Social Security is one of the most important benefit programs in the United States. It's also very misunderstood because its rules are confusing. And this has serious consequences, with retirees missing out on trillions of dollars in potential benefits

Whether you're decades away from claiming Social Security or are thinking about starting benefits ASAP, you owe it to yourself to learn the basics. Below, you can find answers to five of the most common questions about how the program works. 

Senior woman sitting on couch looking at check with calculator.

Image source: Getty Images.

1. How are your benefits determined?

The Social Security Administration (SSA) uses a formula to determine your benefits that is calculated using a percentage of inflation-adjusted average monthly wages in the 35 years when you earned the most. This is always the time period used, so those without a 35-year work history have years with $0 wages included in their average. 

The average wage used to determine your benefits is called your Average Indexed Monthly Earnings (AIME), and you'll receive:

  • 90% of AIME up to a specific income threshold called a "bend point."
  • 32% of AIME between the first bend point and a second one. 
  • 15% of AIME above the second bend point.

The bend points change from year to year, and the SSA considers the ones in effect in the year you turn 62 to determine your benefits. If you're turning 62 this year, the bend points for 2020 are $960 for the first one and $5,785 for the second. So if your average indexed monthly earnings were $6,000, you'd receive:

  • 90% of $960 or $864
  • 32% of the amount between $960 and $5,785 or $1,544
  • 15% of the amount above, which is $6,000 (your earnings)-$5785 (the 2nd bend point) and equals $32.25 

Your monthly benefits would be $2,440. 

2. When should you claim your benefits?

You'll get your standard benefit if you claim it at your full retirement age, which is based on your birth year. If you claim even a month early, you're subject to monthly early filing penalties resulting in as much as a 6.7% annual reduction in benefits for each of the first three years and an additional 5% for each year before then. Those who wait past FRA, however, earn a delayed retirement credit each month until age 70. These raise the size of your check by up to 8% annually.

The table below shows your FRA. Whether you claim before or after it is your choice. Some people, especially those in poor health, would do better to claim early because they may not live long enough for higher checks received late in life to make up for years of forgone benefits. Others who outlive their projected life expectancy end up with higher lifetime benefits by delaying. 

Year of Birth

Full Retirement Age




66 and 2 months


66 and 4 months


66 and 6 months


66 and 8 months


66 and 10 months

1960 and beyond


Table source: Social Security Administration.

3. When does it make sense to claim on a spouse's work record?

If you're married (or divorced after a marriage of at least 10 years), you can claim spousal benefits on your spouse's work record instead of your own work history. But you can't also get your own benefits at the same time. 

You can claim spousal benefits only after your spouse claims benefits (unless you've been divorced for at least two years). If you've been divorced for at least two years, you can claim as soon as your ex is 62, regardless of whether he or she has claimed yet, and your benefits will be based on the amount your spouse is entitled to at full retirement age. Regardless of whether you're married or divorced, you can get up to 50% of your spouse's full benefit at FRA as long as you wait for your own full retirement age to file for benefits. 

If half your spouse's benefit is higher than your own, it makes sense to claim spousal benefits. However, one common Social Security claiming strategy is for lower-earning spouses to claim their own benefits first while the higher earner delays claiming as long as possible to maximize monthly income. 

Always coordinate with your spouse, and consider getting professional financial advice if you aren't sure of the best approach. 

4. How does working affect your benefits?

If you've already reached full retirement age, you can work as much as you want and your Social Security benefits won't be affected. But if you're under FRA, you could forfeit some of your benefit if you earn too much. 

For 2020, you'll have $1 in benefits withheld for every $2 you earn above $18,240 if you won't hit FRA at any point during this year. If you'll hit your FRA this year, you can earn as much as $48,600 without losing any of your benefits, after which you'll have $1 in benefits withheld for every $3. 

The withheld benefits aren't lost forever. The amount of your monthly check will be recalculated at FRA to account for them, and you'll get a higher benefit because of it. 

5. Will your benefits be taxed? 

As many as 50% of retirees pay federal tax on their benefits. Some seniors who live in the states that tax Social Security also see a portion of their money go to their state government.

But you owe tax on benefits only if your countable income is above a certain threshold, with countable income defined as including half your Social Security benefits, all taxable income, and some non-taxable income. You'll be taxed on up to 50% of your benefits if you're a single filer with countable income between $25,000 and $34,000 and up to 85% of benefits with income above that level. And for joint filers, you'll be taxed on up to 50% of benefits with countable income between $32,000 and $44,000 and up to 85% of benefits once your income goes above that. 

As you can see, tax rules, rules for working while getting benefits, and the process of determining the size of your checks are all complicated. But with these answers to key Social Security questions, you're much better informed.