How Much Will My Social Security Benefit Be?

Social Security is a series of federal programs aimed at increasing social welfare, among them supplemental insurance, housing and food assistance, and—what most people think of—retirement benefits. When you retire, you can receive a monthly Social Security check to supplement your income when you start working less, or stop working altogether.

To qualify for this benefit, you need to be 62 or older and have enough work credits to be “insured.” To be “insured,” you must accrue 40 work credits, or 10 years of work. Based on your annual income from your job, you can earn up to four credits a year.

All wage earners, even if you work part-time or are self-employed, are required to pay Federal Insurance Contributions Act payroll taxes. In 2023, this makes up 12.4% of your income: 6.2% is taxed from your salary, and the other 6.2% is matched by your employer. The taxable maximum is currently $160,200, meaning wages equal to or more than that will only contribute up to $9,932.40 for the year. University students employed by their schools and some government employees don’t have to pay into the system. Check out the official Internal Revenue Service website to find out who is exempt from FICA taxes.

Social Security is different from a retirement account like a 401(k), which is built on the specific amounts you and your employer elect to contribute. Your Social Security is funded by taxes that are automatically deducted from your paycheck and quarterly taxes paid by your employer, through FICA. When you choose to retire, you’ll essentially get this money back in the form of your Social Security checks.

When Should I Take Social Security?

While you can start your Social Security benefits when you turn 62, your benefits will be permanently reduced. To receive your full retirement benefit amount, you must reach your “full retirement age” before you begin claiming. Depending on your birthday, your FRA is usually between 66 and 67. Use the Retirement Age Calculator on the Social Security Administration website to find out yours.

Social Security also protects workers against the risk of disability. If you’re disabled before you’re 62, you’ll receive your full benefits as if you were retiring at your FRA.

Author and Morningstar contributor Mark Miller breaks down the math in his book Retirement Reboot: If someone with an FRA of 66 claims their Social Security at 62, their benefits will be reduced for the rest of their life. If that person waits to claim Social Security until their FRA, their monthly income would be worth 33% more.

And if they wait until they’re 70, it’s worth 76% more. This is called delaying Social Security.

What Does It Mean to “Delay” Social Security?

If you delay claiming Social Security past your FRA, you’ll receive higher payments. The monthly payout increases slightly for each month you delay. And before you ask if you should wait until 75 or push it to 80, know that the benefits stop increasing once you reach age 70.

“Delaying Social Security is often the greater good for people who expect to have average or longer-than-average life expectancies and/or have younger, lower-earning spouses; it increases lifetime income,” says Morningstar’s director of personal finance Christine Benz.

Deciding if you want to delay your Social Security is an important, and personal, decision. There are a lot of factors to consider, such as cost of living and life expectancy.

Benz points out another big consideration: market volatility. That’s why she encourages investors to adjust their investment portfolios and plan to accommodate delayed filings. This is also known as creating a “retirement bridge.”

“The basic idea is that you develop alternative cash flow sources to tide you through heavier withdrawals early on in retirement, in the pre-Social Security years,” says Benz. “A bucket approach to portfolio construction can work well in this context, where someone draws upon cash and fixed-income holdings early on. Alternatively, an immediate annuity might be a fit.”

How Is Social Security Calculated?

There are a few key numbers that are used to determine your Social Security benefit.

The core thing to understand is that your monthly payout is calculated based on the average amount made during your 35 highest-earning years of wages, up to the year you turn 60.

Here’s what happens with that number:

• These wages are indexed to reflect general wage growth in the economy over time. This serves as a type of inflation adjustment using wages rather than consumer prices, and the resulting number is your average indexed monthly earnings, or AIME.
• Your AIME is used to calculate your primary insurance amount, which is the monthly payout you would get if you claimed Social Security at your FRA. The PIA is the sum of three separate percentages in the year you turn 62, which are known as “bend points.” The bend points are adjusted each year; you can find the latest formula on the Social Security Administration’s website.

Remember that your PIA may not ultimately equal your monthly payout if you start claiming Social Security early, or if you delay receiving payments.

How Does This Work If I’m Married? Should My Spouse and I Take Social Security at the Same Time?

Miller highly encourages all married couples to coordinate their Social Security claim plans. Depending on your situation, there are a few different approaches that may make sense.

Consider a couple where one partner is 62, already retired, and has little or no savings. In this situation, Miller suggests the lower-earning spouse claim benefits first so the higher-earning spouse can delay. Then the couple would receive enough Social Security income to tide them over while they wait for the higher-earning spouse’s monthly payout to go up, ultimately increasing their lifetime benefits.

Another option is a coordinated delay strategy, which will give a married couple the best odds for greater lifetime benefits. Once again, delaying the higher-earning spouse’s Social Security claim will increase the couple’s combined benefits.

However, Miller points out two important details to consider: the gender pay gap and the risk of delaying too long.

Women typically earn less than men, but women also tend to live longer than men. So for heterosexual couples, it may make sense for a higher-earning husband to delay claiming Social Security and maximize the couple’s lifetime benefit. But should the husband die, Miller writes, “The lower earner steps up to 100% of the deceased spouse’s benefit—and any increased benefit gained from her own delay vanishes at that point.”

If your spouse is already retired and collecting benefits, you qualify for a spousal benefit. In other words, when you apply to claim your Social Security and your benefit is less than 50% of your spouse’s, the spousal benefit makes up the difference.

If your spouse dies, you don’t need to apply for survivor benefits. Your monthly benefits will be automatically changed after the Social Security Administration receives a report of the death.

Is Social Security Taxable?

This depends.

Let’s say you file a tax return as an individual. Here are the IRS rules:

• If your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxable.
• If it’s more than $34,000, up to 85% are taxable.

For joint tax returns, the rules are:

• If you and your spouse’s combined income is between $32,000 and $44,000, up to 50% of your benefits may be taxable.
• If it’s more than $44,000, up to 85% are taxable.

If you and your spouse file separate tax returns, you will most likely pay taxes on your own benefits.

Can I Still Work When Taking Social Security?

Remember, the purpose of your Social Security retirement benefits is to replace the income you lose from no longer working. As we’ve covered earlier, your monthly Social Security income increases the longer you delay.

If you choose to start collecting Social Security while you’re still working and have not yet reached your FRA, your benefit could be reduced. Let’s break down the limits for 2023:

• Under FRA: $1 will be deducted from your benefits for every $2 earned above $21,240.
• The year your reach your FRA: $1 will be deducted for every $3 earned above $56,520.

When you do reach your FRA, your benefit amount will be recalculated to give you credit for the months your benefits were reduced or withheld. For more information behind the calculations, check out the Benefits Planner on the Social Security Administration website.

If you’re at the highest-earning point of your career, you may be cutting yourself off from receiving your maximum monthly payout. Even another year or two at your highest lifetime salary could increase your average wages and thus your Social Security payment.

Is Social Security Adjusted for Inflation?

Social Security benefits have guaranteed inflation protection with the annual cost-of-living-adjustment.

Every fall, COLA is calculated by averaging the Consumer Price Index for Urban Wage Earners and Clerical Workers from the third quarter and comparing it with the previous year. For 2023, there will be an 8.7% increase, one of the most significant boosts since these automatic adjustments began in 1975. In 2021, Social Security received a 5.9% bump; the year before, it was only 1.3%.

For anyone worried they’re missing out on this adjustment because they’re delaying their claims, Benz shares this reminder: “Inflation increases are reflected in everyone’s future Social Security income, even if they haven’t yet filed for Social Security.”

Have more questions about Social Security or retirement? Visit the official Social Security Administration website.