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The Street
The Street
Caitlin Cahalan

Age, lifetime income, and policy changes may impact how much you'll receive in Social Security benefits.

Social Security was developed in 1935 to create a financial safety net for disabled and retired Americans. While most people know it exists, many don’t understand the intricacies of the benefits offered.

Nearly 68 million Americans claimed Social Security in June 2024, yet 51% of people don’t know how to maximize their benefits, and 33% are unsure of when they can start claiming benefits.

Related: Social Security benefits report confirms major changes are coming

Who is eligible for Social Security benefits? 

Social Security offers more than just financial support for retirees. Those with disabilities, spouses of someone receiving benefits, children, dependent parents, and spouses of deceased workers are all eligible to claim Social Security through Survivor Benefits and Disability Insurance.

 

Understanding the basics of Social Security

As of 2024, you can earn up to four Social Security credits per year, one credit per $1,730 earned. To be eligible for Social Security benefits, a worker must be at least 62 and have accrued 40 credits or worked for ten years.

The amount of benefits received — or Primary Insurance Amount (PIA) — is based on your Average Indexed Monthly Earnings (AIME). The AIME approximates a worker’s lifetime earnings by using present-day wages as a benchmark. 


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How to maximize your Social Security payout

To collect the greatest amount of benefits, you may consider delaying collecting benefits. For every year benefits are deferred between ages 67 and 70, the annual benefit amount increases by 8%. 

For example, those who claim benefits starting at the full retirement age of 66 would receive 100% of the PIA. However, those who collect at age 67 would receive 108% of the PIA and 116% of the PIA at age 68.

Social Security cards are pictured with a U.S. $100 bill.

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The maximum annual benefit for those aged 62 is $32,500, nearly half the $58,476 those 70 and above receive. The full retirement age is 66 for those born between 1943 and 1954. This age increases by two months every year between 1955 and 1959, and for those born in 1960 or later, it is 67.

2024 Social Security benefit updates 

As of 2024, U.S. workers are taxed on their income up to $168,600 to help fund  Social Security benefits. You and your employer are taxed 6.2% each for Social Security and 1.45% to fund Medicare — a total of 7.65%. Those who are self-employed must shoulder more of the burden: they pay 12.4% of their income toward Social Security and 2.9% toward Medicare.

Related: How to maximize Social Security survivor benefits in retirement

The majority of funds are allocated to retirees: 85 cents on every dollar paid to Social Security gets put into a trust fund for those claiming retirement benefits. The remainder is put towards a trust fund for those with disabilities.

Based on the Consumer Price Index increase from Q3 2022 to Q3 2023, beneficiaries received a Cost of Living Adjustment (COLA) of 3.2% starting in 2024. The maximum amount a person reaching full retirement age may receive increased from $56,530 in 2023 to $59,520 in 2024. The adjustment for 2025 will be announced in October.

Will Social Security benefits decrease or run out? 

However, due to the declining birth rate in the U.S., the Social Security program will not be able to pay out full Social Security benefits for future generations.

Starting in 2035, the program will only pay 75% of scheduled benefits. The shortfall from reduced payment into the system is expected to stabilize after 2035, and the program is expected to remain solvent for the foreseeable future. Congress can move to fix the problem.

If you are unsure about the optimal time to claim Social Security benefits, it may be helpful to consult a tax professional or financial planner.

Related: Veteran fund manager sees world of pain coming for stocks

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