Since the Social Security program was establishment in 1935, it has provided a guaranteed source of income for most American retirees. This reliable monthly income has become even more important to many people as pensions have been phased out and annuities have become less common. In fact, Social Security is the only guaranteed source of income for many Americans, with the remainder of their monthly expenses being paid from variable savings and investment accounts.
Like most government-sponsored programs, Social Security is vast and can be confusing, but understanding how it works is vital to a successful retirement. To see how much you already know, test your Social Security knowledge with these common questions. If you find you don’t know the answers, continue reading for a crash course in Social Security.
Social Security Eligibility
When most people refer to their Social Security benefits, they mean Social Security retirement benefits. These benefits are available to people aged 62 or older who worked and paid Social Security tax for 10 years or more. However, there are other types of Social Security benefits you could be eligible to receive.
Social Security Spousal Benefits
Social Security spousal benefits are available if you are aged 62 or older and your spouse, or former spouse in some cases, worked and paid Social Security tax for 10 years or more. If you do not have sufficient earnings on your own record to qualify for Social Security, or your spouse earned significantly more than you did, spousal benefits may be particularly important to your retirement plan.
Social Security Survivor Benefits
Widows, widowers, and dependent children may qualify for Social Security survivor benefits based on a deceased worker’s record. However, these benefits are only available to widows and widowers over age 60, so some people – like one of our clients whose story we covered in a recent case study – don’t realize they are eligible when they reach that milestone. Fortunately, these benefits can be backdated up to 6 months if you find yourself in a similar situation. To determine if you are eligible for Social Security survivor benefits, review the eligibility criteria on the Social Security Administration website and speak with an experienced financial advisor.
Supplemental Security Income (SSI)
Supplemental Security Income [SSI] is a special type of benefit available to people who meet strict income and asset restrictions and are age 65 or older, blind, or meet the Social Security definition of disability. This type of benefit provides supplementary income that can be combined with other types of benefits.
Supplemental Security Income for Disability (SSDI)
Supplemental Security Income for Disability [SSDI] provides income for people who have worked and paid into the Social Security program in the past but are unable to continue working due to a disability. It provides income during their working years and allows the individual to access the Medicare program before reaching age 65. Once the recipient reaches retirement age, their benefit converts to a retirement benefit.
While there are several types of Social Security benefits, and each can serve a purpose in your financial plan, this article will focus on Social Security retirement benefits. So, the term “Social Security benefits” will refer to the benefits you receive during retirement based on your previous employment.
Social Security Full Retirement Age
You may be eligible to begin Social Security at age 62, but you will not receive your full benefit unless you wait until your Full Retirement Age [FRA] to claim benefits. Contrary to popular belief, the typical FRA is not 65. For those born in 1954 or earlier, it is 66. For those born between 1955 and 1959, it is between 66 and 67, and for those born in 1960 or later, it is 67. The chart below summarizes FRA for those born after 1943.
Taking benefits too early is one of the biggest Social Security mistakes. That’s because your benefits are reduced for life when you begin Social Security before your FRA. For example, if your FRA is 67 and you begin receiving benefits at age 62, your benefit amount is reduced by 30% permanently.
In addition to being reduced if taken early, Social Security benefits are increased if you delay them past your FRA. For those born after 1942, Social Security benefits are increased by 8% for each year delayed up until age 70. Like with reductions for claiming benefits early, these increases permanently adjust the amount of Social Security you receive.
Determining when to claim Social Security benefits is a difficult and uncomfortable balancing act which requires you to forecast your life span. High earners have a particularly tough time choosing a date to begin benefits and must weigh some special considerations. An experienced financial advisor can help reduce the emotional strain of this calculation and help you weigh the options.
Social Security Benefit Amounts
Social Security retirement benefits are based on earnings during your working years. The calculation considers up to 35 years of earnings, adjusted for inflation. On average, monthly Social Security retirement benefits are $2,071 in 2026.
For most people, Social Security replaces between 11% and 35% of pre-retirement income. However, higher earners typically see a lower percentage of their pre-retirement income replaced by Social Security than those who earned less during their working years.
Once you begin taking Social Security benefits, your base benefit amount is set. However, Social Security benefits do increase with inflation. Each year, the Social Security Administration reviews the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers and issues a Cost-of-Living Adjustment [COLA] if prices rose.
Several Factors Can Reduce Social Security Benefits
Once you understand the basics of Social Security, you also need to know which factors can reduce your benefits. With the following factors in mind, you can more accurately predict your retirement income.
Taking Social Security Before FRA Can Permanently Reduce Benefits
As previously discussed, claiming your Social Security benefits before your FRA permanently reduces your benefit amount. That’s why it is important to discuss your anticipated retirement date, income needs, and other sources of retirement income with an experienced financial advisor as soon as possible. With this information, your advisor can help you determine the optimal time to claim benefits.
The Earnings Test Can Reduce Social Security Benefits
If you are still working when you begin taking benefits, you could be subject to the Social Security earnings test. This rule withholds a portion of your benefits for each dollar you earn over certain thresholds in years where you work and receive benefits prior to your FRA. Once you reach FRA, the withheld amount is paid back to you over the course of your life.
Social Security Taxation
Taxes are another factor that can reduce your Social Security benefits. Some people owe tax on a portion of their Social Security benefits. The amount of tax you owe depends on the state where you reside and your provisional income.
The Social Security Fairness Act Eliminated 2 Common Benefit Reductions
If you or your spouse receive a pension from a job that did not require you to pay Social Security tax, you could have been subject to the Windfall Elimination Provision or Government Pension Offset rules. These rules reduced the amount of your Social Security retirement, spousal, or survivor benefits based on pensions from non-covered employment. However, both rules were eliminated with the Social Security Fairness Act in January 2025, so they are no longer a concern for retirees.
Intersection between Social Security and Medicare
The earnings used to calculate your Social Security benefits also determine your eligibility for another government program – Medicare. Unlike Social Security, most people are not eligible for Medicare until age 65. If you are already receiving Social Security at that time, you will be automatically enrolled in Medicare.
Because the Social Security and Medicare programs are so closely linked, you will often hear them together when discussing retirement planning. In fact, working to maximize benefits from these government programs is one of the most important aspects of a successful retirement plan. To navigate the complexities of these programs, consult a wealth management team that has decades of experience helping clients achieve their dream retirement.
Get Answers to Your Social Security Questions with Meld Financial
At Meld Financial, we have spent the past 4 decades helping clients achieve their retirement goals. Throughout that time, we developed a comprehensive financial plan, Financial Fingerprint®.
This nimble plan accounts for the most important aspects of your retirement like Social Security and Medicare. The Meld team has the experience to determine when you should begin receiving Social Security benefits and how they factor into your retirement plan.
To stay up to date on the most recent changes to Social Security visit ssa.gov. For even more valuable information on Social Security sign up for our mailing list to receive our latest articles, delivered directly to your inbox.
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