These Are the 5 Areas That Impact Social Security Most — How To Use Them to Your Financial Advantage

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One thing to remember about Social Security is that the check you receive in retirement is almost entirely based on what you do during your career. The Social Security Administration has rules to determine the most and least you can get, but there is a wide gap between what different retirees receive every month.

According to the SSA, the average retirement benefit as of July 2023 is $1,790.56 a month. The maximum Social Security retirement check is $4,555 a month in 2023. The special minimum benefit ranges as low as $49.40 in 2023, depending on how many years of coverage you have, SmartAsset reported.

The factors that go into determining those differences are fairly straightforward. It depends on how much money you make during your career and how long you work. However, there are other factors at play as well. Here’s a look at the five areas that impact your Social Security payment the most.

1. Number of Years You Worked

According to the SSA, Social Security benefits are typically calculated using “average indexed monthly earnings,” which summarizes up to 35 years of a worker’s indexed earnings. A lot of techno-jargon goes into the computation – including determining the primary insurance amount (PIA) – but it mainly means that your monthly benefit is based on your 35 highest-earning years as a worker.

Working more than 35 years won’t necessarily impact your Social Security payment, but working less than 35 years will. If you have worked for fewer than 35 years, the years without earnings are counted as zeros, which can lower the average payments used to calculate your benefit.

2. How Much You Earn

The second main area that impacts Social Security is the amount of money you earn while working. You will pay Social Security taxes on all earnings up to a certain limit, and the taxes you pay will determine your retirement benefits. As of 2023, 6.2% of your wages go toward Social Security taxes. Those taxes end when you reach annual earnings of $160,200 a year.

Are You Retirement Ready?

Once you hit the income threshold, your earnings are not subject to Social Security payroll taxes. This means that to get the maximum benefit, you would need to earn at least $160,200 a year – nearly triple the median annual wage of $57,200, according to the latest U.S. Bureau of Labor Statistics data.

3. When You Claim Benefits

You can file for Social Security benefits as early as 62 or as late as 70 (and beyond), but the longer you wait, the higher your benefit. To get the full benefits you are due, you must wait until full retirement age to claim them, which is either 66- or 67-years-old, depending on when you were born. To get the maximum benefit, you need to wait until age 70. There is no financial advantage to waiting beyond 70, but no rule says you must claim Social Security at 70.

4. Marital Status

Retirees who are married or divorced could be entitled to extra monthly money through spousal or divorce benefits. As the Motley Fool reported, spousal benefits are available if you are married to someone entitled to Social Security retirement or disability benefits. The maximum amount you can receive is half what your spouse qualifies for at their full retirement age.

There are two requirements to qualify for divorce benefits: you can’t currently be married, and your previous marriage must have lasted for at least ten years. As with spousal benefits, the most you can collect is half your ex-spouse’s total retirement age benefit amount.

You can still collect spousal or divorce benefits even if you are eligible for benefits on your work record – but you can’t get both simultaneously. The amount you collect is the higher of the two, so if you qualify for $1,200 a month based on your work record and $1,000 a month based on your spouse’s record, your total benefit will be $1,200.

Are You Retirement Ready?

5. Official Earnings Record

No matter how much you earned during your career and how long you worked, your benefit will only reflect your official earnings record with the SSA. Although it’s unlikely that your record is inaccurate, there’s always a chance that your benefit should be higher or lower than it should be. To ensure the accuracy of your records, you can check your Social Security statement online by opening a “my Social Security” account.

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