Here are the essential things you need to know about Social Security, so that you can maximize your retirement benefits and enjoy as much retirement income from the Social Security Administration (SSA) as possible.

You've been contributing to the program through a payroll tax for many years, and beginning at age 62, you can start to receive Social Security benefits. But -- you may want to wait. Keep reading to find out why -- and you'll glean additional critical information, too, in this comprehensive guide.

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What is Social Security?

When the stock market crashed in 1929, unemployment in America was in the low single digits. It was not a problem. It soon became one, though, soaring to nearly 16% by the end of 1931 and approaching 25% by 1933. Among the many people desperately seeking jobs were older Americans who could not afford to retire. Fortunately, Social Security was around the corner. President Franklin Roosevelt signed the program into law in 1935.

Today, approaching its 85th birthday, Social Security is still going strong. It's now distributing more than a trillion dollars in retirement, disability, and survivor benefits to about 64 million people annually, providing about a third of their retirement income and keeping many of them out of poverty. The program is designed to provide about 40% of pre-retirement income to those who collected average earnings during their working lives. But fully 21% of married elderly Social Security beneficiaries and 45% of unmarried ones now get a whopping 90% or more of their income from Social Security.

Some view Social Security as a government handout, but it's not. Remember that all the retirement benefits paid out are based on worker earnings and on taxes paid into the system. Take a look at your own paycheck, and you'll likely see that "FICA" taxes have been withheld. Most of us fork over 6.2% of our pay for Social Security taxes -- and you may not realize it, but employers chip in another 6.2%. The total tax is actually 14.4% of our pay. (Sadly, self-employed people have to contribute the whole 14.4% themselves, as they're their own employer.)

Your Social Security number and card

When Social Security numbers were introduced, they were simply for use in regard to your Social Security benefits. They've now become de facto national identity numbers, used in a wide variety of contexts.

If you've wondered what the numbers represent, the first three digits are the "Area Number," which originally referred to the location of the Social Security office where the number was issued. Since 1972, it's tied instead to the zip code of the applicant's mailing address, with lower numbers based in the Northeast and East and higher numbers in the West. (People move around a lot these days, though, so the numbers don't really reveal much anymore.) The next two digits are the administrative "Group Number," apparently with little meaning -- though they do follow a certain scheme. The last four digits are the "Serial Number," running from 0001 to 9999 before starting over again.

Many of us got our Social Security numbers and cards when we were children, and you can apply for them for your own children, too. Keep your card in a safe place -- ideally, not your wallet.

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Social Security retirement benefits -- do you qualify?

If you're wondering whether you've worked enough to qualify for Social Security benefits, the answer is probably yes -- because it's fairly easy to qualify for at least some Social Security income. You need to accumulate 40 credits, which takes most people about a decade to do, because you collect a credit by earning a minimum amount over the course of a year, and you can collect up to four credits per year. That minimum amount is adjusted over time, and for 2020, it's $1,410. Earning at least that much per quarter (that's $5,640 over a year) would get you four credits.

You may also qualify for spousal benefits, based on your spouse's (or ex-spouse's) earnings, even if you've not collected those 40 credits.

Your "full retirement age" -- and how it affects your benefits

A key detail to know as you plan for your Social Security retirement income is your "full retirement age." That's the age at which you can start collecting the full benefits you've earned based on your work history. The full retirement age for everyone used to be 65, but it has been changed over time so that your full retirement age is based on when you were born. Consult the table below to see what yours is:

Birth Year

Full Retirement Age

1937 or earlier

65

1938

65 and 2 months

1939

65 and 4 months

1940

65 and 6 months

1941

65 and 8 months

1942

65 and 10 months

1943-1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960 and later

67

Source: Social Security Administration. 

For most of us these days, our full retirement age is 66, 67, or somewhere in between. But that's not the only age at which you can start collecting benefits. You can actually claim your benefits as early as age 62 and as late as age 70. Your checks will be smaller if you claim early -- and bigger if you claim late. The following table shows just how much bigger or smaller:

Start Collecting at:

Full Retirement Age of 66 

Full Retirement Age of 67 

62

75%

70%

63

80%

75%

64

86.7%

80%

65

93.3%

86.7%

66

100%

93.3%

67

108%

100%

68

116%

108%

69

124%

116%

70

132%

124%

Source: Social Security Administration. 

So if your full retirement age is 67 and you start collecting at age 62 (as many people do), you'll receive about 70% of your full benefit checks. If you delay until age 70, you'll get checks that are 24% bigger -- enough to turn a $2,000 check into a $2,480 one. It can certainly seem like waiting is the smartest move -- and it can be, as there are some compelling reasons to do so -- but know that the system is designed to pay you about the same amount, in total, no matter when you start collecting, if you live an average-length life. After all, starting early means you'll get smaller checks -- but you'll get many more of them.

Social Security retirement benefits -- what to expect

Now let's consider just how much you can expect to receive in retirement from Social Security. Knowing that can help you figure out how much you need to save for retirement, in order to generate additional needed income.

Recently, the average monthly retirement benefit check was $1,478, or about $17,700 annually. That's not a lot, but it can still make a big difference in retirement. You'll collect even more, if your earnings were above average. For example, those who retired in 2019 at their full retirement age got a maximum monthly benefit of $2,861 per month -- or $34,332 for the whole year. For those who waited until age 70 to start collecting benefits, the monthly maximum was $3,770, or $45,240 annually, while those who started at age 62 would have received a maximum of $2,209 per month, or $26,508 for the year.

But how much will you receive from Social Security? Well, you can't know too precisely until you're at or near the end of your working life. Until then, your future earnings aren't crystal clear. But the Social Security Administration is ready to offer you its estimate of your future earnings at any time. Just set up a "my Social Security" account in order to see the estimates, along with the SSA's records of your earnings. (If you spot any errors in its records, look into getting them fixed.)

With a "my Social Security" account, you can also change your address, check the status of your application for benefits, request a replacement Medicare or Social Security card (if you meet certain criteria), start or change the direct depositing of your benefit payments, and get a replacement SSA-1099 or SSA-1042S form for tax purposes -- among other things.

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How to increase your Social Security retirement benefits

Here's some good news: You can increase your Social Security retirement benefits. Above you saw how controlling when you start collecting your benefits can make them bigger or smaller, but there are other ways to beef up your benefits, too, such as:

  • Work at least 35 years. The formula that determines your benefits is based on averaging your incomes (adjusted for inflation) from the 35 years in which you earned the most. So if you've only worked for 28 years, the formula will be incorporating seven zeroes, which will clearly leave your benefits smaller than they otherwise might have been.
  • Earn a lot. If you've worked for those 35 years and are now earning more (on an inflation-adjusted basis) than you have in the past, consider working for a few more years. If you do, each additional high-earning year will kick out a low-earning one, raising your average earnings and boosting your benefits.

Social Security strategies

A little strategizing can also boost your benefits. For starters, crunch some numbers, think it through, and come up with a plan as to when you'll start collecting your benefits. For example, you might try to delay starting to collect your benefits until age 70, and in order to be able to pull that off, you could plan to draw more from an IRA and/or 401(k) account for a few years.

Don't just aim for age 70 automatically, though. After all, many people live shorter-than-average lives, and if your health or family tree suggests you might, too, it could make plenty of sense to collect early and start enjoying retirement as soon as you can -- as long as you won't be in danger of running out of money if you live longer than expected.

If you're married, you can coordinate with your spouse to maximize benefits. One good plan for two-income households where the incomes are fairly different is to have the lower-earner start collecting first, so that the couple gets some Social Security income. While doing so, delay starting to collect the higher-earner's benefit, so that it can grow bigger. Then, when he or she hits 70 (or whenever it's simply necessary), start those benefits flowing, too. The couple will then enjoy two income streams, and when one dies, the survivor will get to claim the maximized benefit as their own -- and that benefit is likely to be significantly larger than either of the two, if they'd both been claimed early.

How to apply for Social Security benefits

Some government forms, such as tax forms, can be complicated and intimidating. Not so with Social Security. Applying for your benefits is relatively straightforward. Aim to apply a few months before you want your benefits to start flowing -- around age 61 and 9 months, for example, if you want to start at age 62.

There are three ways to apply:

Applying online reportedly often takes only 15 minutes and may be the most convenient option. (Be sure you're doing so over a secure network, such your private one at home. Using public wi-fi can be risky, especially when dealing with finances and personal information.)

In the online application process, you'll be asked some questions, such as ones related to your work, your family, and yourself. You don't have to complete the application in one sitting; you can pause and save it and return to it at another time. You can even make changes to some information you entered earlier, as long as you haven't finished and submitted the application.

To finish, you'll "sign" the application electronically, by clicking a button, and you'll get a confirmation number. Keep that number, as you can use it later to check on the status of your application via your "my Social Security" account.

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Social Security disability benefits

This article is focused on retirement benefits from Social Security, but it's good to know that there are also Social Security disability benefits available for those who need and qualify for them, via two programs:

  • The Supplemental Security Income (SSI) program offers benefits to elderly (aged 65 and up), blind, or disabled adults -- and to disabled or blind children, too -- who have sufficiently little in the way of income and assets. You can collect SSI income while also receiving regular Social Security retirement benefits or SSDI benefits.
  • The Social Security Disability Insurance (SSDI) program offers benefits to disabled people who have worked enough to qualify as "insured." You'll generally need to have worked for 10 years, but younger folks can still qualify. Some family members of qualifying disabled people may be able to receive benefits, as well.

Note that the SSA considers you disabled if you have a medical condition that keeps you from working and that's long-term, expected to last at least a year -- or to lead to death. It's not a low bar.

Social Security survivor benefits

Social Security also pays survivor benefits to qualifying spouses and children of workers who die -- and even, in some cases, to parents of deceased workers.

To start the process of claiming such benefits, you'll need to let the Social Security Administration know of the death, and that's often done routinely by funeral homes, if they're given the deceased's Social Security number. You can also call the SSA yourself, or visit your local branch. You'll need your Social Security number and that of the deceased, and you'll likely need to be able to provide his or her death certificate, as well -- and perhaps even his or her birth certificate.

Social Security and taxes

You may not like to learn this, but while Social Security benefits are often not taxed, they could be. Taxation of Social Security benefits is likely to happen only if your "combined income" (defined as your annual non-Social Security retirement income plus half of your Social Security benefits) exceed a certain amount. You'll never have more than 85% of your benefits taxed, if that's any consolation. Here are the details:

Percentage of Your Benefits

Subject to Tax

Combined Income

for Individuals

Combined Income

for Those Married and Filing

Jointly

0%

Less than $25,000 per year

Less than $32,000 per year

Up to 50%

$25,000 to $34,000 per year

$32,000 to $44,000 per year

Up to 85%

More than $34,000

More than $44,000

Source: Social Security Administration.

Your state may levy some taxes on your benefits, too. Most states don't do so (37 last time we checked), but Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia do. Each has its own rules, though, and even in many of these taxing states, you may end up paying no taxes on your benefits.

The Social Security trust funds

Let's end with a look at the solvency of the Social Security program, because the media often portrays it as at death's door. It's true that the program is facing challenges -- because the ratio of contributing (taxed) workers to retired beneficiaries has been falling over time.

Still, Social Security has been running a surplus for many years, taking in more than it pays out, though it looks like it will break even around this year, 2020, and at some point will start running a deficit. That doesn't mean the program will be broke -- it just means that it will start relying more on incoming interest payments to cover the deficit. Social Security funds are likely to see their reserves run dry around 2034, according to one government estimate -- but only if no changes are made. If so, Social Security benefit checks will shrink by around 23%. That's pretty terrible, but collecting 77% of what you expected is still far better than collecting 0%.

The good news is that it's well within the power of those in Washington to fortify Social Security -- by any of several methods. For example, it's been estimated that increasing the Social Security tax rate for employers and employees from its current 6.2% to 7.2% in 2022 and 8.2% in 2052 would wipe out a hefty 77% of the trust funds' shortfall. (The tax rate was increased in 1983, by the way, in advance of many Baby Boomer retirements.)

About 71% of the shortfall might be wiped out by taxing all of each worker's income, instead of just the first $137,700. That's right -- most of us pay a Social Security tax on all our earnings, so it's easy to assume that everyone does so. In fact, though, only earnings up to $137,700 are taxed. So if, in 2020, you earn $1,137,700, an entire million dollars of your income will go untaxed.

Such moves will strengthen Social Security, to keep it in good health for longer, and they could even increase benefits overall, which would serve many struggling retirees well. But many in Congress would rather keep the program alive by reducing benefits and/or raising the retirement age. If you care about Social Security, consider reading up on it and letting your Congressional representatives know what you think.

The more you know about Social Security, the savvier decisions you'll make regarding it, and that can help you get hundreds or thousands of dollars more out of the vital program.