When you work and pay Social Security taxes (usually called FICA), you earn Social Security credits.   Most people earn the maximum of four credits per year.   In order to be eligible for retirement benefits, you need to have earned at least forty credits during your working years.   Your benefit amount is based on your earnings averaged over most of your working career.   Higher lifetime earnings result in higher benefits.

Your benefit amount also is affected by your age at the time you start receiving benefits.   If you start retirement benefits at age 62 (the earliest possible retirement age) your benefit will be lower than if you waited until a later age.   For people born between 1943 and 1954, the retirement age is 66 and for people born in 1960 or later the retirement age is 67.  Social Security calls this “full retirement age”, and the benefit amount that is payable is considered the full retirement benefit.   For example, if your full retirement age is 66, the reduction in your benefits for starting your Social Security at age 62 is about 25 percent; at age 63, it is about 20 percent; at age 64 it is about 13-1/3 percent; and at age 65, it is about 6-2/3 percent.

You may decide to continue working full time beyond your full retirement age.   In that case, you can increase your Social Security benefit in two ways.   First, each additional year that you work adds another year of earnings to your Social Security record.   Second, your benefit will be increased by a certain percentage if you choose to delay receiving retirement benefits.   These increases will be added in automatically from the time you reach your full retirement age until you start taking benefits, or you reach age 70.   For example, if you were born after 1943, Social Security will add 8 percent per year to your benefit for each year you delay signing up for Social Security beyond your full retirement age.

On Friday, Joe continues his comments about Social Security benefits in “Social Security And You, Part 2”.