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WalletPrep worksheet · Investing

How does Social Security work?

Name ____________________ Date __________

Key ideas

  1. You need 40 credits to get retirement benefits. You can earn up to 4 credits a year, so 40 credits takes about 10 years of work.
  2. Your check comes from your top 35 years. Social Security averages your highest 35 years of earnings, adjusted for wage growth. Years with no earnings count as zeros.
  3. Claiming age changes your check for life. Born 1960 or later: claim at 62 for 30% less, at 67 for 100%, or at 70 for 24% more.

Vocabulary

Inflation
The rise in prices over time, which means each dollar buys a little less each year.
Full retirement age
The age at which you can get your full Social Security retirement benefit with no reduction. It is 67 for anyone born in 1960 or later.

Work it out

Marcus was born in 1990, so his full retirement age is 67. His my Social Security estimate at 67 is $2,000 a month, in today's dollars.

  1. Benefit at 67
  2. 30% cut for claiming at 62
  3. Benefit at 62
  4. Benefit at 67
  5. 24% raise for waiting to 70
  6. Benefit at 70
  7. Age when waiting to 70 pulls ahead

Check yourself

  1. Your benefit at full retirement age (67) is $1,500. About how much would you get by waiting until 70?

    • A. $1,620
    • B. $1,860
    • C. $2,100
    • D. $1,500

  2. How many Social Security credits do you need for retirement benefits?

    • A. 40
    • B. 10
    • C. 35
    • D. 100

  3. How many years of earnings are used to figure your benefit?

    • A. Your last 5 years
    • B. Your highest 10 years
    • C. Every year you worked
    • D. Your highest 35 years

Your turn

Create a my Social Security account at ssa.gov. Check that every year of your earnings record looks right, and write down your estimated monthly benefit at 62, 67 and 70.

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Answer key

How does Social Security work?

Work it out

  1. Benefit at 67$2,000
  2. 30% cut for claiming at 62− $600
  3. Benefit at 62= $1,400
  4. Benefit at 67$2,000
  5. 24% raise for waiting to 70$480
  6. Benefit at 70= $2,480
  7. Age when waiting to 70 pulls ahead80
  1. At 62 he gets $2,000 × 70% = $1,400 a month. At 70 he gets $2,000 × 124% = $2,480 a month.
  2. By 70, claiming at 62 has paid $1,400 × 96 months = $134,400. Waiting pays $1,080 more each month after that.
  3. $134,400 ÷ $1,080 is about 124 months, so waiting pulls ahead a little after age 80, before cost-of-living raises.

Check yourself

  1. B. $1,860 Waiting 3 years past 67 adds 8% a year, or 24%. $1,500 × 124% = $1,860.
  2. A. 40 You need 40 credits. At most 4 credits a year, that takes about 10 years of work.
  3. D. Your highest 35 years The SSA averages your highest 35 years of indexed earnings. Fewer than 35 years means zeros pull the average down.