Personal Finance | 020 What is Social Security and How to Maximize the Benefits

Summary: ​Social Security benefits are calculated based on the average income over 35 years of work with a maximum cap. You can begin withdrawing as early as age 62, but to receive full benefits, you should wait until age 67. For each year you delay withdrawing until age 70, your benefits increase by 8% annually.

​Social Security is a federal program in the United States designed to provide financial assistance to retirees, disabled individuals, and survivors of deceased workers. Funded through payroll taxes collected by the Federal Insurance Contributions Act (FICA), Social Security offers a safety net for those who have worked and paid into the system over their lifetime. It is especially important for retirees, as it serves as a primary source of income when they are no longer working.

The amount you receive from Social Security is based on your earnings history, meaning the more you’ve earned over your working years, the higher your benefits will be. The Social Security Administration (SSA) calculates your benefits based on your average indexed monthly earnings (AIME), which factors in your highest-earning years. The benefit amount is designed to replace a percentage of your pre-retirement income, with a larger percentage replacement for those with lower lifetime earnings.

To maximize Social Security benefits, there are several strategies to consider:

• Delay Claiming Benefits:  The age at which you begin receiving Social Security benefits significantly affects the amount. You can start claiming as early as age 62, but waiting until your full retirement age (FRA), which ranges from 66 to 67 depending on your birth year, allows you to receive full benefits. Delaying benefits past your FRA, up until age 70, increases your benefits by about 8% per year.
• Work for 35 Years: Social Security benefits are calculated based on your highest-earning 35 years up to the wage limit. The wage base limit determines the maximum amount of income that is subject to the Social Security payroll tax.For 2025, the wage base limit is $160,200 (this amount is adjusted annually for inflation).If you have less than 35 years of work history, the SSA will count zero earnings for the missing years, which can reduce your benefit. Working for a full 35 years with higher earnings will maximize your Social Security.
• Coordinate with a Spouse:  Married couples can take advantage of strategies like file and suspend or restricted applications (if born before 1954) to maximize combined benefits. It’s important for both partners to plan and understand how they can coordinate their claims to enhance the overall benefits.

We can access our personalized Social Security statement online by creating a my Social Security account on the SSA website (www.ssa.gov). This statement will show the earnings history and an estimate of the benefits at different ages.

In summary, Social Security provides crucial financial support in retirement, but understanding how to optimize it through delayed claims, maximizing your work history, and coordinating with a spouse can help you get the most out of the system. Planning early can make a significant difference in your retirement income.