Around 63 million people in the United States receive Social Security benefits. Primarily the benefits are distributed to seniors who have retired or have a disability and have worked for the required number of years.
To qualify for Social Security benefits one must meet a few requirements.
For those hoping to claim benefits once they have retired, it is mandatory that the worker has paid into the Social Security pot. Depending on the number of years contributing and your annual income you will earn a certain number of work credits, which help to calculate your total benefit amount.
What are work credits?
Each year a worker who pays into Social Security will be able to receive a maximum of four work credits each year. The annual earnings need to earn a credit increase each year, in an attempt to follow a pattern in wages. To claim any benefits, one must have at least six work credits, regardless of age or disability and the maximum that can be accumulated is forty.
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For those applying for benefits because of a disability, “you must have earned an average of one work credit for each calendar year between age 21 and the year in which you reach age 62 or become disabled or blind.”
Survivor or dependent benefits
The only way to receive Social Security benefits if you have not worked is if you are the dependent or spouse of a deceased worker. Each month, millions of workers pay a portion of their income to the Social Security Administration, and later will be allowed to rely on a modest income in retirement. However, some of the money collected each month goes towards the distribution of payments for survivors of beneficiaries who had paid in or were receiving Social Security benefits.
158 House Republicans have signed on to a Republican budget that would cut Social Security and Medicare.
I have a different idea: I’ll protect Social Security and Medicare and make them stronger.
— Joe Biden (@JoeBiden) October 12, 2022
Survivors can receive Social Security benefits from a decreased beneficiaries and work at the same time. The Social Security Administration does warn, however, that if you have a total income above a certain limit, the benefits will be reduced, but not lost. Once the survivor or spouse reaches retirement age, the amount withheld will be added to their benefit amount.
If you are eligible to receive survivor benefits it is important to claim them quickly, as they are not retroactive in many cases.
How many spouses or survivors receive benefits?
In 2020, around 11 percentof Social Security benefits were sent to the survivors of deceased workers. In economic terms, the total amount sent to the almost six million survivors was $7.9 billion.
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Social Security benefits can play an important part in your retirement plan. Understanding how those benefits are calculated can help you to determine when to take Social Security and how much you might receive. The minimum Social Security benefit calculation was developed to help certain low-income workers boost their benefit amount. This calculation looks at years of coverage in place of someone’s earnings to estimate how much they might receive from Social Security. For 2022, the special minimum benefit starts at $45.50 for someone with 11 years of coverage and goes to $950.80 for workers with 30 years of coverage.
A financial advisor can help you plan your retirement taking into account your Social Security benefits. Find one with SmartAsset’s free financial advisor matching service.
How Are Social Security Benefits Calculated?
For most people, Social Security benefits are calculated based on lifetime earnings. Earnings are adjusted to account for increases or decreases in average wages since the year your earnings were received. The Social Security Administration then calculates your average indexed monthly earnings for the 35 years of your work history in which you earned the most. If you have fewer than 35 years of work history, a “0” is entered in for any missing year, which brings down your overall average.
Your average earnings are used to determine your primary insurance amount (PIA) for Social Security retirement benefits. This number represents the amount you’d receive each month from Social Security once you reach full retirement age, which is dependent on the year you were born. The full retirement age for people born after 1960 is 67 years old, as of 2022, though for people born before 1960 it may be 66 instead.
You have to earn at least 40 Social Security credits to qualify for Social Security benefits. These credits are earned as you work and pay Social Security taxes from your income. That includes income from working for an employer or money made through self-employment. If you don’t earn enough Social Security credits then you may not be eligible to receive Social Security retirements benefits though you could still qualify for SSI benefits.
Workers can earn up to four credits per year. For 2022, you can earn one Social Security or Medicare credit for every $1,510 in covered earnings. So to get the maximum four credits allowed you’d need to earn at least $6,040. This is important for understanding how the special minimum Social Security benefit works.
What Is the Special Minimum Social Security Benefit?
The special minimum Social Security benefit is a minimum PIA that was created in 1972 to provide benefits to certain low-income workers. Specifically, the special minimum benefit is designed for people who have lower lifetime earnings overall. These benefits are calculated based on years of service, not earnings.
Low-income workers must have at least 11 years of coverage to qualify. A year of coverage is any year in which a worker paid in a significant amount to the Social Security Trust Fund. To get the full special minimum PIA, workers must have at least 30 years of coverage.
For 2022, the primary insurance amount for people receiving the Social Security special minimum benefit ranges $45.50 for someone with 11 years of coverage to $950.80 for workers with 30 years of coverage. The maximum corresponding family benefit ranges from $69.40 to $1,427.90.
Who Receives the Minimum Social Security Benefit?
The special minimum benefit for Social Security has historically been paid to workers who earn lower incomes over their lifetime. This benefit was designed to help those workers get a larger Social Security benefit than they might otherwise be entitled to, based on their earnings. The use of this calculation is less common, however, with fewer than 50,000 Americans receiving the special PIA as of 2019, the most recent year for which data was available.
The main reason is that the standard PIA calculation for Social Security benefits typically yields more money. The special minimum PIA is adjusted using price-based inflation as a guide instead of the wage index. As a result, the special minimum Social Security benefit tends to be less than what regular Social Security pays.
As of January 2022, for example, the estimated average monthly benefit payable from Social Security for retired workers is $1,657. This includes a 5.9% cost of living adjustment. A married couple receiving benefits together gets an estimated average of $2,753. A low-income worker retiring today could likely collect a larger benefit under the standard calculations than they would be using the special minimum benefit formula.
What Is the Minimum Social Security Benefit at Age 62?
Taking Social Security benefits at age 62, the first year you can do so, rather than waiting until full retirement age can reduce the amount of money you receive. The amount you’d get would be the equivalent of the full retirement benefit amount you’re entitled to, less a 30% reduction.
So if your full retirement benefit at age 67 is $1,000 but you take benefits at 62, you’d receive $700 per month instead. You don’t get this money back later; the Social Security Administration typically makes adjustments to benefits permanent. So taking Social Security earlier will permanently reduce the amount you’re eligible to receive for the rest of your life. You would, however, still be eligible to receive annual cost of living adjustments.
Waiting longer to take benefits, on the other hand, can increase your benefit amount. If you decide to delay benefits up to age 70, the maximum age you can wait to claim them, then a $1,000 monthly benefit would turn into $1,240 per month. That’s because you get an additional 8% in benefits for each year you delay them from full retirement age.
The reduction in benefits also applies to people receiving the special minimum benefit. So if you were eligible to receive the full $950 benefit for 2022 but retire at age 62, your benefits would drop to $665 instead. It’s important to understand how taking Social Security early or delaying benefits can impact your overall financial outlook in retirement.
How Much Will You Get From Social Security?
The answer to this question depends on a number of factors, including:
- How many years of earnings you have
- Your average earnings for those years
- When you decide to take Social Security benefits
- Whether you qualify for the special minimum benefit
Using a Social Security retirement benefits calculator to estimate how much you might receive when you retire can make it easier to plan your future budget. You can also use this number as a guide for determining how much you might to save now in order to make up for any potential shortfalls.
The Bottom Line
Getting the maximum Social Security benefit rather than the minimum is important if you’re counting on those benefits being a big part of your retirement income picture. Understanding how to maximize those benefits can help them to go farther so that you can enjoy a comfortable retirement.
Retirement Planning Tips
- There are a number of ways to supplement Social Security benefits for retirement, starting with contributing to your 401(k) at work if you have one. At a minimum, it’s a good idea to contribute at least enough of your salary to qualify for the full employer matching contribution if one is offered. Saving in an individual retirement account is another option for growing wealth on a tax-advantaged basis. You can also use an online brokerage account to invest for capital gains.
- Retirement planning is hard – a professional can help. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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