Understanding Social Security Retirement Benefits

Most Social Security beneficiaries are retirees and their families. In December 2017 about 45 million people received Social Security retirement benefits. The original intent of Social Security was only to cover a portion of your retirement income with the balance coming from retirement savings and pension plans.

The money you pay into Social Security is not held in a personal account exclusively for you. In 2018, 81 cents of every dollar you pay to Social Security will go into a trust fund for individuals who are currently getting benefits and 19 cents will go into a trust fund to pay benefits for disabled individuals and their families. In 2018 Social Security taxes are paid on earnings up to $128,400. Workers must pay 6.2 percent and employers pay 6.2 percent. Self-employed individuals must pay the entire 12.4 percent.

Most people need 40 credits to qualify for Social Security which generally requires ten years in the workforce, earning at least $1,320 per quarter. You are limited to a maximum of four credits per year. Your benefit is calculated by averaging your highest 35 years of earnings, adjusted for inflation. In 2018 the maximum benefit that can be received at full retirement is $2,788 or $33,456. This does not include the annual increase you earn if you start taking benefits after your full retirement age. The average Social Security benefit is $1,372 per month or $16,464 annually.

The biggest Social Security decision you’ll have to make is when to begin taking benefits. The full retirement age for individuals born between 1943 and 1959 gradually increases from age 66 to 67. The full retirement age for everyone born in 1960 or later is 67.Regardless of when you begin taking Social Security, apply for Medicare 3 months before you turn 65. If you take Social Security before your full retirement age, as early as 62, your benefit will be decreased by one half of 1 percent for every month you receive benefits prior to your full retirement age. If you delay taking Social Security beyond your full retirement age, your benefit will increase 8 percent per year until you reach 70. There is no benefit to delay taking benefits beyond age 70.

Although it’s usually advisable to delay taking benefits until age 70, the decision depends on your individual circumstances. Key factors to consider are the health and projected life expectancy of you and your spouse, the availability of retirement income to cover living expenses and whether or not others will draw Social Security on your earnings record. If you live to the average life expectancy you will receive about the same benefit regardless of whether you take Social Security at 62, your full retirement age, age 70 or somewhere in between. The Social Security Administration currently uses a life expectancy of 84.3 for men and 86.6 women, for individuals who have attained age 65.