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Social Security Benefits

The amount of your Social Security retirement benefit is based on several things:

How much time you spent in the workforce.
How much money you made.
Your age when you start receiving benefits.

To qualify for Social Security retirement benefits, you must have worked and earned at least 40 Social Security credits in a job covered by Social Security. The longer you work, and the more money you make, the higher your Social Security benefit will be. You can start receiving your Social Security retirement benefits at age 62. If you wait until you're older to start receiving your benefits, you'll get more money each month.

Social Security benefits are intended to replace a percentage of your earnings when you retire, become disabled or die. Each year, the Social Security Administration (SSA) will send you a Social Security Statement showing your earnings history and an estimate of the retirement, disability and survivors benefits you and your family may receive based on those earnings.

When you receive your Statement, check your earnings history carefully. Make sure all of your earnings are accurate. Be sure to report any errors to the SSA. That is important because your benefits will be based on your lifetime earnings. Your Statement also is useful in helping you plan your financial future.

Calculating Retirement benefits

Choosing when to retire is one of the most important decisions you will make in your lifetime. If you choose to retire when you reach full retirement age, you will receive your full retirement benefits. But if you retire before reaching full retirement age, you will receive reduced benefits for the rest of your life.

If you work past your full retirement age, you will get full retirement benefits no matter how much you earn. If you continue working and decide not to collect your retirement benefits until you reach age 70, you will get higher benefits when you retire. If you choose not to collect retirement benefits before you reach full retirement age, you should be sure to file for Medicare when you reach age 65. If you do not, you may have to pay a higher premium when you file later.

Full retirement age

For many people, determining the amount they can reasonably expect to receive from Social Security is an important first step in estimating retirement income. However, as you probably know, there is currently a debate as to whether Social Security will remain solvent in the years ahead, and more importantly, what effect this will have on future retirees.What we do know is that the normal retirement age at which full benefits are payable is age 65 today, but will gradually rise to 67 or 68 in the next 20 years (see chart).

Furthermore, there are other factors which need to be included when you consider Social Security:

Early retirement results in a permanent reduction in the Social Security retirement benefit.
According to the Social Security Administration the average monthly Social Security benefit for all retired workers was 2005 is $955.

Full retirement age for Social Security benefits Source: Social Security Administration
Date of Birth	Full retirement age
1937 or earlier	65 years
1938	65 years + 2 months
1939	65 years + 4 months
1940	65 years + 6 months
1941	65 years + 8 months
1942	65 years + 10 months
1943-1954	66 years
1955	66 years + 2 months
1956	66 years + 4 months
1957	66 years + 6 months
1958	66 years + 8 months
1959	66 years + 10 months
1960 or later	67 years

Delayed retirement

If you choose to delay receiving benefits beyond your full retirement age, you have two more options:

You can work and get full retirement benefits no matter how much you earn; or
You can decide not to collect your retirement benefits until age 70 and then get a higher benefit when you do retire.

Social Security benefits are increased by a certain percentage depending on the year you were born. If, for example, you were born in 1940, your benefits would increase 7 percent for each year, between your full retirement age and age 70, that you do not get retirement benefits.

Early retirement

You may start receiving benefits as early as age 62. However, if you start your benefits early, your benefits are reduced permanently. Your benefit is reduced about one half of one percent for each month you start your Social Security before your full retirement age. For example, if your full retirement age is 65 and 6 months and you sign up for Social Security when you are 62, you would only get 77.5 percent of your full benefit.

NOTE: The reduction will be greater in future years as the full retirement age increases.

If you work and get benefits

You can continue to work and still receive retirement benefits. Your earnings in (or after) the month you reach full retirement age will not reduce your Social Security benefits. However, your benefits will be reduced if your earnings exceed certain limits for the months before you reach your full retirement age.

If you work but start receiving benefits before full retirement age, $1 in benefits will be deducted for each $2 in earnings you have above the annual limit.

In the year you reach your full retirement age, your benefits will be reduced $1 for every $3 you earn over a different annual limit until the month you reach full retirement age.

Once you reach full retirement age, you can keep working and your Social Security benefit will not be reduced no matter how much you earn.

NOTE: People who work and receive disability or Supplemental Security Income payments have different earnings rules. They must report all of their earnings to Social Security no matter what they earn.