Gen X -- generally defined as those born between 1965 and 1980 -- are next in line for Social Security, as its eldest members are just two years away from being eligible for retirement benefits. If you're among them, you're probably excited about finally getting some money back after paying a hefty chunk of your income into the program for decades.
You probably also want to get as much money as you can from the program so you can enjoy a comfortable retirement. One of the best ways to make that happen is to become familiar with the program's fundamentals, like the four listed below.
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1. How your work history affects your benefits
Your income during your working years and your Social Security benefit in retirement are tied together. But it's a bit of an oversimplification to say that the more money earned during your career will always translate to a larger retirement benefit once you stop working.
The Social Security Administration looks at the amount you paid in Social Security payroll taxes during your 35 highest-earning years, adjusted for inflation. (The amount of income on which you paid Social Security payroll taxes isn't always the same as your income for that year.)
In 2025, you'll only pay these payroll taxes on the first $176,100 you make. Earning more than the annual cap doesn't help your future benefits because you won't pay Social Security taxes on this extra money.
The 35-year requirement is also significant. If you sign up before you've spent 35 years in the workforce, the Social Security Administration will add zero-income years to your benefit calculation, which will generally reduce your checks. On the other hand, if you work longer than 35 years before signing up, some of your higher-earning years will replace your lowest-earning years in your benefit calculation, giving you larger checks.
2. How your claiming age affects your benefits
You become eligible for Social Security benefits at age 62, but you must wait until your full retirement age (FRA) to apply if you want the full benefit you've earned, based on your work history. FRA for all Gen Xers is 67. This is higher than the FRA for many baby boomers and previous generations as it reflects increased life expectancies.
Claiming before you reach your FRA is possible but will reduce your checks. You'll lose 5/9 of 1% per month (6.67% per year) for up to 36 months of early claiming, then 5/12 of 1% per month (5% per year) thereafter. Signing up immediately at 62 will reduce your checks by 30%. That reduction is generally permanent and can result in a smaller lifetime benefit.
On the other hand, you can delay Social Security benefits past your FRA, and they'll grow by 2/3 of 1% per month (8% per year) until you qualify for your maximum benefit at 70. This is 124% of your full benefit per check. However, to pull this off, you'll need to cover your retirement costs on your own until 70. It also may not make sense if you have a short life expectancy.
3. How spousal benefits work
Married Gen Xers may be eligible for spousal Social Security benefits, as well as their own retirement benefits. You'll qualify for a spousal benefit on your partner's work record if they're eligible for a retirement benefit. However, just because you qualify for a spousal benefit doesn't mean you'll receive it.
The government automatically gives you the larger of your own retirement benefit or your spousal benefit, which is up to one-half of what your partner will qualify for at their FRA. Early claiming penalties exist for spousal benefits, too. You'll lose 25/36 of 1% per month (8.33% per year) for up to 36 months of early claiming, then 5/12 of 1% per month thereafter. There's no benefit for delaying spousal benefits past your FRA.
You generally can't apply for spousal benefits until your partner has signed up, but there's an exception for divorced couples. You can still qualify for spousal benefits on your ex-spouse's work record if you were married for at least 10 years before divorcing. And if you've been divorced for at least two years, you can apply for benefits, even if your ex-spouse hasn't yet.
4. Changes are coming
Social Security is currently facing a funding crisis that, in the worst-case scenario, could result in benefit cuts of up to 17% in 2035. This issue has been on Congress' radar for a while, and the government will likely take steps to increase the program's funding before significant benefit cuts are necessary.
However, no one knows what that fix might look like. That makes it difficult to know exactly how far your Social Security checks will go in the future.
This is something to keep an eye on as you inch closer to the 2035 deadline. When Congress announces a plan to reform Social Security, it'll be time to revisit your budget and rethink how your benefits will fit into that during retirement.
