Social Security Retirement Benefits

Key Takeaways:

  • Social Security is a pay-as-you-go system intended to support individuals who are retired, have a disability, or are dependents of deceased workers.
  • Social Security benefit amounts can change over time. Your full retirement age, spousal benefits and more may be different for you when you retire compared to those of people retiring today.
  • Social Security income can be an important component of your retirement plan, but you should not plan to rely on it as your only source of retirement income. 

Social Security retirement benefits can vary greatly based on your employment history and when you begin taking benefits. In this article, we will take a closer look at Social Security retirement benefits, how different factors like your start date affect your benefit amount and the role Social Security can play in your retirement plan.

Social Security Basics

How It Works

Social Security is a benefits program managed by the U.S. federal government’s Social Security Administration (SSA). Social Security’s purpose is to pay retirement and/or disability benefits to eligible retirees, disabled workers and survivors of deceased workers. You pay into the Social Security fund through wages earned throughout your working career.

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Individuals must meet certain eligibility requirements to qualify for benefits. Eligibility generally depends on an individual’s number of credits earned by working and paying Social Security taxes. An individual’s spouse, former spouse or children may also receive benefits if they meet certain eligibility requirements. But, the terms of eligibility are subject to change. Congress has made minor changes to Social Security to help ensure its long-term solvency over time and there could be more changes in the future. 

Credits and Benefits

To qualify for Social Security Retirement benefits, you need to accumulate credits by earning employment income. In 2023, you receive one credit for each $1,640 of earnings, up to four credits per year.1 In general, you need at least 40 credits to receive Social Security Retirement benefits. If you earn the full four credits per year, that’s about 10 years’ worth of work to become eligible for benefits.

The total monthly benefit amount you receive during retirement depends on several factors including your wage history, career progression and how much you have paid into Social Security during your working years. Monthly Social Security benefits are designed to be a similar amount over the course of retirement. The benefits are calculated based on the average life expectancy for your age and when you start receiving benefits.

When Should You Begin Taking Social Security Retirement Benefits?

Determining the right time to begin taking Social Security benefits is not a straightforward conclusion. Some factors to consider include your life expectancy, net worth, health status, marital status and cash flow needs.

Most people can start taking Social Security benefits at age 62, but if you elect to take Social Security before full retirement age (FRA)—determined by the Social Security Administration based on the year you were born—your monthly benefits will be permanently reduced. The longer you wait to claim benefits—up to age 70 —the higher your monthly benefit might be.

Consider the following scenarios:

  • Under FRA and working: Assuming you’re already earning enough to support yourself, it may be disadvantageous to begin taking benefits under full retirement age. If you do, your benefits will be subject to the earnings limit, and you could end up paying more in taxes.
  • Under FRA and retired: Perhaps you are retired, but you haven’t yet reached full retirement age. Your Social Security benefits will still be reduced if you start taking them. But some retirees might need the cash flow for day-to-day expenses, or you might have a shorter life expectancy and want to take what you are entitled to while you can.
  • FRA or later: When you reach full retirement age, you could begin receiving full benefits. However, if you delay benefits, you could increase your Social Security income up until age 70. Hence, some retirees may prefer to meet their needs with other income sources while letting their benefits grow. Delaying Social Security benefits can help combat the rising costs of living as you age. 

Incorporating Social Security Into Your Retirement Plan

The Social Security Administration’s website has useful calculators to help estimate the payments you might receive based on your employment record, age, marital status and when you plan to begin taking benefits. Ideally, Social Security benefits should be a component, not the cornerstone, of a comprehensive financial plan.

Although Social Security isn’t facing an immediate funding crisis, it may be prudent not to depend solely on it for your retirement strategy. If you are younger and are concerned Social Security won’t be around for you, your strategy is simple: Don’t depend on it. Instead, focus on building savings and investing in assets that offer sufficient long-term growth to provide for the retirement needs of you, your spouse and your family.

Contact Fisher Investments Today

Planning a financial strategy based on your needs and goals is important, and Fisher Investments can assist you. Our advisers can help you review your choices and put together a plan to maximize your retirement benefits. Contact us today and we will be happy to share more insights on Social Security retirement benefits and retirement planning.

1Source: Social Security Administration, as of 6/20/2023.

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