10 Essential Social Security Facts for Pre-Retirees
10 Essential Social Security Facts for Pre-Retirees
Key Notes
Social Security is expected to be a significant income source during retirement. Gaining an understanding of how Social Security operates can empower individuals to make more informed decisions, which becomes increasingly important as one nears retirement.
Even those who are still a long way from retiring can benefit from learning more about Social Security, as it can aid in future planning.
1. It’s not intended to be a replacement for pre-retirement income
Firstly, it’s crucial to recognize that Social Security is not designed to completely replace pre-retirement earnings. Originally, it was only intended to provide around 40% of one’s pre-retirement income. As of June, the average monthly Social Security retirement benefit stood at $2,084, translating to an annual amount of approximately $25,000. For a more accurate estimate of future benefits, it is advisable to establish a ‘my Social Security’ account through the Social Security Administration (SSA) website.
2. Eligibility for benefits requires meeting certain criteria — which is relatively straightforward
Contrary to common belief, Social Security benefits are not automatically granted to everyone. Qualifications for benefits must be met. Fortunately, this is not overly complex. To qualify, one needs to accumulate 40 “credits”. These credits can be earned through quarterly employment; specifically, by earning at least $1,890 during a quarter (as of 2026). Therefore, modest earnings over a decade can qualify an individual for benefits.
3. Benefits depend on earnings history
The amount of benefits received varies among individuals. This is due to the fact that benefits are determined based on one’s earnings history. Those with higher-than-average lifetime earnings are likely to receive proportionally higher benefit checks — up to a certain limit. (The highest monthly benefit was recently increased to $5,181, equating to around $62,000 annually.)
Additionally, the formula used to calculate benefits considers the 35 highest-earning years of an individual’s career. If an individual has only worked for 30 years, the benefit calculation will include five years of zero earnings. It is advisable to work for a minimum of 35 years to optimize Social Security benefits.
4. The age at which benefits are claimed has a significant impact on benefit amounts
Another critical factor influencing the size of a monthly benefit is the age at which benefits are claimed. Individuals can begin receiving benefits as early as age 62, and can delay claims up to age 70. Early claiming results in reduced checks, but over a longer period. In contrast, postponing claims to age 70 will maximize monthly benefits.
5. Some individuals may face taxation on their Social Security benefits
Regrettably, Social Security benefits are not entirely tax-exempt. A total of 42 states — along with the District of Columbia — do not tax these benefits. However, the federal government imposes taxes on a portion depending on one’s “combined income.” This includes adjusted gross income, non-taxable interest income, and half of Social Security benefits. Therefore, based on one’s location and income level, some may encounter additional taxes on their Social Security benefits.
6. Social Security benefits include cost-of-living adjustments (COLAs)
A positive aspect of Social Security is the nearly annual cost-of-living adjustments (COLAs). This feature allows retirees to maintain their purchasing power amid inflation. Maximizing benefits can also lead to maximized COLAs. The next COLA announcement is due in October and is anticipated to average 3.8%.
7. Spousal benefits are available
Social Security also provides for spouses with limited or no work history. These spouses can claim benefits based on their partner’s earnings record, typically around half of the partner’s benefit. Certain conditions must be met, such as being at least 62 years old and having been married for at least a year (with some exceptions).
Interestingly, even divorced spouses may still be eligible if the marriage lasted at least 10 years and they have not remarried.
8. A correction opportunity exists
In a manner similar to ‘ mulligans’ in golf, Social Security offers an option for a ‘do-over’. If an individual changes their mind after claiming benefits, they can withdraw their claim — within 60 days of having their claim approved.
9. Working while collecting benefits has specific guidelines
Individuals are permitted to continue working while receiving Social Security benefits — with certain considerations. Each person has a specific full retirement age (FRA), which is when they can receive their full benefits. This is currently 66 or 67 for most, and 67 for those born in 1960 or later.
However, if an individual has not yet reached their FRA and earns more than a specific limit ($24,480 for 2026), their benefit will be reduced by $1 for every $2 earned over this threshold. In the year an individual reaches their FRA, $1 will be withheld for every $3 earned above a different limit. Fortunately, the amounts that are withheld are eventually added back to future benefits.
10. Social Security remains a reliable source of income
For those concerned about its sustainability, it’s important to note that Social Security benefits are not expected to disappear. While the surplus that previously existed is decreasing, if Congress fails to take action to strengthen Social Security (there are multiple potential ‘fixes’), retirees might receive only 78% of their expected benefits in around six years. While this is substantial, it represents a long way from a complete halt.
Keeping informed about Social Security developments is prudent for making informed decisions now or in the future.
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