Social Security provides a valuable source of retirement income for millions of retirees. According to the Social Security Administration (SSA), 97% of older adults either receive Social Security or will receive it. Considering the significant role that Social Security can play in most people's retirement plans, I thought it would be helpful to answer some of the more common questions asked by our clients:
Who qualifies for Social Security retirement benefits?
In order to be eligible for retirement benefits, you must be age 62 or older (unless you become disabled or blind prior to age 62) and have earned at least 40 Social Security "credits" over the course of your employment.
The earliest that you are eligible for a retirement benefit is the first month in which you are age 62 for the entire month.
You earn Social Security credits by working at a job where Social Security taxes are withheld from your pay, or by earning money from self-employment. For 2024, you receive one credit for every $1,730 of income earned during the year. You can earn a maximum of four credits each year. Accordingly, you will receive the full four credits in 2024 if you earn $6,920 at any time during the year ($1,730 x 4).
How are my retirement benefits calculated?
Social Security uses a formula to determine your "primary insurance amount" ("PIA"). That's the monthly retirement benefit you will receive if you begin your benefits at "full retirement age."
Your "full retirement age" depends on the year you were born. It's age 66 for anyone born from 1943-1954. If you were born 1955-1959, it's age 66 plus 2 months for each year after 1954. For anyone born in 1960 or later, your full retirement age is 67.
What's the impact of claiming benefits before or after my full retirement age?
If you claim your benefits prior to full retirement age, you will receive an amount smaller than your PIA. Your benefits will be reduced by 5/9's of 1% for each month up to 36 months and 5/12's of 1% for each month in excess of 36 months. This equates to a reduction of 6.67% per year (up to 3 years) and an additional 5% for each year in excess of 3 years.
If you wait until after your full retirement age to claim benefits, your retirement benefit will be higher than your PIA. Your benefits will be increased by 2/3's of 1% for each month up to age 70, beyond which there is no further increase for waiting. This equates to an increase of 8% per year up until age 70.
Is my spouse eligible for any benefits?
Yes, a spouse is eligible for retirement benefits based on the higher of their own benefit or their spousal benefit. Spousal benefits are Social Security benefits based on a spouse's work record instead of your own.
If you wait until full retirement age to begin collecting spousal benefits (and you are not receiving your own retirement benefit), your spousal benefit will be equal to 50% of your spouse's PIA.
If you file for spousal benefits while you are receiving a retirement benefit of your own, your spousal benefit will be reduced by the greater of your current monthly retirement benefit or your PIA.
Unlike retirement benefits, spousal benefits are not increased by delaying them beyond your full retirement age. However, they are permanently reduced if you claim them prior to full retirement age in a manner much like retirement benefits albeit with a slightly more aggressive reduction factor.
Are my children eligible for benefits as well?
Yes, if your children are under the age of 18 (or disabled with a disability that began before age 22), and you are receiving Social Security retirement benefits, your children may be eligible for a benefit of up to 50% of your PIA.
However, there is a maximum benefit that can be paid to a family based on the work record of a single person. If the family's benefits exceed this maximum limit, the benefits of each person other than the worker will be reduced proportionately.
How are my Social Security benefits taxed?
The tax code treats Social Security benefits differently from all other types of income. To determine if any of your benefits are taxable you need to look at your "combined income." Your "combined income" is equal to the sum of:
If your "combined income" is below $25,000 ($32,000 if married filing jointly), none of your Social Security benefits will be taxed.
For every dollar of combined income above that level, $0.50 of your benefits will be taxable until the point that 50% of your benefits are taxed or you reach $34,000 of combined income ($44,000 if married filing jointly).
For every dollar of combined income above $34,000 ($44,000 if married filing jointly), $0.85 of your benefits will be taxable up to the point that 85% of all your Social Security benefits are taxable.
Unlike the income tax brackets, these combined income thresholds have not been indexed for inflation since 1993. Accordingly, a larger portion of Social Security benefits will be taxed over time due to bracket creep.
Can I collect retirement benefits while I am still working?
The short answer is yes. However, prior to reaching full retirement age, if you work while collecting Social Security benefits, the amount that you and your family receive will be reduced by 50% of the amount by which your annual earnings exceed a certain threshold ($22,320 in 2024).
In addition, if a family member is working while receiving a benefit based on your work record, their benefit (but not your own benefit) will be reduced if their earnings exceed that same threshold amount.
After reaching full retirement age, the earnings test no longer applies, and you can earn as much as you want without any reduction in your benefits. At that time, your benefit will also be recalculated and increased to account for any prior months that your benefit was reduced or eliminated as a result of the earnings test.
Is Social Security going bankrupt?
Social Security is facing a long-term solvency crisis, but it is not going bankrupt.
In this regard, it's important to understand that Social Security is set up as a self-funded pay-as-you-go program. Monthly social security checks are primarily funded by the payroll taxes collected from current workers with the Social Security Trust Fund making up any deficits.
Unfortunately, current projections are that the Trust Fund could be depleted within the next 12 years. This is primarily because we now have a decreasing number of workers paying for an increasing number of retirees.
According to the most recent 2024 Trustees Report, the Trust Fund is projected to have enough resources to cover all promised benefits until 2035.(1) Absent a change from Congress, Social Security benefits would then need to be cut for all current and future beneficiaries to about 83% of scheduled benefits.(1) So, once again, Social Security will not run out of money in 2035. It just won't be able to pay benefits at the same level.
What is the optimal claiming strategy for me and my family?
Unfortunately, the answer to this question would literally require a book. In this regard, the Social Security rules are amazingly complex, and, on top of that, each family has their own unique set of variables (ages, marital status, health issues, need for income, tax position, retirement ages, outlook for the future, risk tolerance, etc.). Unfortunately, there is no one-size-fits-all answer.
For more on personal finance topics:
If you have more questions about personal finance topics that matter to you, visit the Learning Center on TD Bank’s website. You can find out more information about TD Bank's services at td.com
We hope you found this helpful. This article is for informational purposes only and is based on information available as of November 2024 and is subject to change. This content is not intended to be used or acted upon with respect to any client's specific circumstances. For specific advice about your unique circumstances, consider talking with your qualified professionals.
TD Bank, TD Wealth® and their employees do not provide legal, tax or accounting advice.
TD Wealth® Important Disclosures
TD Wealth® Private Client Group is a unit of TD Wealth® which is a business of TD Bank N.A., Member FDIC (TD Bank). Banking, investment management and trust services are available through TD Bank. Securities and investment advisory services are available through TD Private Client Wealth LLC (TDPCW), a US Securities and Exchange Commission registered investment adviser and broker‐dealer and member FINRA/SIPC. Epoch Investment Partners, Inc. (Epoch) is a US Securities and Exchange Commission registered investment adviser that provides investment management services to TD Wealth®, TD Bank, TDPCW and Epoch are affiliates.
This content is for educational purposes only. The content is intended to be general in nature for the sole purpose of providing wealth planning education. General information in this article was provided by the Social Security website at ssa.gov. TD Wealth® does not provide legal, tax or accounting advice to its clients. Federal rules regarding taxes and Social Security are complex and are subject to change.
The content is not a legal or tax analysis and is not intended to be relied upon as legal or tax analysis. You should engage your attorney, independent tax advisor and accountant or Certified Public Accountant for a complete analysis of the legal and tax aspects applicable to your particular situation to determine whether the content herein is suitable and/or otherwise appropriate for your wealth planning needs. You should consult your attorney, independent tax advisor and accountant or Certified Public Accountant before making any decisions regarding your Social Security filing strategy and eligibility.
TD Wealth® and other TD trademarks are owned by the Toronto Dominion Bank or its affiliates and are used under license.
©2025, TD Bank, N.A.
(1) "The 2024 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds", Social Security Administration, 05/06/2024.