What Is Social Security? Tips to Boost Your Benefits

Social Security provides financial support to retirees, disabled individuals, and eligible family members. It plays a key role in retirement planning, helping millions of Americans maintain financial stability later in life. The amount you receive depends on factors such as your earnings history and when you choose to claim benefits.

Eligibility Requirements

Qualifying for Social Security benefits depends on your work history and contributions. The Social Security Administration (SSA) tracks earnings through work credits, which are earned based on income. In 2024, one credit is awarded for every $1,730 in wages or self-employment income, with a maximum of four credits per year. To qualify for retirement benefits, most individuals need 40 credits, or about ten years of work.

Workers contribute through payroll taxes—6.2% of wages for employees, matched by employers. Self-employed individuals pay the full 12.4% but can deduct half as a business expense. Some government employees and railroad workers may have different eligibility rules due to alternative retirement systems.

Beyond work history, eligibility is also based on age and disability status. Retirement benefits require a minimum age, while disability benefits follow stricter criteria. The SSA defines disability as a condition that prevents substantial gainful activity (SGA) and is expected to last at least 12 months or result in death. In 2024, the SGA threshold is $1,550 per month for non-blind individuals and $2,590 for blind individuals.

Calculation Methods

The SSA calculates benefits using a formula based on lifetime earnings, inflation adjustments, and years worked. The key figure in this calculation is the Average Indexed Monthly Earnings (AIME), which takes a worker’s highest 35 years of earnings, adjusts them for wage growth, and divides the total by the number of months in those years. If a person has fewer than 35 years of earnings, zeros are included, lowering the average.

Once AIME is determined, the SSA applies a progressive formula to calculate the Primary Insurance Amount (PIA), the monthly benefit a person would receive at full retirement age. The formula uses bend points—income thresholds that determine how earnings are replaced. In 2024, the first $1,174 of AIME is replaced at 90%, the portion between $1,174 and $7,078 at 32%, and any earnings above $7,078 at 15%. These bend points adjust annually based on national wage trends.

To protect against inflation, Social Security benefits receive Cost-of-Living Adjustments (COLAs), calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). In 2023, beneficiaries saw an 8.7% COLA due to high inflation, while in 2024, the adjustment was 3.2%. These increases help maintain purchasing power over time.

Filing Age Options

The age at which you claim Social Security affects your monthly benefit. Individuals can start receiving payments as early as 62 or delay them until age 70, with adjustments based on the timing of the claim.

Early Withdrawals

Claiming Social Security before full retirement age (FRA) results in a permanent reduction in monthly payments. FRA varies by birth year, ranging from 66 for those born between 1943 and 1954 to 67 for those born in 1960 or later. If benefits begin at 62, the reduction can be as much as 30%. For example, if a person’s FRA benefit is $2,000 per month, claiming at 62 would lower it to about $1,400.

Early filers who continue working may face the earnings test, which reduces benefits if income exceeds a certain threshold. In 2024, beneficiaries under FRA lose $1 in benefits for every $2 earned above $22,320. In the year they reach FRA, the reduction changes to $1 for every $3 earned over $59,520. Once FRA is reached, earnings no longer impact benefits. These reductions are not permanent, as the SSA recalculates benefits at FRA to account for withheld amounts.

Full Retirement Scenario

Waiting until FRA ensures individuals receive their full Primary Insurance Amount (PIA). This option is beneficial for those who rely on Social Security as a primary income source or plan to continue working. At FRA, beneficiaries can also access spousal and survivor benefits without reductions, which can be advantageous for married couples.

A break-even analysis can help determine the best claiming strategy. If a person claims at 62 instead of 67, they receive more payments but at a lower amount. If they live beyond their late 70s or early 80s, delaying benefits may result in higher total lifetime payouts. Given increasing life expectancy, many financial planners suggest waiting until at least FRA if possible.

Delayed Claim Adjustments

Postponing Social Security beyond FRA increases benefits through delayed retirement credits. For each month benefits are deferred, payments grow by approximately 0.67%, or 8% annually, until age 70. This increase is permanent. For example, if a person’s FRA benefit is $2,000, waiting until 70 would raise it to $2,480 per month, a 24% increase.

Delaying benefits can be beneficial for those with longer life expectancies or other income sources to cover expenses in their 60s. It also enhances survivor benefits, as a higher benefit amount transfers to a surviving spouse. However, those with health concerns or financial needs may find it more practical to claim earlier. Evaluating personal circumstances, expected longevity, and financial resources is essential when deciding on the optimal claiming strategy.

Taxation Factors

Social Security benefits are subject to federal income tax based on “combined income,” which includes adjusted gross income (AGI), tax-exempt interest, and 50% of Social Security payments. For single filers in 2024, if this total exceeds $25,000, up to 50% of benefits may be taxable, and beyond $34,000, the taxable portion rises to 85%. For married couples filing jointly, the thresholds are $32,000 and $44,000, respectively. These limits have remained unchanged since the taxation of benefits was introduced in 1983, meaning more retirees are affected due to inflation and rising incomes.

State taxation varies. Thirty-eight states and Washington, D.C., exempt Social Security from income taxes, while others, including Colorado, Minnesota, and Utah, impose levies based on income or age. Some states, like Nebraska and Missouri, have recently phased out or reduced their taxation to ease financial burdens on retirees. Understanding these differences is important for those considering relocation in retirement, as state tax policies can significantly affect overall income.

Spousal and Dependent Entitlements

Social Security provides benefits not only to retirees but also to spouses, widows, and dependents, offering financial support to families. These entitlements can significantly impact household income, particularly for couples where one spouse had lower lifetime earnings or did not work enough to qualify for their own benefits.

Spousal Benefits

A spouse can receive up to 50% of the higher-earning partner’s full retirement benefit if they claim at their own full retirement age. To qualify, the higher-earning spouse must have already filed for benefits. If the lower-earning spouse claims before reaching full retirement age, their spousal benefit is permanently reduced. For example, if a worker’s full benefit is $2,400, their spouse could receive $1,200 at full retirement age, but only around $900 if they claim at 62. Unlike worker benefits, delaying spousal benefits past full retirement age does not increase the amount.

Divorced individuals may also qualify for spousal benefits if the marriage lasted at least ten years and they remain unmarried. The ex-spouse does not need to have filed for benefits, but they must be at least 62. These payments do not affect the benefits of the former spouse or their current partner.

Survivor Benefits

Widows and widowers can receive Social Security based on their deceased spouse’s earnings record. The amount depends on the deceased worker’s benefit and the survivor’s claiming age. If claimed at full retirement age, survivors receive 100% of the deceased spouse’s benefit, but claiming as early as 60 results in a reduced amount. If the deceased had delayed benefits past full retirement age, the survivor receives the increased amount.

Remarriage can impact survivor benefits. If a widow or widower remarries before age 60 (or 50 if disabled), they lose eligibility for survivor benefits. However, if they remarry after 60, they can still collect benefits based on their late spouse’s record. Minor children and disabled dependents of a deceased worker may also qualify for benefits, typically receiving up to 75% of the worker’s benefit, though total family benefits are capped based on SSA formulas.