Social Security Basics: 10 Things Every Retiree Needs To Know

In the U.S., around 90% of people 65 and older receive Social Security checks, according to the Social Security Administration. Unfortunately, while just about everyone collects Social Security, very few people understand it.

Now, there are some financial concepts you don't need to understand to thrive in retirement (I'm looking at you, cryptocurrency). But you do need to know some Social Security basics so you don't leave money on the table or make choices about your benefits that you come to regret.

The good news is, we've got you covered — at least when it comes to retirement benefits (we won't go into detail about Social Security's other great programs here). Just check out these 10 basic facts about Social Security so you can make the best choices about your retirement.

Who qualifies for Social Security retirement benefits?

I can't wait to get my hands on Social Security checks, and I wish the government would send them today. Sadly, I don't qualify yet because there are things I must do to become eligible.

First, Social Security is an earned benefit you qualify for by earning work credits. You can earn up to four work credits annually, and you need a total of 40 to qualify for retirement benefits. So, quick math shows you must work at least 10 years (you don't have to do this consecutively).

In 2026, you earn a work credit for each $1,890 in covered earnings. So, if you earn $7,560 or more, you'd max out your four credits this year. After earning your full 40 credits, you qualify for benefits and can claim them as soon as you turn 62 (this is my holdup since I'm 43!).

When to start collecting Social Security benefits

Since everyone likes getting money, it's tempting to file for benefits the day you become eligible. But before you claim Social Security, you must know your full retirement age and why it matters. FRA (full retirement age) is 67 for anyone born in 1960 or later, and FRA is when you get your standard benefit. Claim before FRA, and you permanently shrink it. Claim after and you increase it.

Since the government likes to complicate things, the penalty for an early claim is 5/9 of 1% for the first 36 months before FRA and 5/12 of 1% for each month prior to that. I'll save you the math: Each of the first three years you're early, you shrink checks by 6.7%. For any year prior, you reduce benefits by 5% per year. So, a claim at 62 instead of an FRA of 67 reduces benefits by 30%.

Delaying does the opposite. If you wait until you reach age 70, you increase your standard benefit by ⅔ of 1% per month by waiting to claim. That adds up to 8% annually. More money is good, especially since studies show a delay until age 70 increases your odds of maxing out lifetime benefits.

Of course, your situation determines what's best. An early claim may make sense if:

• You're in poor health, and your spouse won't need survivor benefits (waiting could mean you pass away before getting many or any benefits)
• You need the money to support yourself and avoid draining all your savings after a forced early retirement
• You're claiming early to allow a higher-earning spouse to claim late

Outside of those situations, opt for delayed gratification and wait until 70 if you can. You'll get bigger checks late in life when you may need the money most, up your odds of getting the most lifetime benefits, and ensure higher survivor benefits for a lower-earning spouse. I am definitely aiming to claim my benefits at 70 since I want more of this guaranteed lifetime income!

How Social Security benefits are calculated

The general rule of thumb is that you get benefits equal to around 40% of pre-retirement earnings. But the full explanation, of course, is a bit more complicated because (as anyone who has tried to do their taxes knows) the government can't make things too simple.

Social Security benefits are calculated based on a percentage of Average Indexed Monthly Earnings (AIME). Here's how the size of your Social Security check is determined.

• Social Security keeps an earnings record, adjusts your wages for inflation, and then calculates your average monthly income during your highest 35 earning years. This is your AIME.
• Your standard benefit (your primary insurance amount) equals a percentage of AIME. The specific percentage depends on the "bend points" for the year (more on that below).
• Your early filing penalties or delayed retirement credits are then applied to increase or decrease your standard benefit.

Bend points are income ranges and are based on the year you turn 62. So, if you turn 62 in 2026, here's how the bend points will determine your benefit.

• You get 90% of AIME up to the first $1,286 bend point.
• You get 32% of AIME between $1,286 and $7,749.
• You get 15% of AIME above $7,749.

Combine those percentages together and that's the amount you'll get at full retirement age. If you claim at a different time, the early filing penalties and delayed retirement credits mentioned above will either increase or decrease it.

There's one more wrinkle — although most people don't have to worry about it. If your income is too high, only part of it counts in calculating AIME (talk about a first-world problem!).

In 2026, for example, anything you earn above $184,500 wouldn't be subject to Social Security taxes and won't count toward calculating your future benefits. The limit is called the "wage base limit," and it changes annually, so if you're earning big bucks, pay attention to the cap.

Social Security spousal benefits

Retirement benefits aren't the only Social Security benefits you can use to support yourself as a senior. You may also be eligible for spousal benefits based on your husband or wife's work record. Spousal benefits are worth up to 50% of your spouse's standard benefit. So, if your spouse is entitled to $2,000, your spousal benefits are worth up to $1,000.

Be aware that if you claim spousal benefits before your FRA, you shrink them with early filing penalties. Sadly, while you can shrink them, you can't increase them with delayed retirement credits.

Spousal benefits may be worth more than your retirement benefit if your spouse earned more. But, there's a catch. You can't claim them until your spouse starts receiving retirement checks. The good news is, this can work in your favor as you could claim your own lower benefit, your spouse can wait to claim their higher one, and once they do, you can switch over to spousal benefits.

In the past, some retirees used a trick where their higher-earning spouse filed for their benefits to make spousal benefits accessible — but then suspended their claim to grow their benefit. The government put an end to that in 2015, though.

And, unfortunately, if you're eligible to start both spousal and retirement benefits at the time you file, you can't just claim the lower benefit and allow the higher one to grow before switching over. A deemed filing rule says if you file for any benefits, you're filing for all benefits.

In other words, the government has caught onto all the tricks, so gaming the system is off the table when collecting Social Security checks for married couples.

Social Security ex-spouse spousal benefits

Spousal benefits can be a lifeline if your spouse made more money than you. But, what happens if you divorce your higher-earning spouse? Are you out of luck when it comes to collecting your piece of their benefits?

Not necessarily.

If you were married for at least 10 years and you haven't remarried, you are still eligible for spousal benefits on your ex's work record. If you divorced at least two years ago, you also have the flexibility to claim them when you are ready, regardless of whether your ex has claimed their retirement checks or not.

Social Security survivor benefits

Social Security also has rules in place to take care of widows or widowers. Specifically, you can claim survivor benefits based on your deceased spouse's work record.

If your deceased spouse passes away before claiming benefits, you can collect benefits equal to 100% of their primary benefit. You'll need to wait until your full retirement age to avoid shrinking your checks, though.

If your spouse claimed their benefits during their lifetime, your survivor benefit will equal the amount they were collecting. This means if your spouse shrank their benefits with an early claim, your survivor benefits will be smaller. If they waited until after FRA and earned delayed retirement credits, your survivor benefit will be bigger.

You become eligible for survivor benefits at 60, or age 50 if you're disabled. If you are raising the minor children of a deceased spouse, you can get them at any age.

Social Security ex-spouse survivor benefits

If you are divorced, you are still eligible for survivor benefits if your marriage lasted at least 10 years or if you are caring for a child of the deceased person. Just like survivor benefits, if you are married, you can collect survivor benefits starting at age 60, or age 50 if disabled — or at any age if you have a qualifying child.

Paying taxes on Social Security payments

It may come as a surprise, but you may actually end up owing taxes on your Social Security benefits. This happens if something called your "provisional" income is above a certain level. Provisional income is half your Social Security benefit, all taxable income, and some income that's not normally taxable, like municipal bond interest.

Here are the rules for when your provisional income will cause you to be taxed.

• You'll owe tax on up to 50% of your benefits if you are a single tax filer with income above $25,000 or a married joint tax filer with income above $32,000.
• You'll owe tax on up to 85% of your benefits if you are a single filer with income above $34,000 or a married tax filer with income above $44,000.

These limits change over time due to inflation. And, while you may have heard that there's no more tax on Social Security, that's not true.

Seniors age 65 and over can claim an extra tax deduction worth up to $6,000 per person ($12,000 per married couple), depending on income. This deduction is available through 2028. But, the tax rules haven't changed for Social Security.

Can you work while on Social Security?

When I "retire," I'm hoping I can still write for a few hours a day since I really love my job. But what are the rules for working while collecting Social Security?

The good news is, if you've reached your full retirement age, you can work as much as you want while you collect benefits. You can earn billions of dollars a year (perhaps if you're building rocketships or running an AI company?) and still collect your full Social Security checks.

The bad news is, if you haven't hit FRA yet, there's a cap on earnings before you start forfeiting benefits. For 2026, if you won't reach FRA all year, you can earn up to $24,480 before losing $1 in benefits for every $2 extra you earn above this limit. If you'll reach FRA sometime during the year but haven't yet, you can earn $65,160, and then you lose $1 in benefits for every extra $3.

Social Security withholds entire checks when you lose benefits. Once you hit FRA, the SSA recalculates your benefit. You're credited back early filing penalties for months you didn't get checks because of your earnings, so you eventually get back benefits you didn't collect.

There's also a big potential upside to working. Remember, your benefits are based on average earnings over your 35 highest-earning years. If you're earning a lot now, you can potentially replace some lower-earning years in your AIME calculation and end up with larger Social Security checks. That's a big win.

What is COLA?

Finally, the last thing to know is one of the most fun. Social Security has COLAs built into the benefits program, and no, this doesn't mean the SSA sends you a can of Coke once in a while.

COLA stands for Cost of Living Adjustment. COLAs happen most years to increase the amount of your Social Security payment. This is necessary because inflation means prices are going up all the time (as anyone who has lived through the post-pandemic era is well aware). Your benefits must increase or you'd constantly lose buying power.

Your COLA is calculated based on year-over-year changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The SSA looks at third-quarter CPI-W data, and your COLA equals the average increase in costs during this quarter. In 2026, this calculation resulted in retirees getting a 2.8% raise.

Getting a raise feels good — but remember, this is really just an inflation adjustment. It's also worth noting that the Senior Citizens League (an advocacy group) has found that COLAs aren't really keeping pace with inflation for retirees because of flaws in the formula (namely, the fact that retirees spend differently than urban wage earners). So, you'll need to watch your budget a bit, even when you get this benefit bump. (Maybe this one wasn't so fun after all?)

FAQs

Bottom line

The Act that created Social Security was 32 pages. The Social Security Administration has also created lots more pages of regulations that govern how the benefits program works. It's easy to be overwhelmed by all the details, especially with tons of acronyms like COLA, PIA, and FRA.

But it's worth learning the details about how your benefits work, and now you know the top 10 Social Security basics. You may not be a certified Social Security expert, but you have more knowledge than most and can now make smarter choices about your retirement checks! So start researching benefit options and making your comprehensive retirement plan today.

Reach Your Savings Goals Faster

5.0

FinanceBuzz writers and editors score products and companies on a number of objective features as well as our expert editorial assessment. Our partners do not influence our ratings.

AWARD WINNER Best Online Checking

SoFi Checking and Savings Benefits

• Limited-Time Offer: Earn a $50 or $300 bonus with eligible direct deposit and up to 4.00% APY on Savings (3.30% APY¹ <p>New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Eligible Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Eligible Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Eligible Direct Deposit. If you have satisfied the Eligible Direct Deposit requirements but have not received a cash bonus in your Checking account, please contact us at 855-456-7634 with the details of your Eligible Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 12/31/2026. Full terms at <a href="https://www.sofi.com/banking/">sofi.com/banking</a>. SoFi Checking and Savings is offered through SoFi Bank, N.A., Member FDIC.</p><p>SoFi members with Eligible Direct Deposit can earn 3.30% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Eligible Direct Deposit amount required to qualify for the 3.30% APY for savings (including Vaults). Members without Eligible Direct Deposit will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional information can be found at&nbsp;<a href="http://www.sofi.com/legal/banking-rate-sheet">http://www.sofi.com/legal/banking-rate-sheet</a>.</p> with +0.70% APY Boost) for up to 6 Months on new accounts. Terms Apply.² <p>Earn up to 4.00% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.30% APY as of 12/23/25) for up to 6 months. Open a new SoFi Checking and Savings account and pay the $10 SoFi Plus subscription every 30 days OR receive eligible direct deposits OR qualifying deposits of $5,000 every 31 days by 3/30/2026. Rates variable, subject to change. Terms apply at&nbsp;<a href="https://www.sofi.com/banking/#2">sofi.com/banking#2</a>. SoFi Bank, N.A. Member FDIC.</p>
• No account, overdraft, or monthly fees³ <p>We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at <a href="http://sofi.com/legal/banking-fees/">sofi.com/legal/banking-fees/</a></p>
• Get your paycheck up to two days early with direct deposit⁴ <p>Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.</p>
• Access additional FDIC insurance up to $3 million⁵ <p><b style="font-family: Rubik, -apple-system, BlinkMacSystemFont, &quot;Segoe UI&quot;, Roboto, &quot;Helvetica Neue&quot;, Arial, sans-serif;">SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations.&nbsp;Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at&nbsp;<a href="http://sofi.com/banking/fdic/sidpterms">SoFi.com/banking/fdic/sidpterms</a>. See list of participating banks at <a href="http://sofi.com/banking/fdic/participatingbanks">SoFi.com/banking/fdic/participatingbanks</a>.</b></p>

5.0

FinanceBuzz writers and editors score products and companies on a number of objective features as well as our expert editorial assessment. Our partners do not influence our ratings.

Open an account with SoFi® here