In 1983, to help keep Social Security solvent, the Reagan administration made a number of sweeping changes that went into effect in 1984. Many of these changes still impact your benefits to this day.
Fact #1: Social Security Works On A Credit System
To be eligible for benefits, you must work at least 10 years and earn a total of 40 credits. The amount of earnings it takes to earn one credit generally changes each year but you can only earn a maximum of four credits per year. In 2024, you receive one credit for each $1,730 of earnings during the year.
Fact #2: Social Security Benefits Are Based On Adjusted Lifetime Earnings
Your benefit is based on lifetime earnings adjusted (or indexed) for changes in average wages since the year the earnings were received. Then your average indexed monthly earnings is determined by your highest 35 years of earnings and the age when you start receiving benefits.
Fact #3: Full Retirement Age (FRA) Is Now 67
The full retirement age (FRA) for receiving 100% of a worker’s benefit is currently 67 for those born in 1960 and after. However, members of Congress are proposing raising the FRA to 70 to prevent the system from running out of its cash reserve.
Fact #4: The Earliest You Can File For Social Security Is Age 62
You can file early at 62 but your benefit will be reduced by a little over one-half of one percent for each month before your FRA. On the other hand, you can increase your benefit by 8% each year if you delay collecting Social Security until age 70.
“If you earn more than the yearly limit, your benefit will be temporarily reduced until you reach your FRA.”
Fact #5: If You File Early & Continue Working You’re Subject To An Earnings Test
The Social Security Earnings Limit applies to people younger than their FRA who collect Social Security and continue to work. If you earn more than the yearly limit, your benefit will be temporarily reduced until you reach your FRA.
Fact #6: Social Security Benefits Are Subject To Federal Taxes
When your earned income exceeds thresholds set by the IRS, as much as 50% to 85% of your benefits are subject to federal taxes. Some states also tax Social Security benefits as earned income – check your state tax laws.
Fact #7: Once You Receive Social Security Your Benefit Amount Is Locked In
Once you start collecting Social Security, the only increases you’ll receive are cost-of-living adjustments (COLAs) to help keep pace with inflation. In years when the formula used to calculate COLAs doesn’t indicate measurable inflation, there is no increase.
To learn more about maximizing your benefits, get in touch with an FRC® trained advisor.
