How Does Social Security Work?

First of all, when you’re getting ready to retire, the year in which you were born becomes very, very important … and there’s nothing you can do about that!

Social Security has another important abbreviation – FRA – that stands for Full Retirement Age.  If you were born, for example, between 1943 and 1954, your FRA is 66 years and 0 months (see the chart to the right for other birth years).  So, if you “retire” sooner than your FRA and start drawing your Social Security benefits, you will receive LESS money than if you had waited until you reached your FRA. Conversely, if you “retire” later than your FRA, you will receive MORE money.
Now, if we have your attention, then please spend just a few minutes and read on.  We’ll come back to this first set of facts shortly.

DO I START RECEIVING BENEFITS AUTOMATICALLY?

The answer is “no, it is not automatic; you have to file for your Social Security benefits.”  

Here are a few of the most important issues about when to file:

• If you are filing as a worker or as a spouse, you should file three (3) months before you want your benefits to start.
• If you are currently eligible to receive survivor benefits, you should file in the month of the death of the worker you are surviving.
• If you are currently ineligible to receive survivor benefits, you should file three (3) months before you turn age 60 or at your retirement, if later.

IS SOCIAL SECURITY HARD TO QUALIFY FOR?

After that first question from above (“Will Social Security provide me with enough income when I stop working?”), things get a little complicated! But stick with us, and we’ll give you the facts in real, “human” language.

The Social Security system has evolved over the years and now uses a fairly simple method of determining how you qualify for benefits, beginning with the word “credits.”  In order to receive your Social Security retirement benefits (payments), every American worker needs to build up forty (40) of these credits over his or her lifetime of working.  The most credits you can accrue in a single calendar year are four (4) credits.  The Social Security department then computes your benefits on your highest thirty-five (35) years of earnings adjusted for inflation.  If you don’t earn any credits in a calendar year, however, that year counts as zero (0) and lowers your average career earnings and your monthly Social Security benefit.  So, paying into the system over the course of your lifetime of work is extremely important.  If you work for a company your entire career, your Social Security contributions are deducted automatically from your paycheck.

WHAT TAXES MIGHT I BE REQUIRED TO PAY ON MY SOCIAL SECURITY BENEFITS?

​Depending on your income and your tax filing status, it is possible that you will face paying some taxes on your benefits.  At present, the percentage of your Social Security benefits that may be subject to taxation are at the most, eighty-five percent (85%), some at (50%), or none.  The tax rate is based upon the “marginal income tax rate” of the person receiving the benefits.  Again, the percentages we quote here are NOT the tax rate but rather are the percentage of the total benefit that MIGHT be subject to tax.

MORE SOCIAL SECURITY TOPICS

Quick Overview

How does it work?

What are my benefits?

Deceased Spouse

Maximize your benefits

Estimate your benefits

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Resources

CONSUMER GUIDE:
​SOCIAL SECURITY BASICS

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