Two things determine the amount of your Social Security benefits.

1. The amount you earn over your entire working career.
2. The age at which you apply for benefits.

What Formula is Used to Calculate Benefits?

The formula used to calculate benefits includes determining your highest 35 years of earnings, no matter the chronological order of those earnings. They do not have to be consecutive years nor the most recent years. Those earnings are then indexed for inflation and averaged.

If you have not worked for at least 35 years, your benefit will be the sum and average of your total earnings from the years in which you did work.

Will My Benefits Ever Increase?

Yes! The Social Security administration determines appropriate increases in benefits by using COLAs, cost-of-living adjustments.

Bottom Line: The longer you work and the more you make, the more benefits you will receive.

There are four categories that determine how your benefit is calculated and they are all dependent upon the age in which you begin receiving benefits. These include:

1. Full Retirement Age Benefit
2. Early Benefit
3. Delayed Benefit
4. Break Even Benefit

1. Full Retirement Age Benefit (FRA)

The Full Retirement Age is the age (66-67 years old) at which you can begin receiving your full retirement benefit. FRA is determined by the year of your birth.

You can see in the chart below how old you need to be to earn your Full Retirement Age Social Security benefit, based on your year of birth.

Year of Birth Full Retirement Age

1943-54 66

1955 66 and 2 months

1956 66 and 4 months

1957 66 and 6 months

1958 66 and 8 months

1959 66 and 10 months

1960 or later 67

Find the year in which you were born in the column on the left. Trace over to the column on the right to see the age you need to be to receive Full Retirement Age Social Security benefits.

Example: If you were born in 1943, your Full Retirement Age is 66 years old. If you were born in 1957, your FRA is 66 years and 6 months. If you were born in 1960 or later, your Full Retirement Age is currently age 67.

Will the FRA Rules Change?

Full Retirement Age rules are expected to change in the future due to legislative reform. However, if it does change in the future, it will most likely affect people born in 1960 or later. It most likely will not impact people born prior to 1960.

2. Early Benefit

Can I Start Receiving Benefits Earlier Than My Full Retirement Age?

Yes! You can start receiving your Social Security retirement benefits as early as age 62, but the benefit amount you receive will be less than your Full Retirement Age benefit amount. If you start your benefits early, they will be reduced based on the number of months you will be receiving benefits before you reach your full retirement age.

Note, once you begin receiving benefits, the percentage of benefit you receive will be locked in permanently. For example, if you file at age 62 and you have a 25% reduction in benefits, you will always have a 25% reduction in benefits. Even any spousal or divorced-spousal will be reduced by 25%. The only thing that is not reduced are survivor benefits.

How Can I Determine My Early Benefit Amount?

Your Social Security statement provides you with your Full Retirement Age (FRA) benefit, a smaller number, and a larger number, based on your lifetime reported earnings.

Depending on your age when you apply early, your benefit will be reduced. Use the chart below for examples.

Apply at Age If FRA = 66 If FRA = 67

62 75.0% 70.0%

63 80.0% 75.0%

64 86.7% 80.0%

65 93.3% 86.7%

66 100% 93.3%

67 — 100%

Examples: If you apply at age 62 but your Full Retirement Age is 66, then you would receive 75% of your FRA benefit.

If you apply at age 62 but your FRA is 67, you will receive 70% of your FRA benefits.

If you apply at age 62 but your FRA is somewhere between 66 and 67, a graduated number will be used to determine your benefit.

Bottom Line: Every year you wait to begin receiving your Social Security benefit, you get closer to earning 100% of your available benefit.

3. Delayed Benefit

If you decide to delay benefits or wait until after your Full Retirement Age to apply for benefits, you will earn a little bonus.

Apply at Age If FRA = 66 If FRA = 67

66 100% 93.3%

67 108% 100%

68 116% 108%

69 124% 116%

70 132% 124%

Examples: If you wait until age 70 to apply for benefits, and your Full Retirement Age is 66, you will get 132% of your FRA benefit.

If you wait to apply at age 70 and your Full Retirement Age is 67, you will get 124% of your FRA benefit.

4. Break Even Benefit

Many want to know how to maximize the amount they receive from Social Security. Your breakeven age is the approximate age range you are expected to break even on your benefit, depending on your filing age.

If your Full Retirement Age is 66, regardless of when you file, your breakeven age is between ages 79-82. If you are likely to live past age 82, then you will receive more money from Social Security by waiting as long as possible to file, ideally at the age of 70 when you will receive 132% of your Full Retirement Age benefit.

If your Full Retirement Age is 67, regardless of when you file, your breakeven age is between ages 80-82. If you are likely to live past age 82, then you will receive more money from Social Security by waiting as long as possible to file, ideally at age 70 when you will receive 124% of your Full Retirement Age benefit.

Bottom Line: Cost-of-living adjustments (COLAs) will magnify the impact of receiving early or delayed retirement benefits.

The longer you live, the more beneficial it is to delay drawing benefits. If your family members tend to live a long time and you are in good health, you might want to consider delaying benefits.

There are three kinds of benefits available through Social Security. These include:

1. Spousal Benefit
2. Divorced-spousal Benefit
3. Survivor Benefit

1. Spousal Benefit

If you wait until you reach Full Retirement Age to apply for a spousal benefit, you will receive the maximum benefit possible. This amount is one-half of the amount your spouse’s benefit. Again, this is only if the spouse’s benefit is applied for at Full Retirement Age. (see chapter 3)

If you choose to begin receiving spousal benefits before you reach Full Retirement Age, your benefit amount will be reduced depending on the age in which you apply.

Example: If you apply at age 62 and your Full Retirement Age is 66, then your benefit would be 75% of your FRA benefit. This means your spousal benefit will be reduced as well. Again, your spousal benefit is one-half of your spouse’s benefits and, in this example, it is further reduced by 25% to determine your spousal benefit amount.

Bonus One nice thing about determining spousal benefits is that if you were born on January 2, 1954 or later, upon application, you will automatically receive your benefit or your spousal benefit, whichever is higher.

How Does Spousal Benefit Work?

Let’s take a look at Sam and Linda’s situation.

• Sam’s FRA benefit is $2,000
• Linda’s FRA benefit is $800
• Linda’s FRA spousal benefit is $1,000

In this example, Sam’s Full Retirement Age benefit is $2,000 while Linda’s is $800. Therefore, Linda’s spousal benefit is $1,000 per month (one-half of Sam’s $2,000 benefit). Linda will now receive either her FRA benefit or her spousal benefit, whichever is higher.

Therefore, when Linda applies at Full Retirement Age, she will automatically receive $1,000 instead of her retirement benefit of $800. The applicant will always receive the greater amount if it does not exceed one-half of the spouse’s benefit.

Spousal Benefit Rules

A spouse cannot apply for/receive benefits unless the primary worker has already applied.

In other words, the primary worker must have already applied for benefits before spousal benefits can be received. Also, the spouse must be at least 62 years old to receive reduced benefits or 66 years old for full benefits.

There are no delayed credits for spousal benefits so your benefit amount will not increase if you delay benefits past your Full Retirement Age.

In other words, if you are 68 years old and planning on filing for benefits, you might as well apply now because they cap out at Full Retirement Age.

2. Divorced-Spouse Benefit

Divorced-Spouse benefits are the same as spousal benefits (see above) IF:

• the marriage lasted for ten years or more – AND –
• the person receiving the divorced-spouse benefits is currently unmarried. (Even if the former spouse remarries, if you are unmarried, you can be eligible for benefits.) – AND –
• you must be divorced for at least two years – AND –
• the ex-spouse must be age-eligible to receive Social Security (although he/she does not have to be receiving it). This is to protect people from an ex-spouse trying to block benefits.

Can an Ex-Spouse Affect Benefits Paid?

The benefits paid to one ex-spouse will not affect those paid to the worker, a current spouse, or other ex-spouses. Furthermore, benefits paid to one ex-spouse do not affect those paid to the worker, the current spouse, or other ex-spouses.

What If I Remarry?

Currently, if you remarry, you generally cannot collect benefits on your former spouse’s record unless your later marriage ends (whether by death, divorce, or annulment).

In other words, if your second marriage does not last ten years, you can fall back on your previous marriage for benefits, if all other requirements are met.

Born After January 1, 1945?

If you were born on January 2, 1954 or later, upon application, you will automatically receive your benefit or your divorced-spouse benefit, whichever is higher. This law became effective December 31, 2015.

3. Survivor Benefit

Most of us do not like to talk about or even think about death. But wouldn’t you feel better knowing that, if you or your spouse were no longer living, Social Security would help take care of your family?

If you are working and paying into Social Security, some of the taxes you pay go toward survivor’s insurance. In fact, if you currently have life insurance, the value of your private policy is probably less than the value of the survivor insurance you have under Social Security.

How Do I Receive Survivor Benefits?

To receive a survivor benefit, you must meet the following criteria:

• The couple must have been married for at least 9 months at the date of the worker’s death.
• To receive full benefits, the survivor must be at full retirement age. (see chapter 3)
• To receive reduced benefits, the survivor must be 60, or 50 if disabled.
• If the widow/er remarries before age 60, 50 if disabled, the survivor benefit is only available if that marriage ends.

Note, if you were married at least 10 years and then divorced, there are divorced-spousal survivor benefits available.

Survivor Benefit Stipulations

The amount of the benefit depends on whether the deceased had applied for Social Security benefits. The survivor benefit amount is based on the earnings of the person who died. The more the worker paid into Social Security, the greater the benefits will be.

Social Security uses the deceased worker’s basic benefit amount to calculate the percentage survivors can receive. The percentage depends on the survivor’s age and relationship to the worker. If the worker who died was getting reduced benefits, the survivor’s benefit will be based on that amount.

Qualifying for Survivor Benefits

Qualifying for Survivor benefits depends on:

Whether or not the deceased had already filed for Social Security benefits

The age at which the deceased spouse originally claimed benefits (the “original benefit”)

The age at which the widow/er claims the survivor benefit (the “actual benefit”)

If the deceased received Social Security benefits before his/her Full Retirement Age, then benefits will be limited. The survivor benefit is limited to the bigger amount between the deceased spouse’s benefit or 82.5% of the Primary Insurance Amount (PIA).

However, if the deceased received Social Security benefits after his/her Full Retirement Age, the survivor benefit increases to include delayed credits.

Two Categories of Survivor Benefits

The deceased has filed for Social Security Benefits.

• Before Full Retirement Age, the benefit limited to the bigger amount between the deceased spouse’s benefit or 82.5% of FRA.
• After Full Retirement Age, increases the benefit to include delayed credits.
• If both are already receiving benefits, the widow/er may switch to the higher amount.

The deceased has not filed for Social Security Benefits.

• At Age 60 the benefit is 71.5% of the deceased’s Full Retirement Age.
• Before Full Retirement Age, the benefit is reduced by early filing penalties.
• At or After Full Retirement Age, the benefit will equal 100% of the original benefit.

Examples:

When the Larger Wage-Earner Dies

Sam & Linda are married

Both over full retirement age

Sam’s benefit is $2,000

Linda’s benefit is $1,000

Sam and Linda are married, and both are over their full retirement age. Sam’s Social Security benefit is currently $2,000 and Linda’s is $1,000.

Unfortunately, Sam dies. As one of the rules indicates, upon the death of a spouse, the widow/er automatically receives the higher of the two benefits. Therefore, Linda’s survivor benefit increases to $2,000.

When the Smaller Wage-Earner Dies

Sam & Linda are married

Both over full retirement age

Sam’s benefit is $2,000

Linda’s benefit is $1,000

Now let’s say they are in the same situation as before: They are married, both over full retirement age, and both already receiving benefits.

This time, however, Linda dies. Therefore, Sam retains his $2,000 benefit, as it is the larger of the two.

When a Survivor Benefit is Claimed Early

Sam & Linda are married

Sam’s full retirement age is $2,000

Sam files for Social Security benefits at 62 (75% of $2,000 = $1,500)

Sam and Linda are married and Sam’s Social Security benefit at Full Retirement Age would be $2,000. However, Sam files for benefits at age 62, thereby reducing his Social Security benefit. Because he filed at age 62, he receives 75% of his Full Retirement Age benefit. Seventy-five percent of $2,000 is $1,500.

Sadly, Sam dies. Linda applies for Survivor Benefits and her age is the key to the amount she will receive.

If Linda is 66 years or older, her benefit will be 82.5% of Sam’s FRA benefit amount ($2,000) equaling a survivor benefit of $1,650.

If Linda is 60 years old, she will receive 71.5% of Sam’s FRA. Therefore, 71.5% of $2,000 equals $1,430.

When a Survivor Benefit Claim is Delayed

Sam & Linda are married

Sam’s FRA is $2,000

Sam files for SS benefits at 70, past full retirement age (benefit is 132% of $2,000 = $2,640)

Sam and Linda are married but this time, Sam waited until age 70 to file for Social Security benefits. His Social Security benefit, therefore, is $2,640 (132% of Sam’s Full Retirement Age of $2,000).

Sam dies. Linda’s survivor benefit is equal to Sam’s Social Security benefit of $2,640.

However, if Linda is age 60, her benefit will be 71.5% of Sam’s Social Security benefit ($2,640) which is $1,888.

If Linda is 66 years or older, she will receive 100% of Sam’s benefit of $2,640.

Bottom Line: It is easy to recognize the importance of when to begin receiving benefits which impacts the survivor. It is beneficial to delay receiving Social Security benefits to give the survivor more income in the event of the spouse’s death.

Federal Taxes

You will pay taxes on only 85% of your Social Security benefits, based on IRS rules if you:

File a federal tax return as an “individual” and your combined income is

• Between $25,000-$34,000—you may have to pay income tax on up to 50% of your benefits.
• More than $34,000—up to 85% of your benefits are taxable.

File a joint return, and you and your spouse have a combined income that is

• Between $32,000-$44,000—you may have to pay income tax on up to 50% of your benefits
• More than $44,000—up to 85% of your benefits are taxable

State Taxes

Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia charge state income tax on Social Security benefits.

How Do I Get My Personal Social Security Statement?

If you have not done so already, create an online account at sss.gov to use the online estimator tool. Once created, you can review your personal Social Security Statement at any time.

If you choose not to create an account, statements are mailed to those aged 60 and older who have not applied for benefits or setup an online account. When you do get a statement, it is recommended you keep it in a safe location for later reference. It is important be familiar with the information included in this statement as you go into retirement.

Online Benefits Calculator

Social Security offers many online calculators to help you plan for your current or future needs. Their two most popular calculators are the Retirement Estimator and Benefits for Spouses Calculator. You can find these and other online tools at: Social Security Online Benefits Calculator.

To sum up Social Security more simply, if you are single, it is optimal to receive Social Security benefits at Full Retirement Age, if possible. Let’s face it—if you’re single, you will not be receiving survivor benefits.  If you are married, divorced, or widowed, consider applying for spousal, divorced-spouse, or widow’s benefits.