Understanding Social Security Benefits

Social Security benefits are a foundational retirement income source for many retirees. For many households, these benefits help meet essential living expenses while potentially reducing the need to draw heavily from investment accounts. This article provides an overview of how Social Security benefits work and highlights several key factors to consider when deciding when to claim them.

Social Security Basics

Social Security benefits are calculated using your highest 35 years of earnings, adjusted for inflation. These earnings are averaged to determine your Primary Insurance Amount (PIA), which represents the monthly benefit you are entitled to receive at your full retirement age.

You may begin collecting Social Security benefits as early as age 62 or as late as age 70. For individuals born in 1960 or later, the full retirement age is 67. (For those born prior to 1960, the Social Security Administration provides a chart outlining full retirement ages by birth year.)

Claiming benefits before your full retirement age results in a permanent reduction. For example, if your full retirement age is 67 and you begin benefits at age 62, your monthly benefit will be reduced by approximately 30% for life. Conversely, delaying benefits beyond full retirement age results in delayed retirement credits, increasing your benefit by 8% per year until age 70. This increase is also permanent and can significantly enhance lifetime income for some retirees.