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Understanding the Basics of Social Security

Understanding the Basics of Social Security

February 02, 2022

Deciding when to claim your Social Security benefits can cost or save you thousands of dollars. There are many factors that go into that decision. Here's a guide to everything from knowing your full retirement age (FRA) to taking Social Security spousal benefits.

What follows are some basic points of Social Security that will help you better understand how Social Security works and what your benefits are…


How does Social Security work?

Social Security is a government program that collects taxes from working Americans and distributes these funds to eligible retired workers and their families by providing a guaranteed source of lifetime income.

What is your FRA?

FRA is your Social Security full retirement age. For people born between 1943 and 1954, full retirement age is 66. If your birthday falls between 1955 and 1959, it gradually climbs to 67. If you are born in 1960 or later, your full retirement age is 67.

It is important to know what your FRA is because that information will help you determine when you start claiming your benefit. You can claim your Social Security benefits a few years before or after your full retirement age, which will affect the amount you receive.

Who qualifies for Social Security?

Eligibility depends on how much you earned over your career and how long you worked. You must earn at least 40 "credits" throughout your career. You can earn as many as four credits each year, so it takes 10 years of work to qualify for Social Security.

What is COLA?

We all know that the cost of living tends to go up over time due to inflation and other factors. If overlooked when planning for retirement it can lead to issues getting an accurate estimate on your retirement needs. Fortunately, the government recognizes this and adjusts the benefits based on inflation. Also known as a cost-of-living adjustment, or COLA, this feature helps you keep up with increasing living expenses. For 2022, Social Security recipients will earn a significant 5.9% increase in the amount of their annual payouts. This is a big step up since the 2021 increase was a mere 1.3%.

How can you maximize your benefits?

You have the option to start collecting your early Social Security benefits as soon as you turn 62. However, taking benefits before your FRA will reduce your payments by 25% to 30%, depending on what your full retirement age is. You can wait and start collecting your benefits once your hit your FRA and receive 100% of your earned benefits. You also have the option to wait past your FRA to claim your benefits for a larger payout. If you take this option, your monthly benefit will increase by 8% a year up until age 70, including COLA!

What types of benefits are there?

There are several types of Social Security benefits: retirement benefits, disability benefits, spousal benefits, survivors benefits, and even benefits for divorcées.

What are the disability benefits?

Disability benefits are benefits for qualifying adults 18 or older who are unable to work due to a physical or mental disability that is expected to last at least 12 months or result in death. The Social Security Disability Insurance (SSDI) program is available to people who have worked long enough and paid Social Security taxes on their earnings.

What are the benefits for spouses?

A spousal benefit is a benefit worth up to 50% of the other spouse's Social Security benefit. It’s important to note that the higher-earning spouse must apply for their own benefit first. The Social Security payment to family members will not decrease the amount of your retirement benefit. However, just like regular benefits, taking the spousal benefit early will also reduce the benefit amount, to as little as 32.5% of the higher earner’s benefit. Even if you take your own benefit early and then later switch to a spousal benefit, your spousal benefit will still be reduced. 

What are the benefits for survivors?

If your spouse dies before you, you are eligible for a survivor benefit. However, that won't be in addition to your own benefit, you must choose one or the other. If you are at full retirement age, that benefit is worth 100% of what your spouse was receiving at the time of death. Eligible dependent children can also receive a survivor benefit worth up to 75% of the deceased's benefit.

Are there any benefits for divorcées?

If you’re divorced from your spouse, you can still qualify to receive a benefit based on their record instead of a benefit based on your own work record. Taking a benefit on your ex-spouse's record has no effect on their benefit or the benefit of your ex's new spouse. Depending on your FRA, you can apply to restrict your application to a spousal benefit while letting your own benefit grow.

What if you change your mind about when to claim after you’ve already started?

Fortunately, Social Security offers you the chance to undo your claim. For example, what if you claimed your benefit but regretted the decision and wished you had waited. You can withdraw your application within the first 12 months of your claim.

Are Social Security benefits taxed?

Often-times when planning for retirement, retirees don't realize that you do have to pay taxes on your Social Security benefits once you start taking them. Depending on where you live, you may also have to pay state income taxes on your benefits.


The rules for claiming Social Security benefits can be complex, but as your financial advisors, we are dedicated to helping you navigate the process.

Please CONTACT US today to schedule a consultation to discuss a Social Security claiming strategy that works best for you.