Making Sense of Social Security: The Basics and Key Considerations

Nonetheless, while it provides a basic level of income, we’re also mindful that Social Security, by itself, is rarely enough to ensure a comfortable retirement.

What is Social Security?

Social Security is a federal program that provides income to eligible people who are:

• Retired
• Spouses or dependents of eligible workers
• Disabled
• Survivors of a deceased worker

Our focus will be on Social Security’s primary mission, providing monthly benefits to those in or near retirement. But let’s briefly touch on the other aspects of the nation’s largest safety net that accounts for about one in every five dollars spent by the federal government.

Social Security Disability Insurance (SSDI), or “Disability,” provides monthly payments to people who have a disability that stops or limits their ability to work.

You may be eligible if you have a disability that affects your ability to work for one year or more, or will result in death, or you are blind.

Generally, you must have worked for at least five of the last 10 years to qualify for SSDI. People under the age of 24 may not need to have worked as long.

Survivor benefits provide monthly payments to eligible family members of those who worked and have paid Social Security taxes before they died.

You may be eligible if you:

• Are age 60 or older, or age 50–59 if you have a disability, and
• Were married for at least nine months before your spouse’s death, and
• Didn’t remarry before age 60 (age 50 if you have a disability).

A child of someone who died may be eligible if they’re unmarried and are 17 and younger, or 18–19 years old and in school full time (K–12), or any age if they developed a disability at age 21 or younger.

Now, let’s turn our attention to the retirement benefits that Social Security provides.

When can I start receiving Social Security retirement benefits?

You can claim retirement benefits as early as age 62, but your benefit will be permanently reduced.

Key ages:

• 62 is the earliest you are eligible.
• Full Retirement Age (FRA) is between 66 and 67 and depends on the year you were born. If you were born in 1960 or later, FRA is 67.
• 70 provides the maximum benefit (no further increases after this).

Practically speaking, how does this work? Here’s a broad overview.

If you were born in 1960 or later, you’ll receive

• 70% of your full benefit at age 62
• 100% of your full benefit at age 67
• 124% of your full benefit at age 70

Every month you delay between birthdays adds a prorated increase to your benefit. At age 70, you’ll have maximized out at 124%.

For example, based on his earnings history, Tom is entitled to $1,000 per month at age 67. If he claims early at age 62, his benefit would be reduced to $700 per month. By waiting until age 70, his benefit rises to $1,240 per month.

Keep in mind, this does not include cost-of-living adjustments, which are required by law and will gradually increase Tom’s benefit over time.

The breakeven: Claim now or wait

A common question that arises is, “If I claim benefits at age 62 and receive a smaller monthly amount over a longer period, when might I break even versus waiting until age 67?”

In this case, the breakeven is roughly about 79 years old.

The breakeven between claiming Social Security at 67 versus 70 is around 82 years of age, and the breakeven between claiming at 62 and waiting until 70 is around 80.

Claim early?

Simply put, you need income today. You’ve retired (or have been subjected to a layoff), your savings are limited, and Social Security provides you with a stable income.

Health concerns or a shorter life expectancy, based on family history, are also important reasons some choose to claim benefits earlier.

Others simply value income today. They want the freedom and the income while they are still healthy.

But if you are still working, be aware that earnings limits apply before FRA, but withheld benefits are not permanently lost—more in a moment.

Claim later?

The future is unknown, but you enjoy working, you are in good health, your family history suggests a longer life expectancy, and you don’t need the money today.

Besides, you have other sources of income, such as rental properties, a pension, or a part-time gig. But once you reach 70, there’s really no reason to delay. Your benefit is maxed out, and you’ll be leaving money with the government.

Working and receiving Social Security

You may or may not be aware of this, but you can receive Social Security retirement benefits and work at the same time. There are a lot of nuances to this topic, so if you’re considering Social Security while still working, we’d be glad to help you make an informed decision.

Here are the main highlights.

If you are under your FRA for the entire year:

• 2026 earnings limit is $24,480.
• Social Security withholds $1 in benefits for every $2 you earn above the limit.

If you reach FRA during the year:

• 2026 limit (before your birthday month) is $65,160.
• SSA withholds $1 for every $3 you earn above the limit.

Starting the month you reach FRA, there is no earnings limit and no benefits reduction.

What counts as income? Wages, bonuses, commissions, and vacation pay from a job in the year they’re earned, not paid. For example, bonuses may be earned in one year but paid the following year. In some cases, severance pay is counted.

Income that’s excluded includes capital gains, pension payments, annuity income, 401(k) or IRA withdrawals, rental income (if not a business), Social Security benefits, veterans benefits, and other government benefits.

There’s one other matter we’d like to point out. And it’s probably the least understood part of the earnings test: Benefits withheld are not lost forever.

When you reach full retirement age, Social Security recalculates your benefit to give you credit for the months when benefits were withheld. But the payback isn’t immediate. You won’t receive a lump sum for benefits that were withheld. Instead, your monthly benefit is increased. Over time (typically 12–15 years) you recover the full amount that was withheld.

What about your spouse?

Your spouse may claim Social Security benefits based on a husband’s or wife’s earnings record as long as the spouse is age 62 or older and the higher-earning spouse is already receiving Social Security retirement benefits.

However, the lower-earning spouse may claim Social Security based on their own work record at age 62 even if the other spouse has not yet claimed.

So, if income is needed earlier, the lower-earning spouse can begin receiving benefits based on their own earnings record, allowing the higher-earning spouse to hold off filing and earn delayed retirement credits.

Once the higher earner begins collecting benefits, the lower-earning spouse may become eligible for a higher spousal benefit, assuming the spousal benefit exceeds their own.

At most, a spousal benefit can equal up to 50% of the higher-earning spouse’s benefit at FRA. If you claim spousal benefits before reaching your own full retirement age, that benefit is permanently reduced.

Importantly, the spousal benefit is always calculated using the higher earner’s FRA benefit (age 67 if born in 1960 or later), not the amount they actually receive. Delayed retirement credits do not increase spousal benefits.

For example, if the higher-earning spouse’s FRA benefit is $2,000 per month, the maximum spousal benefit is $1,000 (50%). Even if the higher earner delays claiming until age 70, the spousal benefit is capped at $1,000.

Final thoughts

Your decision will be influenced by a range of considerations, and you don’t have to navigate them alone.

We recognize the complexities involved, and our goal this month was to provide you with an overview. But we can help you explore various options based on your circumstances. While the final decision rests with you, we’re happy to support you and address any questions along the way.