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 will want to carefully consider the best time to start receiving your Social Security benefits. The earlier you start receiving benefits, the less your benefits will be, while the longer you delay receiving benefits, the higher your benefits will be. If you are married, your spouse’s earnings history and their timing for claiming Social Security can 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 do not inadvertently reduce your monthly paycheck in retirement. The Social Security Administration website provides more information on these rules and how to apply for 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 $4,194 per month for 2021. The average monthly payment is $1,667.
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.
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.
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
1960 and later
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 $18,960 in 2021, 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 $50,520 for 2021. This reduction occurs until the month you reach full retirement age. At this point, there is no reduction in benefits no matter how much you earn from working.
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 2022, you can save up to $20,500 from your paycheck in your 401(k). If you are age 50 or older, you can save an additional $6,500 per year in your 401(k). Employer contributions can add even more to your account each year.
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