How Does Social Security Affect Retirement?

Social Security benefits make up a significant portion of retirement income for most retirees. The Social Security Administration estimates that Social Security payments provide at least one-half of retirement income for 50% of elderly couples and 71% for singles. Safe to say, it is a pretty big deal for most people.

You should carefully consider the best time to start receiving your Social Security benefits. The earlier you start receiving benefits, the smaller your benefits will be, but the longer you delay receiving benefits, the larger your benefits will be. If you are married, your spouse’s earnings history and their timing for claiming Social Security can also affect the amount of benefits you will receive. And, if you work while receiving benefits, your benefits may be reduced and you may have to pay tax on a portion of your Social Security income.

With all these variables, it is important to research your choices so you don’t inadvertently reduce your monthly income in retirement. The Social Security Administration website provides more information on these rules and how to apply for benefits.

How much will I receive in Social Security retirement benefits?

Many factors go into determining the amount you will receive each month, including how many years you have worked, how much you have earned over your lifetime, your marital status, and when you decide to start receiving benefits.

To be eligible to receive Social Security benefits, you must have earned 40 credits, which equates to approximately ten years of work. The Social Security Administration maintains an earnings record reflecting your work credits with all of your employers. Your benefits will be calculated based on an average of your 35 highest years of earnings (which are indexed for inflation). The maximum Social Security benefit for a worker retiring at full retirement age is $4,444 per month for 2023. The average monthly payment is $1,827.

You can use the Social Security Administration’s Retirement Estimator calculator to estimate the amount of your monthly benefits based on your actual earnings record.

When can I start receiving Social Security?

Under the current rules, you can start as early as age 62, but if you start benefits before your full retirement age, your monthly amount will be reduced. For example, if you retire at age 62 and begin receiving Social Security benefits, your monthly benefit will be approximately 25–30% lower than if you waited until your full retirement age to draw benefits.

If you wait until after your full retirement age, your benefits will increase, generally by 8%, for each year benefits are delayed up to age 70. Delaying retirement benefits may also increase your payments by increasing your lifetime earnings.

Retirement age based on year of birth

1943-1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960 and later

67

Can I work while collecting Social Security?

You may work while receiving Social Security retirement benefits, but your benefit amount may be reduced if you have not reached full retirement age. If you are younger than the full retirement age, and you earn more than $21,240 in 2023, your benefits will be reduced by $1 for each $2 earned over the limit. In the year you will reach full retirement age, your reduction in benefits is $1 for each $3 earned, and the earnings limit increases to $56,520 for 2023. This reduction occurs until the month you reach full retirement age. At that point, there is no reduction in benefits no matter how much you earn from working.

Keep saving in your retirement plan

Social Security was never intended to be your sole source of income during retirement. It was designed to supplement retirement plans, private savings, and other sources of income. So it is important to keep saving in your 401(k) plan for as long as you can. In 2023, you can save up to $22,500 from your paycheck in your 401(k). If you are age 50 or older, you can save an additional $7,500 per year in your 401(k). Employer contributions can add even more to your account each year.

Only Ubiquity gives small business owners access to 401(k) experts in addition to industry-leading, low, flat fees. Each sales expert has over a decade of experience assisting business owners in 401(k) plan design. Take advantage of this free benefit.

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Ubiquity is not a registered investment advisor and no portion of the material herein should be construed as legal or tax advice. Please consult with your financial planner, attorney and/or tax advisor for advice.

Flat fees are charged by Decimal, Inc. for recordkeeping and administrative services. Third-party service providers may assess asset-based fees to customers. Plan Sponsors are advised to review all service agreements with providers (e.g., investment advisors, custodians, broker-dealers) to evaluate total plan costs.

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