A retired gentlemen smiling on his boat because he understands the basics of social security retirement benefits.

The Basics of Social Security Retirement

As you get closer to retirement, the more important it is to understand exactly how Social Security retirement works. When you know the requirements and regulations, you stand a better chance of being prepared to retire comfortably.

The “full retirement age” of social security is 66. This means that you can receive your full amount of social security benefits once you turn 66 and beyond. However, you can opt into social security at age 62, but you'll receive 25% less of your benefits. Your benefit amount is determined by average indexed monthly earnings (AIME). Instead of averaging out your lifetime salary, AIME incorporates inflation into the benefit equation. This is beneficial to everyone since we'll all be retiring at a point in time when money is worth less than it was during our working years. The Social Security Administration adds up the indexed earnings from each person's 35 highest earning years and then averages them to determine a monthly benefit figure.

In 2014, retirees received 90% of the initial $816 worth of AIME. So, those who earned minimum wage will receive nearly their entire usual working wage when they begin to receive social security as long as he doesn't retire before the full retirement age of 66. Social security adds in merely 32% for individuals whose AIME figures are between $816 and $4,917. When you earn above $4,917 per month, you'll only receive 15% towards your social security benefits.

Who Qualifies?

Anyone who has worked and paid social security taxes for more than ten years will qualify for a “worker's benefit”, and those who are married are likely eligible for a “spousal benefit”. Those whose spouses have died could qualify for a “survivor benefit”.

Determining When to Receive Benefits

Individuals with less than 35 years worth of income will have the remaining years zeroed out in the social security benefit equation. This significantly reduces the benefit amount and acts as positive reinforcement for those who work full time for the majority of their adult lives. While the full retirement age is 66, this is only applicable for individuals born between 1943 and 1954. The law is subject to change and as people live longer lives, the beginning age that one can start to receive social security (62) will slowly nudge upwards towards 70.

The latest that one can start social security benefits is 70. Those who wait until 70 to receive social security benefits will have an increase of 32% in each check. This equates to an 8% bonus per year of delay beyond the full retirement age of 66. This is commonly referred to as the Delayed Retirement Credit (DRC).

Periodic Benefit Increases

Social security checks are also increased periodically through cost of living adjustments. When money inflates in value and it becomes more expensive to rent, buy land, buy groceries, and do pretty much of anything, social security payments increase in correspondence. If you are concerned about your retirement, you can visit the social security website to get an idea of what your monthly benefit will be based on your lifetime earnings. You can also view your lifetime earnings and social security information on the website.

Last Updated: July 31, 2014