limits. After FRA, you can earn unlimited income without reduction.

Myth: Your benefit is fixed once you claim

Truth: Benefits receive annual Cost-of-Living Adjustments (COLAs) to keep pace with inflation.

Your Social Security Action Plan

1. Create a my Social Security account at ssa.gov to view your earnings history and benefit estimates
2. Verify your earnings record for accuracy—errors can lower your benefit
3. Estimate your benefit at different claiming ages using the SSA calculator
4. Consider your full retirement picture: Other income sources, health, spouse's situation
5. Don't claim early by default: Make a deliberate decision based on your circumstances
6. Coordinate with your spouse if married
7. Factor Social Security into your retirement plan: It's a foundation, not the whole picture

Social Security provides valuable guaranteed income for life. Making informed decisions about when and how to claim helps ensure you get the most from this important benefit.

Related Articles

• Retirement Planning Basics
• 401(k) Basics: Your Guide to Workplace Retirement Plans
• Roth IRA: The Ultimate Guide