PART 1 – 12 Things You Need
to Know About Social Security
You probably know that saving and investing are essential to retirement planning. But just as important to the equation: Social Security planning. Here’s a guide to how Social Security works — and why no matter how old you are, you don’t have to worry about whether it will be around for you.

1. How Are Social Security Benefits Calculated? Your Social Security benefits depend on three primary factors: your work history, your 35 highest-earning years and your age when you start receiving benefits. Cost of living adjustments, or COLAs, are another factor, but their impact is relatively minimal.

Your work history: You earn one Social Security credit for every $1,510 you earn in 2022, but you can’t earn more than four credits a year. As long as you earn $6,040 in 2022, you’ll receive the maximum of four credits for the year. Once you’ve earned 40 credits, you’ll be eligible for benefits once you’re retirement age. That means that after 10 years of working full time, you’re considered “fully insured” for retirement benefits.

Your 35 highest-earning years: Social Security calculates your benefits based on the 35 years you earned the most money — but only up to a limit, which is $147,000 in 2022. (That’s up from $142,800 in 2021.) If you earn $1 million, even $1 billion in 2022? For Social Security’s purposes, it’s the same as earning $147,000. That’s because any money you earn above $147,000 isn’t subject to Social Security taxes, which we’ll get to shortly.

If you work less than 35 years, they’ll still base your benefits on 35 years of earnings, but they’ll use $0 for your non-working years. So, if you started working at 20 and retired at 50, they’d use your 30 years of wages plus five years of $0. Those zeroes could seriously drag down your monthly benefits if you retire early or were out of the workforce for a long stretch. Then, your wages are adjusted for inflation to calculate what Social Security calls your Average Indexed Monthly Earnings (AIME).

When you claim benefits: Your AIME is used to calculate your monthly benefit when you’re full retirement age, which is the age at which you qualify for full benefits. It’s 67 for anyone born in 1960 or later and 66 years and change for most people born earlier.

You can take benefits as early as 62 — but you’ll receive a reduced amount. Or you can delay until you’re age 70 in exchange for bigger monthly checks.
  • If you take benefits early: Your Social Security checks are reduced by five-ninths of 1% for every month you start getting benefits before your full retirement age. That adds up to a 6.66% lifetime reduction in monthly benefits for every year of early benefits.
  • If you wait until you’re past your full retirement age to claim: Once you reach full retirement age, Social Security thanks you with an extra 8% for every year you hold off until you reach age 70, when benefits cap out.
The reward for waiting until 70: a monthly benefit that’s 76% higher compared to if you’d started claiming at 62, according to the Social Security Administration.
PRO TIP: Use one of the Social Security Administration’s benefit calculators at to estimate how much you’ll be eligible for in retirement.
COLAs: Social Security recipients receive cost-of-living adjustments based on inflation. COLAs are announced in October for the following year.

For 2022, the COLA was 5.9%, the largest Social Security raise since 1982. Over the past decade, COLAs have averaged about 1.65%.

Here’s how the COLA will break down for the average recipient:
  • The average retired worker will get an extra $92 a month.
  • The average disabled worker will get an extra $76 a month.
  • The maximum Supplemental Security Income (SSI) benefit for individuals will increase by $47 a month.

2. Can You Take Benefits Based on Your Spouse’s Record?
Yes. You can collect benefits based on the work record of your current spouse, a deceased spouse and even an ex-spouse in some cases. However, you can’t claim for both yourself and a current or former spouse. You have to decide whether you’ll get more based on their work record or your own.

You can collect on your current spouse’s record if:
  • You’ve been married for at least a year.
  • Your spouse is already taking their benefits.
  • You’re at least 62, or you’re caring for a child who’s under 16 or disabled. Benefit amount: 32.5% to 50% of your spouse’s benefit.

You can collect on the record of a spouse who died if:
  • You’re at least 60 or you’re age 50 and disabled. You can also qualify if you’re caring for the deceased spouse’s child.
  • You were married for at least nine months, unless the death was accidental or occurred in the line of military duty.
  • You didn’t remarry before age 60, or age 50 if you’re disabled. If you remarry later, you can still collect on your late spouse’s record. Benefit amount: 71.5% to 100% of your late spouse’s benefit.

You can collect on your ex-spouse’s record if:
  • You were married for at least 10 years and haven’t remarried.
  • You’ve been divorced for at least two years.
  • You’re at least 62.
  • Your former spouse is eligible for benefits, though you can still claim based on their record even if they haven’t started taking benefits yet. Benefit amount: 50% of your ex-spouse’s benefit.

Note that if you’re claiming on the record of a spouse you’re divorced from, their monthly benefits won’t be reduced as a result. Also, if they’ve been married multiple times, there’s no need to race the other exes to the Social Security office. You can all claim based on their record if you choose.

3. What’s the Average Monthly Social Security Benefit?
The average Social Security benefit is $1,657 per month in January 2022. The maximum possible Social Security benefit for someone who retires at full retirement age is $3,345 in 2022. Remember, of course, that only the highest-earning workers will qualify for maximum benefits.

4. Is Social Security Enough to Retire on?
Social Security will replace about 40% of pre-retirement income for an average earner — and financial planners usually recommend replacing about 70% to 80% of pre-retirement income.

While Social Security isn’t meant to be the only source of income in retirement, that’s the reality for many older Americans. About half of seniors rely on Social Security for at least 50% of their income and roughly a quarter depend on it for 90% or more, according to the Center on Budget and Policy Priorities.

5. Who Pays for Social Security?
You do, taxpayer. So does your employer.

Social Security is funded via payroll taxes, which are also sometimes referred to as FICA taxes.

Most workers have 7.65% of their paychecks automatically deducted for FICA taxes. Your earnings are taxed at 6.2% for the first $147,000 of earnings as of 2022. Anything you earn above that isn’t taxed for Social Security — which is why $147,000 is the maximum amount considered for calculating your benefits.

The remaining 1.45% goes toward Medicare, but for that there’s no salary cap. In fact, individuals who earn above $200,000 and married couples making more than $250,000 get hit with an extra 0.9% Medicare tax. Your employer matches your 7.65% contribution toward Social Security and Medicare. That means self-employed people pay 15.3% because they have to make both the employee and employer contributions.

6. Is It True That Social Security Is Going Broke?
Not exactly.

What’s really going on is that Social Security is at a tipping point. Midway through 2021, the program began taking in less money than it pays out, thanks mostly to longer life expectancies and people having fewer children — which means fewer workers paying into the system. The economic shock of the coronavirus pandemic accelerated that pace by about a year.

While Social Security has a $2.9 trillion trust fund it can dip into, the funds are expected to be depleted by 2034. But that doesn’t mean the program is doomed. Social Security is funded on a pay-as-you-go basis. Even as it starts depleting its trust fund, it will still be collecting payroll taxes from workers and employers. If the trust were to run dry in 2034, payroll taxes would still generate enough to pay for about 79% of the program’s obligations if Congress does nothing.

But there are plenty of actions Congress could take to avoid Social Security cuts. For example, it could increase the tax rate, eliminate the wage cap or raise the full retirement age, as it did in 1983.

It’s pretty unlikely that Congress won’t take action. Lawmakers on both sides of the aisle are keenly aware of the program’s popularity among voters.

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