Social Security: The Retired Worker Benefit, Simplified

Social Security isn't the easiest program to understand -- but we're going to change that today by simplifying the retired worker benefit for everyone.

Aug 31, 2014 at 9:00AM

Source: Wonderlane via Flickr.

Social Security, the program designed to prevent financial hardship by supplying qualified individuals with monthly income, may seem like an easy concept on paper, but the details of who receives Social Security benefits and where those dollars go isn't as cut-and-dried as you might think.

This year alone, more than 59 million Americans will receive nearly $863 billion combined in Social Security benefits. And while it's an important source of income for the elderly, accounting for 38% of their total annual income, Social Security isn't solely intended to support retirees.

If you're scratching your head and wondering where Social Security dollars eventually wind up and whether or not you qualify, let's take a closer look, beginning today and extending over the next couple of weeks, at the three different types of Social Security benefits.

First up, we'll examine the most common type of Social Security distribution: retired worker benefits.

Retired worker benefits: How do I qualify?
The retired worker benefit accounts for the lion's share of Social Security distributions, with close to three-quarters of the aforementioned $863 billion headed to this category.


In order to qualify for benefits, workers need to have "earned" at least 40 credits over their lifetime. That may sound like a lot, but a single credit only equates to $1,200 in earnings as of 2014, and a worker can earn up to four credits per year.

In English, this means that if a worker earns $4,800 at their job throughout 2014, they've netted four Social Security credits. After 10 years of meeting this minimum earnings requirement, a worker will qualify for at least some benefits upon hitting the minimum age at which they can claim benefits.

However, to be clear, that doesn't mean a person should aim to work for 10 years and then simply put their feet up. Your eventual Social Security distribution is based on the average of your 35 highest years of pay. For each year shy of 35 that you don't work, the Social Security Administration averages in zeroes! Put simply, it's in your best interest to work at least 35 years in order to maximize your eventual Social Security benefit check.


Source: TheeErin via Flickr.

When do I qualify?
Retired workers are eligible to begin taking Social Security distributions as early as age 62, as late as age 70, and anywhere in between. Generally speaking, the longer retirees wait to claim their benefits, the higher their payout will be.

According to Bankrate, waiting until you're 70 to take benefits will result in a monthly payment that's 76% higher than what you would have received by opting to take your distribution at age 62. But everyone's financial situation is unique, and waiting will only make sense for those who have the financial resources to handle their expenses without the need for Social Security income until age 70.

Where you live can also make a difference, as some states tax Social Security income. Your marital status matters, too.

Can anyone else qualify for Social Security benefits based on my income?
Retired workers aren't the only ones who can qualify for the retired worker benefit.

Old Couple

Source: Eric Chan via Flickr.

In addition to the worker, spouses of retired workers can also claim Social Security benefits. In order to qualify, a spouse needs to be the primary caretaker of a child under the age of 16, have a disabled child in his or her care, or be at least 62 years old, at which point he or she can begin taking benefits at a reduced rate.

Ex-spouses can also collect Social Security income based on their former spouse's earnings. In order to qualify, the marriage must have lasted at least 10 years; the ex-spouse must still be unmarried; he or she needs to be at least 62 years of age; the divorce must have been finalized at least two years prior; and the ex-spouse's own Social Security benefits must be less than they would receive by using their former spouse's earnings. If these five criteria are met, then an ex-spouse can claim benefits based on the earnings history of their ex-husband or ex-wife.

Both spouses and ex-spouses can receive up to half as much as their current or former partners get in Social Security benefits. Note that this does not affect the benefit that the primary recipient gets. Furthermore, a spouse or ex-spouse does not need to have worked at all under the Social Security platform in order to qualify for benefits so long as they're at least 62 years of age and meet the aforementioned criteria. 

And we're still not done.

Your kids can qualify, too
On top of retired workers' benefits and potentially claimable benefits for a workers' current or former spouse, children of retired workers are also able to receive Social Security distributions based on a set of predetermined criteria.

According to the Social Security Administration's guidelines, unmarried children who are under the age of 18; still in elementary, middle, or high school and under the age of 19; or considered to be disabled adults under the age of 22 are eligible to receive Social Security income based on your earnings so long as you've reached the minimum retirement age.

Now, here's the best part: Your qualifying children can receive up to half of your Social Security benefit without decreasing your own benefits! With their benefits included, this is one scenario where taking your Social Security distribution earlier rather than later may wind up being more beneficial.

Combined, benefits received by your family (you, your spouse, and your children) generally max out at 150% to 180% of your full retirement benefit. 

Here are more ways you can get even more income during retirement
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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