For many Americans, Social Security is a vital piece of their retirement plan. While it shouldn’t be your sole source of income, it can be a helpful supplement and a reliable monthly check to help cover expenses. 

Unfortunately, Social Security benefits can be tricky to navigate, and the rules and regulations change from year to year. Some people even feel uncertain about the future of Social Security—will they be able to collect when it comes time to retire? Some people fear that Social Security will “run out” of money, leaving them without supplemental income in retirement. 

At True Blue, we understand that Social Security is an important piece of your retirement plan. In this blog, we’ll answer your questions about Social Security and how you can incorporate it into your retirement strategy. 

Social Security: Terms to Know 

The Social Security Administration (SSA) uses a lot of different terms when outlining your benefits. Here are some terms that you’ll find on your benefits statements and that we’ll be using in this blog: 

• Full Retirement Age (FRA): The age at which you can claim full Social Security benefits without a reduction for early retirement. FRA depends on the year you were born—we will explain how that works later in the blog. 
• Primary Insurance Amount (PIA): The monthly benefit amount you would receive at your full retirement age. The SSA uses this term; many retirees simply say Social Security check or monthly benefit. 
• Social Security Credits: Units of work you need to qualify for Social Security benefits; typically, 40 credits are required, which equates to 10 years of work. The credits system is part of the SSA’s formula for calculating your Social Security benefit. 
• Cost-of-Living Adjustment (COLA): Annual adjustments to Social Security benefits based on inflation. 
• Earnings Limit: The cap on how much you can earn while receiving benefits before your payments are reduced (important for those taking early benefits).
• Delayed Retirement Credits: The increase in your benefits for delaying claims beyond your FRA (up to age 70). 
• Spousal Benefits: Benefits available to a spouse based on the earnings record of their partner. Typically, spouses can receive 50% of benefits, even after their spouse passes away or if they get divorced. We will explain more about spousal benefits later in this blog. 
• Survivor Benefits: Benefits paid to family members when the primary beneficiary passes away. “Survivors” are typically dependent children or living spouses.
• Medicare Part A/B Enrollment Timing: Critical Social Security-related timelines for enrolling in Medicare to avoid penalties. Enrollment typically begins three months before your 65th birthday month and extends three months after. 
• Taxation of Benefits: Explanation of how Social Security benefits may be taxed based on income thresholds. You will typically see this on your benefit statements provided by the SSA. 

How to Prepare for Social Security Benefits 

As you prepare to receive Social Security benefits in retirement, it’s a good time to reexamine your cash flow and adjust your budget as needed. Here are a few tips to get you started: 

• Calculate your Full Retirement Age: FRA is determined by what year you were born.
  • 1943–1954: Full retirement age is 66
  • 1955–1959: Full retirement age increases gradually from 66 to 67
  • 1960 and later: Full retirement age is 67
  • Remember, you can apply for Social Security benefits before you reach FRA, or you can delay applying until age 70, which increases your benefit by about 8% per year. Waiting until after age 70 will not increase your benefit.
• Review your earnings record on the SSA website: Since the SSA uses your 35 highest-earning years, you will want to make sure they have accurate records of your employment. Login to your Social Security account to review your employment record. Report any discrepancies (like years of employment missing or inaccurate salary information) and check these records regularly, especially if you are near FRA.
• Check your benefit estimate: The SSA website offers a helpful tool that can help you estimate your benefit. This won’t be the exact amount you’ll receive in retirement, but it is a helpful first step and a worthwhile document to review with your financial advisor.
• Consider when to claim benefits: There are pros and cons to claiming Social Security before or after FRA—it all depends on your current financial situation, your goals for retirement, and your life expectancy. Before you decide, talk to a financial advisor who can help you determine what course of action is right for you.

Your Questions About Social Security, Answered 

Social Security is a complicated topic, and questions about it don’t often have straightforward answers. Here are some common questions we get asked at True Blue Financial, and how we answer them for our clients: 

How is Social Security calculated? 

Your Social Security benefits are calculated using three main factors: the number of years you worked, how much you made, and what age you claim your benefits: 

• Number of years worked: The SSA calculates your benefits based on your best 35 years of income. 
• How much you made: The annual salary of your best 35 years of income (indexed to inflation) will determine your benefits. 
• The age you claim your benefits: You won’t receive full Social Security benefits until you reach FRA, but you can claim reduced benefits as early as 62 in most cases. 

The SSA takes all of these factors and plugs them into an equation using your average indexed monthly earnings (AIME). That equation determines your monthly Social Security benefit in retirement. 

What does this mean for you? You don’t have a lot of control over how much Social Security you receive beyond the jobs you work—and even then, your control over that may be limited. Some spouses choose to stay at home and raise children for a long period of time, meaning they might receive lower benefits. 

What happens if my spouse, who receives Social Security, passes away or divorces me? 

The short answer is in most cases, you will still receive Social Security benefits if your spouse passes away or you get divorced. The amount will depend on how long you were married, your age, and the factors mentioned in the question above. Spousal benefits tend to be about 30-70% of what your spouse receives, but after death or divorce this can change. 

This topic is complicated and the actual amount is often based on your unique situation. We recommend you talk to a financial advisor who understands Social Security benefits if this ever happens to you. 

Will Social Security run out before I retire?

This is another complicated answer, but the short answer is not likely. Some politicians warn that SSA trust funds “will run out of money by this date or that date.” At True Blue, we address our clients’ concerns about this with facts. Social Security is funded by payroll tax—a percentage comes out of your paycheck and your employer pays a percentage every month. This money is immediately distributed to those currently receiving Social Security. In short—as long as there is a Social Security tax, there will be Social Security benefits. The amount may change depending on the year or changing legislation, but it should still be available.

Even though Social Security will likely continue, you should always have multiple streams of income to rely on in retirement. Social Security is constantly in flux, and is typically not enough for Americans to live on. Work with your financial advisor to strengthen other streams of income from your IRA or 401(k). 

What are the Social Security Trust Funds? 

The Social Security Trust Funds are financial accounts within the US Treasury that fund Social Security. When you pay Social Security payroll tax, this money goes into the trust funds, and all benefits are paid out through them.  

How can I be eligible for more or less Social Security benefits?

The only way you can be eligible for more Social Security benefits is if you wait until FRA or later to collect, work higher-paying jobs, or work longer. Over time, you may become eligible for other benefits such as disability. 

How is Social Security taxed? 

Up to 85% of your Social Security benefits may be taxed. The portion of your benefits subject to federal taxation varies with your income level. Some people believe that they get this money back since Social Security is funded by taxes, but this is not true. Many of the taxes you pay on Social Security go to other government funds. 

Summary of answers in a callout box: Your Social Security questions, answered

• Social Security is calculated based on the amount of years you worked, your salary, and the age you start claiming Social Security. 
• In most cases, you will still receive Social Security spousal benefits if your spouse passes away or you get divorced, but your amount may look different. 
• Social Security will not “run out” as long as American workers continue to pay into Social Security via payroll tax. 
• Up to 85% of Social Security benefits are subject to federal tax.  

No Matter What Changes, We’re Here for You 

Social Security is complicated, but when used effectively, it can become a helpful supplement to your retirement income. And while we can provide broad answers in this blog, your Social Security benefits will depend on your unique situation. That’s why it’s important to have a trusted partner to guide you. 

You’ve worked hard and paid into Social Security your entire career—we’ll work hard to help you take advantage of what’s available to you. Schedule a complimentary call with our team to determine if we are a good fit for you. 

This information is intended to be educational and is not tailored to provide specific advice or recommendations for any individual. True Blue Financial and LPL Financial are not endorsed by or affiliated with the United States Social Security Administration or any government agency.