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Social Security is probably one of those terms you have heard many times and know that you should understand, but might not. This is a government program established as a financial safety net for older Americans (as well as for other purposes). Based on contributions that you make while employed, this special fund pays you in the form of benefits once you retire. When you are planning for retirement, it’s a good idea to calculate how much you will receive in annual Social Security so you can plan accordingly (perhaps using a workplace retirement plan or other investments to generate the income you think you’ll need). To help you maximize your Social Security benefits, consider the factors that determine them.

How Long You Work

Your benefits are calculated based on how long you work — specifically using the numbers from 35 years of your career. If you have not been employed for that many years, zeros will be calculated into your benefits for each year you are short of the mark.

Lifetime Earnings

Your Social Security benefit is based on the average of your salary over the course of your highest-earning 35 years. The more you earn, the more boost you will receive later — even if it comes from more than one job in a year.

Average Wage Index & COLA

Since salaries can change significantly over time, government formulas account for how much the average American was making during working years as well as inflation year after year. The amount of benefits has gone up over the years to account for this change in the form of cost-of-living adjustments (COLA).

When You Start Getting Benefits

While you can begin receiving some Social Security benefits at the age of 62, you will receive larger payments if you can wait. Full retirement age is considered between 65 and 67, depending on when you were born. At full retirement age you can begin to receive your full Social Security benefits. Each year you wait after full retirement, your payout increases by a certain percentage. At age 70, payout will be the highest possible and you will not see any increases after this age.

Marital Status & Spouse’s (or Ex-Spouse’s) Earnings

A married or formerly married couple may have some additional options. Spouses or ex-spouses may be eligible to receive payments based on the higher earner’s benefit. You can work with various scenarios to come up with a claiming strategy to receive maximum payouts.

Now that you have a better understanding of the Social Security system, you can help yourself secure a safe, financially sound retirement.

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  • H036

    AJ– Good article and more people need to understand the Soc Sec for themselves, their family, and survivors. One minor point is your comment about the benefit topping out at age 70 — since the “high-35” continues to be recalculated each year, those who have Soc Sec wages beyond age 70 may find that their benefit does increase along with the COLA.

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