Key points
- Understanding Social Security benefits can help you make informed decisions about your retirement.
- The decision of when to take Social Security benefits depends on factors such as financial need, health and life expectancy.
- As of June 30, nearly 90% of individuals 65 and older received Social Security benefits.
Social Security is a vital part of the American social safety net that provides retirement, disability and survivor benefits to millions of citizens. If you’re approaching retirement age, you may wonder how much you can expect to earn and draw from Social Security. This question is particularly important given the significant role Social Security plays in the financial security of many Americans.
Understanding the ins and outs of Social Security benefits can help you plan for a financially stable future and make informed decisions about your retirement. We’ll explore the factors that influence Social Security benefits and how much you can expect to earn from Social Security at various ages. You’ll also see how Social Security fits in your retirement picture.
A little background on Social Security
Former President Franklin Delano Roosevelt signed the Social Security Act into law in 1935. Social Security remains one of America’s key retirement programs, expected to serve more than 71 million people in 2024.
Social Security benefits are payable to retired workers and their surviving spouses and children as well as to disabled workers and their eligible family members. In 2024, the average monthly benefit payout to retired workers will be $1,907, or just shy of $23,000 for the year, according to the Social Security Administration.
Diana Pringle, chief executive officer at Wealth Advisors of the Great Lakes, says Social Security should be just one component of a retirement plan.
“The program was designed to be one leg of the three-legged stool for retirement: Social Security, personal pension and individual savings. Social Security was not designed to be one’s sole source of retirement income,” she says.
Can I collect Social Security while I’m still working?
So what happens if you retire and take your Social Security benefits but still want to earn cash on the side? You can get Social Security retirement benefits and work at the same time.
Let’s start with the age situation. You can start taking Social Security benefits at age 62, but you won’t get the full amount (that also depends on certain factors, but for now we’re focused on age). Your full retirement age depends on the year you were born:
- 66 if you were born from 1943 to 1954.
- Between 66 and 67 if you were born between 1955 and 1959.
- 67 if you were born in 1960 or later.
If you are full retirement age and earning money, no worries. You’re good to go, no penalties involved.
However, if you are younger than full retirement age and make more than the yearly earnings limit, which for 2024 is $22,320, the Social Security Administration (SSA) reduces your benefit.
Here’s the formula: If you are under full retirement age for the entire year, the SSA will deduct $1 from your benefit payments for every $2 you earn above the annual limit.
Let’s look at an example. Suppose Jamal is 63 and earning $50,000 per year. He’s also claiming Social Security benefits. Fine, no problem. However, he won’t get as much from the SSA as he would if he were not working. His monthly benefit will be calculated as follows:
- $50,000 – $22,320 = $27,680.
- $27,680 / 2 = $13,840.
- $13,840 / 12 = $1,153.33.
In this scenario, since Jamal has elected to receive Social Security benefits early and is still earning an income, he will receive only $1,153.33 per month from the SSA.
If Jamal waited until the full retirement age of 67 to start taking Social Security payments, his payouts per month would be $3,822 — the maximum benefit in 2024.
Accruing credits
Under the Social Security program, individuals accumulate credits by earning income and paying Social Security taxes, says Chris Johnson, financial planner at Affiance Financial.
“The credits are based on the amount of income earned in a given year, up to a maximum of four credits per year. To be fully insured, an individual must accumulate at least 40 credits, which is equivalent to 10 years of work,” Johnson says.
Credits are based on your total wages and self-employment income for the year. You might work all year to earn four credits, or you might earn all four in much less time.
The amount of earnings it takes to earn a credit may change each year. For example, in 2023, you earn one Social Security credit for every $1,730 in covered earnings each year. You must earn $6,920 to get the maximum four credits for the year.
The SSA uses the number of credits you’ve earned to determine your eligibility for retirement or disability benefits and your family’s eligibility for survivor benefits upon your death. If you don’t have enough credits, the SSA will not pay benefits.
Age and income limits
The amount you receive in Social Security benefits depends on your age as well as your income while working. To receive the full Social Security benefit, you must wait until age 67 to start claiming benefits if you were born in 1960 or later.
You can start claiming benefits as early as age 62, but your benefit will be reduced. For example, if you were born in 1960 or later and start claiming benefits at age 62, your benefit amount is reduced by 30%.
On the other hand, you can increase your benefit if you delay Social Security until after your full retirement age. For those born in 1943 or later, your benefit increases by 8% every year you delay benefits until age 70. If your full retirement age is 66, that results in a 32% increase in benefits.
Lastly, the SSA calculates your benefit using the average of up to 35 of your highest-earning years. Specifically, the administration uses your taxable earnings to calculate your benefit. As you earn more, the benefit amount increases, up to $168,600 of taxable income in 2024.
How much can you earn and draw on Social Security?
How much you can earn from Social Security depends on your retirement age as well as your income while working. In 2024, the highest monthly benefit you can receive at the full retirement age of 67 is $3,822. If you retire at age 62 in 2024, the maximum amount is $2,710. However, recall that you receive a higher benefit if you delay payments beyond your full retirement age. Thus, if you retire at 70 in 2024, the maximum benefit is $4,873. Keep in mind that these are the highest amounts you can receive.
The key to understanding your Social Security benefit is to stay informed, says Frank Murillo, partner and managing director at Snowden Lane Partners.
“All too often, when I ask a prospective client for their Social Security estimate statement, they tell me they’ve put it in their special filing cabinet,” Murillo says, referring to the trash bin. “Knowing your estimated benefit as well as other sources of income can go a long way to making sure your retirement is successful.”
Frequently asked questions (FAQs)
The answer to this question depends on individual circ*mstances, such as financial need, health and life expectancy. Taking Social Security benefits at 62 means receiving reduced monthly payments, while waiting until 67 results in higher monthly payments. If an individual needs the money or has health concerns, taking benefits at 62 may be the best option. However, if they can afford to wait and expect to live a long life, waiting until 67 may result in greater long-term benefits.
If you wait until age 70 to elect for Social Security benefits, the maximum amount you can receive for 2024 is $4,873.
