A Primer on Your Social Security Benefits

Remember the first paycheck you ever received? You were so proud of, in all likelihood, the minimal amount of money you had earned. But, then, you noticed something. Your paycheck could have been bigger. Sure, the 15-year-old version of you vaguely understood the idea of taxes, but what was the Social Security deduction? Your parents probably explained that you would eventually get that money back when you were older. Taking little solace in that thought, you cashed the paycheck and bought yourself something fun.

Flash forward many years, and now Social Security has become a real thing in your financial planning process. Whether you’re currently receiving Social Security, soon approaching retirement age, or still several years from retirement, we think it’s always useful for a little primer on Social Security.

Social Security is one of the oldest social insurance programs in the United States, enacted in 1935 during the Great Depression. Even with a few tweaks over the decades, it largely functions the same way it did in the 1930s. At its core, Social Security ensures that retired Americans receive a monthly cash benefit for life, with each person’s benefit amount based on what they contributed to Social Security taxes throughout their working lives. Sure, it’s a little more complex than that, but let’s delve into how it will affect you and your retirement planning.

When can you start receiving Social Security benefits?

You may begin as early as age 62 or as late as age 70. You may choose anytime between those two dates. Other than a few small exceptions, your decision is permanent and cannot be changed.

How much will your monthly benefit be?

First, determine your full retirement age. If you were born in 1960 or later, your full retirement age is age 67. If you were born before 1960, see the SSA table found here to find your full retirement age. Then, utilize the Retirement Estimator Calculator, found here,  to determine your estimated monthly retirement benefit if you choose to begin receiving Social Security at your full retirement age.

How does starting earlier or later affect your benefits?

Use your estimated monthly benefit at your full retirement age as a starting point. From that number, your monthly benefit will be permanently decreased or increased around 7% to 8% for each year you begin taking benefits before or after your full retirement age. For illustration, see the graph below:

*Based on Social Security Administration data. Assumes a $1,000 monthly benefit at a full retirement age of 67.









Monthly benefit








When should you begin receiving Social Security benefits?

Several factors might influence your decision. If viable to you, it would certainly make sense to delay as long as possible to receive the increased benefit. Sometimes, necessity means you take your benefits as soon as you can. Your overall health and life expectancy are factors, as well. Your “break-even age” might be between 77 and 83 years of age. In other words, the long-term upside for delaying your benefits will not be fully realized unless you live beyond a certain age. Continuing to work may also affect your decision. And, finally, if you have sources of retirement income besides Social Security (IRA, 401(k), etc.), you might be better able to delay your benefits.

What about working while receiving benefits?

Your benefits may be affected based on the following scenarios:

  • If you are under full retirement age for the entire year, you will have $1 deducted from your benefit payments for every $2 you earn above the annual limit. For 2020, that limit is $18,240.
  • In the year you reach full retirement age, you will have $1 deducted from your benefit payments for every $3 you earn above $48,600, but only on earnings before the month you reach your full retirement age.
  • Beginning with the month you reach full retirement age; your benefits are no longer affected, no matter how much you earn.

Are your benefits taxed?

Yes, you will likely pay federal income taxes on your Social Security benefits, although you will not pay state income taxes on your benefits in 37 of the 50 states, including Oregon and Washington. What is subject to federal income taxes will depend on the amount of other retirement income. Regardless of your income level, you will never pay taxes on more than 85% of your Social Security income.

Do your benefits increase with inflation?

Yes, your benefits will usually increase each year based on inflation. The Social Security Administration uses a cost-of-living adjustment (COLA), which adds to your benefit each year. The annual increase is not guaranteed, but it is very likely. Recently COLA adjustments have been very modest as inflation has remained low.

How do you begin receiving your benefits?

Remember, even if you wait until you turn 70, you will not automatically begin to receive benefits, and you will still need to apply. If you’re ready to apply, click on this link to get started https://www.ssa.gov/planners/retire/applying8.html

How and when do you receive your monthly benefits?

Social Security checks are no longer mailed. You can receive your payment through to ways:

Direct deposit—You can choose to have your check deposited directly into your bank account.

Direct Express debit card—You can have your check loaded onto a debit card.

Monthly payment schedule:

If you were born

On the 1st through the 10th: second Wednesday of the month.

On the 11th through the 20th: third Wednesday of the month.

On the 21st through the 31st: fourth Wednesday of the month.

We know this is  a lot of information to digest, but it serves as a guide to inform a very important financial decision you must make.  However, once you have made the decision to start receiving Social Security, it will be time to enjoy those benefits that have been a long time coming.

*For more detailed information, be sure to check out the Social Security Administration’s government website https://www.ssa.gov/.

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