The 4 Crucial Social Security Rules Every Retiree Should Know

If you’re in your 60s, chances are good you’re starting to think about retiring and claiming Social Security.

Before you do, though, you’ll want to make sure you understand the inner workings of this entitlement program. Otherwise, you could inadvertently make choices that jeopardize your financial security and make your life more difficult in the future.

So, what do you need to know about claiming your retirement benefits? Here are four of the most crucial rules.

1. How long you must work to qualify for benefits

Not everyone gets Social Security benefits automatically. They are earned benefits, and you must work to qualify for them.

Specifically, you must earn a total of 40 work credits. These are earned when you pay Social Security taxes, and the amount of money you must make in order to get a work credit will change yearly. In 2022, each $1,510 of earnings gets you one work credit. You can earn a maximum of four work credits per year, no matter how much money you make, though. As a result, in order to earn the requisite 40 credits, you must work for at least 10 years assuming you earn enough in each of those years to max out your credits.

If you do not work long enough, Social Security retirement benefits won’t be an option. But if you are married or if you get divorced after a marriage that lasts at least a decade, you could still be eligible for spousal or survivor benefits.

2. What your full retirement age is

If you qualify for Social Security benefits, you will get a standard benefit equaling a percentage of your average wages in the 35 years your earnings were highest. This is called your primary insurance amount (PIA).

Not everyone ends up getting their standard benefit, though. In order to get exactly your PIA, you must file for your first Social Security check to come at a specific age called your full retirement age (FRA). A retiree’s FRA is based on birth year. Yours is:

67 if you were born in 1960 or later.
66 and 10 months if you were born in 1959.
66 and 8 months if you were born in 1958.
66 and 6 months if you were born in 1957.
66 and 4 months if you were born in 1956.
66 and 2 months if you were born in 1955.
66 if you were born between 1943 and 1954.

If you don’t know when FRA is, it will be really hard for you to make the right choices about when it makes sense to begin benefits.

3. How early-filing penalties work

As mentioned above, your standard benefit is available only if you first claim Social Security at full retirement age. But what happens if you start your checks before that time? You can begin getting benefits as soon as age 62, which could be as much as five years ahead of your FRA.

Social Security is designed to allow people to claim early or claim late, but monthly checks are reduced for early filers who get more lifetime payments and increased for late filers who don’t get as many. The goal of this process is to equalize out lifetime benefits regardless of how old you are when first starting them.

The reduction for early filers comes in the form of monthly early-filing penalties. These reduce your standard benefit by a specific percentage. If you first claim benefits with 36 months of FRA, you will see a reduction of 5/9 of 1% for each month you get benefits ahead of your full retirement age. If you are more than 36 months early, there’s an additional benefits reduction equaling 5/12 of 1% for each additional month.

This means if you start checks at 62 with an FRA of 67, you face 36 months of penalties totaling 5/9 of 1% and 24 months of penalties equaling 5/12 of 1%. You end up reducing your benefit by 30% total. A $1,500 standard benefit becomes just a $1,050 check if you’ve claimed benefits five years ahead of your FRA.

4. How delayed retirement credits work

Finally, you need to know how delayed retirement credits work.

These increase monthly benefits for each month you wait beyond FRA. However, you only earn them until 70. Each delayed retirement credit will raise your standard benefit by 2/3 of 1%. That adds up to 8% annually, so someone with an FRA of 67 who waits until 70 would get a 24% benefit increase.

Understanding these rules helps seniors decide when it’s best to start Social Security payments, so be sure you consider them carefully to make sure you’re ready for your first retirement check to come.

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