Nearly 67 million Americans depend on Social Security, a program that provides crucial financial support to a variety of beneficiaries although the majority of these recipients are retirees, along with their spouses, dependents, and surviving family members. On average, Social Security beneficiaries receive about $1,762 per month. However, the amount one can receive varies significantly depending on when they choose to start claiming benefits and their work history.
For those reaching full retirement age (FRA) in 2023, the maximum monthly benefit was $3,627. However, if a person opted to retire earlier at age 62, the most they could receive was $2,572 per month. On the other hand, delaying retirement until age 70 increased the maximum monthly benefit to $4,555. This results in a substantial difference of $1,983 per month between the lowest and highest possible payments. This disparity underscores the importance of understanding how age, among other factors, can affect one’s Social Security benefits.
The Impact of Age on Social Security Benefits
The age at which an individual claims Social Security is one of the most significant factors influencing the size of their monthly payment. While it is possible to begin collecting benefits as early as age 62, doing so comes with a cost. The Social Security Administration (SSA) reduces benefits for those who claim before reaching their full retirement age (FRA), which is 67 for anyone born in 1960 or later.
Specifically, the SSA reduces the monthly benefit by 5/9 of 1% for each month a person claims before reaching their FRA, up to 36 months. If someone claims even earlier, the reduction increases to 5/12 of 1% for each additional month. Over time, this reduction adds up. For example, if someone with a FRA of 67 decides to claim benefits at 62, they would receive 30% less than they would have at FRA. A monthly benefit of $1,000 at FRA would be reduced to just $700 if claimed at age 62.
On the other hand, delaying the start of benefits past FRA can increase the monthly payment. For each month a person waits beyond their FRA, their benefit grows by 2/3 of 1%. This increase amounts to about 8% per year, up until age 70. For instance, a monthly benefit of $1,000 at FRA could grow to $1,240 if the person waits until age 70 to claim.
The Role of Work and Income History
Eligibility for Social Security benefits requires earning enough work credits, with 40 credits being the minimum. Individuals can accumulate up to four credits per year, meaning they must work at least 10 years to qualify for benefits and the income threshold required to earn a credit changes annually, and in 2023, it is set at $1,640 per credit, or $6,560 annually.
The SSA calculates benefits based on an individual’s highest-earning 35 years of work. If a person worked fewer than 35 years, each year without earnings counts as zero, which reduces the overall benefit. This makes it crucial to have a steady work history with sufficient earnings to maximize the benefit amount.
Pensions and Government Employees
For individuals who receive a government pension, Social Security benefits may be affected by a different formula. The SSA adjusts or “indexes” income based on average wage growth over a person’s career, but those who receive government pensions might see their benefits calculated differently. This is due to the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO), which can result in reduced benefits for those who qualify for both a pension and Social Security.
Working While Claiming Early Benefits
It is possible to continue working while receiving Social Security benefits, but there are earnings limits for those who claim before reaching their FRA. In 2023, the annual earnings limit was $21,240. If a beneficiary earned more than this amount, the SSA deducted $1 from their benefit for every $2 earned over the limit. However, in the year a person reaches FRA, the earnings limit increased to $56,520, with a smaller deduction of $1 for every $3 earned over the threshold. Once a person reaches their FRA, there are no longer any reductions in benefits, regardless of earnings.
Medicare Premiums for High Earners
High-income individuals may face higher costs for Medicare Part B and prescription drug coverage, which can affect the net Social Security benefit they receive. For 2023, the income thresholds that triggered these additional premiums was $97,000 for individuals and $194,000 for married couples filing jointly. When income exceeded these thresholds, the Medicare premium increased, and the SSA deducted the extra cost from the monthly Social Security payment.
Garnishments and Levies on Benefits
Social Security benefits can be reduced to satisfy certain debts. For instance, the IRS can levy up to 15% of monthly payments to cover overdue federal taxes. Similarly, benefits can be garnished for unpaid child support, alimony, or restitution. The Department of the Treasury can also withhold a portion of benefits to repay other government debts, such as defaulted federal student loans. However, Supplemental Security Income (SSI) benefits are protected from garnishment, and private creditors cannot seize Social Security benefits to cover debts such as credit card bills or medical expenses.