Social Security
Benefits
The Social Security program, the largest federal program in the United States, serves nearly 72 million people today, with a budget of $1.5 trillion …
The program accounts for over 20% of all federal spending and is divided into five different types of benefits, each with its own criteria, qualifications, and payout amounts.
We cover these five types of Social Security benefits providing a comprehensive understanding to ensure beneficiaries receive the maximum benefits possible, while meeting their retirement goals.
1. Retirement Benefits
Retirement benefits constitute about 85% of all Social Security beneficiaries. To qualify, individuals must have worked at least 10 years (40 quarters) and paid into the Social Security tax system. The full retirement age (FRA) varies based on the year of birth, with specific adjustments made for those born after 1954.
- The monthly benefit amount is calculated based on the top 35 years of indexed earnings, divided by 420 months to determine the average indexed monthly earnings (AIME).
- This AIME is then applied to bend points to calculate the primary insurance amount (PIA), which is the monthly benefit received at FRA.
2. Spousal Benefits
Spousal benefits are available to the spouse of a worker who qualifies for Social Security. To be eligible, the spouse must be at least 62 years old and have been married to the worker for at least one year.
- The worker must also be receiving Social Security benefits.
- The maximum spousal benefit is 50% of the worker’s PIA, but if the spouse’s own retirement benefit is higher, they will receive that amount instead.
3. Ex-Spousal Benefits
Ex-spousal benefits are available to individuals who were married for at least 10 years and have been divorced for at least two years.
- The ex-spouse must not have remarried before age 60 (or at any age if the subsequent marriage has ended). If the ex-spouse’s own retirement benefit is higher, they will receive that amount instead.
- The maximum ex-spousal benefit is 50% of the worker’s PIA.
4. Survivor Benefits
Survivor benefits, also known as widow or widower benefits, are available to individuals whose spouse or ex-spouse has passed away. The survivor is able to claim these benefits while allowing their own retirement benefits to grow until age 70.
- To qualify, the survivor must be at least 60 years old (or any age if caring for a child under 16 or disabled). The deceased must have worked long enough under Social Security, typically 10 years (40 quarters).
5. Disability Benefits
Disability benefits are available to individuals who are unable to work due to a medical condition expected to last at least one year or result in death.
To qualify, individuals must have worked in jobs covered by Social Security and meet the Social Security Administration’s (SSA) strict definition of disability.
This definition includes the inability to perform substantial gainful activity (SGA), the inability to perform previous work, and the condition’s expected duration of at least one year or resulting in death.
Disability determination involves a five-step process:
- Are you working? If earning more than $1,550 per month, you generally do not qualify.
- Is your condition severe? The condition must significantly limit your ability to perform basic work activities.
- Is your condition on the SSA’s list of disabling conditions? If so, you may qualify.
- Can you perform the work you did previously? If not, you may qualify.
- Can you perform any other type of work? If not, you may qualify.
Two important rules apply to the first four types of benefits Reduction for early benefits and an Earnings test. We will address both below
By navigating the complexities of Social Security, beneficiaries can ensure they receive the full range of benefits to which they are entitled.
Understanding how SS benefits are calculated
1. Calculating Social Security Benefits
Social Security benefits are determined by a specific formula that considers the top 35 years of indexed earnings. The process involves:
- Indexing Earnings: Social Security adjusts past earnings for inflation to determine the total indexed earnings over 35 years.
- Calculating Average Indexed Monthly Earnings (AIME): The total indexed earnings are divided by 420 months (35 years) to find the AIME.
- Applying Bend Points: The AIME is then applied to bend points to calculate the Primary Insurance Amount (PIA), which is the monthly benefit received at FRA.
Example:
- Total indexed earnings over 35 years: $2,000,000
- AIME: $2,000,000 / 420 = $4,761.90
- Bend Points for 2023:
- 90% of the first $1,115
- 32% of the amount between $1,116 and $6,721
- 15% of the amount over $6,721
For an AIME of $4,761.90:
- 90% of $1,115 = $1,003.50
- 32% of $3,646.90 ($4,761.90 – $1,115) = $1,166.21
- Total PIA = $1,003.50 + $1,166.21 = $2,169.71 … This number represents the amount you would be paid monthly at your full retirement age (FRA)
2. Determining Full Retirement Age (FRA)
FRA varies depending on the year of birth and determines when one can receive full Social Security benefits without any reduction. The FRA for those born between 1943 and 1954 is 66 years. For those born after 1954, two months are added for each year until it reaches 67 years for those born in 1960 or later.
Example:
- Born on September 5, 1958
- FRA = 66 years and 8 months
- Turns 66 on September 5, 2024
- FRA reached on May 1, 2025 (66 years and 8 months)
Deciding whether to take your payment before your FRA is reached is critically important.
The Table Below Illustrates 2023 and 2024 numbers based on maximum earnings indexed for inflation …
| Benefit | 2023 | 2024 |
|---|---|---|
| Maximum at 62 | $2,572 | $2,710 |
| Maximum at 67 (FRA) | $3,627 | $3,823 |
| Maximum at 70 | $4,555 | $4,873 |
The differences between taking early or waiting are significant. However, other variables must be considered as well, including whether you are still working, the budget you living on and possible changes to the system.
Next we will take a look at the calculations for earnings penalties when SS is taken early.
3. Earnings Test for Working Beneficiaries
If beneficiaries choose to work while receiving Social Security benefits before reaching FRA, their benefits may be reduced based on their earnings. The earnings test applies only to working wages and not to other forms of income like pensions or investments.
- Low Earnings Test: For 2024, the limit is $22,320. For every $2 earned above this limit, $1 is withheld from Social Security benefits.
- High Earnings Test: In the year the beneficiary reaches FRA, for 2024 the limit is $59,520. For every $3 earned above this limit, $1 is withheld from benefits.
Example:
- Born on September 5, 1958, and working while receiving benefits
- Before FRA (up to December 2024): Limit of $21,240
- Earnings: $25,240 (exceeds limit by $4,000)
- Reduction: $4,000 / 2 = $2,000 withheld from benefits
In the year of reaching FRA (January to April 2025):
- Higher limit of $59,520
- Earnings: $60,520 (exceeds limit by $4,000)
- Reduction: $4,000 / 3 = $1,333.33 withheld from benefits
Once the beneficiary reaches FRA, there is no earnings test, and they can earn any amount without a reduction in Social Security benefits.
Understanding the calculation of Social Security benefits, determining the full retirement age, and navigating the earnings test are essential for maximizing Social Security income.
By being informed about these factors, individuals can make strategic decisions about when to start benefits and how to manage working wages to optimize their Social Security income.
For an in depth review of your own situation schedule a one-hour consultation with a Legacy RP specialist today …
