Social Security: The Retired Worker Benefit, Simplified

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.

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.

Read/Post Comments (6) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 31, 2014, at 10:09 AM, SLTom992 wrote:

    Why is an insurance policy you spend your whole life paying for being called a "benefit"?

  • Report this Comment On August 31, 2014, at 11:03 AM, greyhound44 wrote:

    I retired 31 Aug 2003 at age 58 3/4 after having paid 35 + years for MAXIMUM SS portion of FICA.

    Took Maximum SS Retirement Benefits (reduced for age) at 62 - $150,059.70 - tax free as of 12 Aug.

    I live at 6600 feet and do don't look like these idiots.

    expatriate (11 years in Conde Nast's 2013 "World's Best City") MD: NBME; ABIM; ABNM; ABR w/spec comp NR

  • Report this Comment On August 31, 2014, at 5:19 PM, danbhart wrote:

    The greatest national Ponzi scheme in American history. I worked there so don't say I don't know. You get so much more than you ever contributed you really have NO RIGHT to ever say "I earned this!" Believe me, you DIDN'T. You use up what you paid in within the first 2-4 years and after that it's ALL ONE BIG FREE RIDE. The difference between YOU and the welfare suckers is that they're in for the free ride FROM THE START and have been taking the freebie probably all or most of their lives. So NO, you aren't merely 2-4 years removed from being as bad as them but, in the end, this nation of takers is going to wake up one morning and find out the golden goose died during the night and not even China is taking our I.O.U.s anymore. It's coming. The free ride ends.

  • Report this Comment On September 01, 2014, at 10:24 AM, pepawjoe wrote:

    I was "FORCED TO RETIRE" by Medical Issues in 2002.

    Unfortunate for me, prior Medical Problems reduced my annual incomes each year due primarily to my physical conditions, and my Social Security was based on my much lesser annual income for these reasons.

    Though what I do receive is Most Helpful, what the Military Trained and gave experience to, is "TOO MUCH" for Medical Services by the Dept of Veterans Benefit Programs. Even after 6 years, 7 months and 20 days of Active Services during the Viet Nam Era. GO FIGURE !

  • Report this Comment On September 01, 2014, at 2:20 PM, clchapman wrote:


    Hopefully youi see this and will come back and explain your post a little more

    If you qualify for SSD then you qualify for Vet benefits and maybe even more so than SS

  • Report this Comment On September 01, 2014, at 2:57 PM, SkepikI wrote:

    <You get so much more than you ever contributed you really have NO RIGHT to ever say "I earned this!" Believe me, you DIDN'T. You use up what you paid in within the first 2-4 years and after that it's ALL ONE BIG FREE RIDE.>

    Yes no doubt the way elected and hired government riders look at it. ON THE OTHER HAND, if you look at your contribution record and add up your contributions and your employers (if you own a small company or are self employed these come out of your own hide...not some benfactor in the sky) You will be STUNNED at your total level of contributions or taxes or extortion over even 20 years let alone 35. AND if you run a spredsheet on each years payment with some really modest return say 7% instead of the pitiful 2% the government "earns" (sort of) on it, you will be mortified.

    I did this and I recommend all of you out there do so if you are older than say 35. Just go on to SS website and get your full report and print it out, plug it into excel and calculate what you would have had by investing it yourself.... Mine totaled up to $750,000.00 from contributions exceeding $100,000 over 50 years (yes, my first contribution went in at 12). If I had control over my own SS money, I could have retired comfortably at about 50, or gone off and done things that pay pitifully but I like doing (which is what I am doing now just 12 years later). And Ive done a lot better than 7% average investing over those years, so maybe sooner...

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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

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