Social Security seems like a simple program. You work, you pay your Social Security taxes and when you retire, you claim your benefit. But there’s a lot more that goes into Social Security than you might imagine. For example, the longer you work and the more you earn, the higher your benefit can be.
But one of the most important factors when it comes to the size of your Social Security benefit is when you actually claim it. Your age, your other sources of income, your cost of living and many other factors are important considerations when it comes to withdrawing Social Security benefits. Here’s a look at how they all play a role.
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The more you earn — at least up to the annual Social Security wage base limit — the more your ultimate benefit will be. According to the Social Security Administration (SSA), your 35 highest-earning years are taken and a formula is applied to calculate your benefit, so higher earners get larger Social Security checks. But the quoted benefit is available only at your “full retirement age,” which is 67 for anyone born in 1960 or later. You can claim your benefit as early as age 62, but it will be reduced by as much as 30%.
This is critical to understand because it could literally make or break your retirement. If your full retirement benefit is $2,000 per month, for example, but you’re planning on retiring at 62, you should anticipate receiving only about $1,400 instead. If you’re prepared for this reduction, it might actually work to your advantage, depending on your financial situation. But if you’re expecting $2,000, it could upend your entire retirement budget.
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If you intend to work after you claim your Social Security benefits, you might be in for another surprise. According to the SSA, your payout will be reduced by $1 for every $2 you earn above an annual limit, which is $22,320 for 2024.
The year you reach full retirement age, your benefit is reduced by $1 for every $3 you earn above a different limit, which is $59,520 in 2024. That money is repaid to you through a benefit adjustment when you reach full retirement age, but it’s important to understand.
Working while you take Social Security benefits can have an additional complication: taxation. If your total income is above $25,000 as an individual or $32,000 as a joint filer, 50% to 85% of your Social Security income will become taxable.
