A Guide to Social Security: When Are You Eligible to Collect?

Are you getting ready to retire?

Maybe you have a while to go but are getting anxious about how you’ll survive without your paycheck?

Most Americans look forward to retirement as a time to truly enjoy themselves for the first time in their lives. Their kids are adults, they have grandchildren and can spend their days golfing with their fellow retirees.

Maybe this exact scenario isn’t for everyone, but you get the point.

Social security eligibility is an important part of enjoying retirement. In order to replace your traditional paycheck, you will receive social security benefits from the federal government.

Half of older Americans, nearing retirement age, have no retirement savings. Whether you are in that group or have a nest egg waiting for you, you probably still have questions about social security.

After all, social security eligibility is a complicated process and chances are, you’ve never had to deal with it before.

We’ve done the research for you. Keep reading for our simple guide to social security with information about eligibility and collecting your benefits. 

Social Security Eligibility

In order to be eligible for social security retirement benefits, you have to earn what are called credits, or quarters of coverage.

You have to earn 40 of these. How many credits you earn is determined by how much taxable income you make.

The amount of income that determines a credit is adjusted for inflation each year. Credit in 2019 will require earning $1,360 in social-security taxable income.

You can earn four credits each calendar year. If you intend to qualify for retirement benefits by your own record, you will need to have earned the equivalent of $5,440 per year for a minimum of 10 calendar years. 

How Much Will You Get?

The Social Security Administration (SSA) keeps a record off all that you earn throughout your career, up to the annual payroll take cap for each year.

This means that there is a cap on how much of each person’s annual income can be subject to social security tax. In 2019, that cap is at $132,900.

What the means, is that any income earned above this amount is not considered in the calculation of your retirement benefit. 

The SSA then adjusts the total you earned each year to account for inflation.

They then calculate your average indexed monthly earnings, also called AIME. This is calculated by taking the earnings from the 35 highest-earning years, adjusting them for inflation, and then dividing them by 420.

In case we lost you there, 420 is the number of months in 35 years. If you don’t have 35 years of qualifying years, the missing years will be filled in with zeros. 

This amount of your AIME is plugged into yet another formula that determines your PIA, or your primary insurance amount. This is the initial benefit amount that you are entitled to collect through Social Security when you reach full retirement age.

Check out the SSA website to learn more about these formulas and for help calculating your benefit amount. 

This formula remains the same each year but there are adjustments to the two AIME thresholds each year. These are known as bend points.

It’s also important to note that your initial benefit amount will be calculated using the benefit formula that is in effect the year you turn 62. Chances are, you won’t retire for a few more years.

If you earn additional wages after turning 62, they will be factored in. Cost of living adjustments will also be made between when you turn 62 and when you start claiming benefits.

When Can You Collect?

Although Americans have a specific full retirement age, they can start to claim their benefits between the ages of 62 and 70.

Many Americans retire at age 65, though the age of retirement is going up. You can claim benefits before you reach your full retirement age, but the monthly benefit you receive will be permanently decreased.

Conversely, if you wait until after you reach your full retirement age to claim benefits, your monthly benefit will be increased forever. 

Determining Your Full Retirement Age

Your full retirement age is determined by the year you were born:

  • 1943-1954 – 66 years
  • 1955 – 66 years, 2 months
  • 1956 – 66 years, 4 months
  • 1957 – 66 years, 6 months
  • 1958 – 66 years, 8 months
  • 1959 – 66 years, 10 months
  • 1960 or later – 67 years

Can You Collect If You Are Still Working?

Yes. You can claim your social security benefits anytime after you turn 62, even if you are still working.

Remember that if you claim your benefits before you reach your full retirement age, some of your benefits will be lost if your earnings are high enough. The social security earnings test determines how much will be withheld.

If you have already reached your full retirement age, you are not subject to the earnings test. No matter how much you earn from working, you can claim your entire benefit.

If you will reach your full retirement age in the current year, you are subject to a less restrictive earnings test. The only earnings subjective to the test will be those earned in the months prior to the month in which you reach your full retirement age.

If you will reach retirement age after the current year, you will be subject to a restrictive earnings test. 

Contact a Financial Advisor

Understanding social security eligibility can be confusing to most people.

Fortunately, there are professionals that dedicate their careers to understanding the social security process. These advisors stay up to date on annual changes to the social security benefits formulas and they are ready to help you.

It’s never too soon to start planning for retirement. If you are nearing retirement or are just looking to start planning ahead, contact us today for a free financial assessment. 

This material was prepared by an independent third party. Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.  The Social Security Administration has not approved, endorsed, or authorized this information. Contact the Social Security Administration for complete details regarding eligibility for benefits. 2019-83149 Exp 07/21

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