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Retirement benefits were created to help older Americans live in dignity and independence after a lifetime of work. To qualify for these benefits, you have to meet certain earnings requirements. The good news is that these requirements are in relatively easy reach for most healthy people who’ve worked for a number of years. However, interruptions in earnings – such as for child rearing, caregiving, or long-term unemployment – may leave you with a smaller benefit.

Benefit levels were established to replace just a portion of the income earned by you or the breadwinner you depend on. This is in keeping with Social Security’s goal of providing a foundation for you to build on with personal savings, investments, and other income.

In this section, I fill you in on who qualifies for Social Security retirement benefits and when, how you qualify (through work credits), why you may not qualify, and how much you can expect to get.

Who qualifies and when

Retirees may qualify for benefits starting at age 62. Technically, you become eligible on the first full month after your 62nd birthday. Say you turn 62 on July 19. That means you become eligible for benefits on August 1. The August payment arrives in September, however, because Social Security pays with a one-month delay.

You don’t have to take your benefit when you turn 62. The longer you wait, the higher your monthly payment will be, until you reach 70. At that point, there’s no payoff in further delay.

If you qualify for retirement benefits, Social Security may also provide benefits to other family members under certain conditions without reducing the benefits that go to you. Eligible dependents may include

❯❯ A spouse age 62 or older: When you begin collecting retirement benefits, a spouse who has reached 62 may also qualify for a benefit.

❯❯ A spouse of any age who cares for your dependent child: Spouses may get benefits based on your work record if they’re caring for a child who is dependent on you and younger than 16 or disabled.

The SSA tends to follow state guidelines in terms of recognizing common-law marriages, although the rules leave some wiggle room for interpretation. In addition, as of this writing, the SSA has begun to give spousal benefits to partners in same-sex unions who, at the time of their application, live in states that recognize same-sex marriage as legal and who were married in states that deemed the union to be valid.

Note: Social Security now recognizes same-sex marriages if the initial claim for benefits was filed on or after June 26, 2015, or pending a final determination at that time – regardless of the state where the marriage occurred.

❯❯ Children: In certain cases, your children can get benefits if you’re collecting retirement or disability benefits. To qualify, children must fall into one of the following categories:

● Younger than 18 and unmarried

● Full-time students up to age 19 who haven’t yet completed high school and are unmarried

● Age 18 or older and severely disabled with a disability that began before age 22

The SSA’s definitions of parent and child are generally inclusive but sometimes a cause of dispute. It recognizes that you may have an adopted child or a stepchild. (See Chapter 10 for some of the technicalities.)

❯❯ Grandchildren: If the grandchild depends on you financially and the grandchild’s parents provide no support (for example, because of death or disability), the grandchild may qualify for Social Security benefits on your work record.

❯❯ A former spouse: Your ex may get benefits if the following apply:

● You were married for at least ten years.

● You’ve been divorced for at least two years.

● He or she is 62 or older, not remarried, and not eligible for a bigger benefit on anyone else’s work record. (If a former spouse remarries before turning 60 but that marriage ends, the former spouse may again qualify for benefits on the record of the original partner.)

Note: If your former spouse collects Social Security benefits based on your work record, this doesn’t reduce the amount of benefits that go to you or your current spouse. The same is true even if you have more than one ex-spouse who qualifies under the rules.

How you qualify

Under the rules, you get credits toward eligibility by earning certain amounts of money. Most workers pick up the necessary credits without even thinking about it. Generally, 40 credits – which you can pick up in ten years of covered employment – does the trick. By covered employment, I mean a job in which you and your employer pay Social Security taxes. (If you’re in business for yourself, you have to pay both the employer and employee shares.) These days, almost all jobs are covered. (For information on which jobs aren’t covered, see the nearby sidebar “Which jobs aren’t covered.”)

People born before 1929 need fewer than 40 credits to qualify.

In 2017, Social Security awarded you one credit for every $1,300 in earnings, and you could get up to a maximum of four credits per year. (The dollar amount typically rises each year to reflect growth in wages.) For example, say you earned $5,200, in 2017. That means you earned a total of four credits (). Now, say you earned $100,000 in 2017. You still earn a total of four credits, because four credits is the yearly maximum no matter how much money you make.

WHICH JOBS AREN’T COVERED

Most work is covered by Social Security today, but that wasn’t always the case. When Social Security was launched in the 1930s, roughly half the economy wasn’t part of it. Largely excluded were fields associated with African Americans, women, and low pay (including agriculture, domestic service, and many jobs in education and social work). Critics said the exclusions reflected bias in favor of white, male breadwinners. (The self-employed, professionals [such as doctors and lawyers], and most jobs in government and the nonprofit sector were also initially left out.) Today, 96 percent of American jobs are covered by Social Security. Categories of workers who may still not be covered include the following:

● Most federal employees hired before 1984

● Railroad workers with more than ten years of experience or who have worked at least five years with the railroads since 1995

● Some state and local government employees

If you fall into one of these categories, it is possible you will get no Social Security benefits or reduced amounts. (Many people who spend part of their working lives in uncovered employment end up with reduced benefits because of the Windfall Elimination provision and Government Pension Offset provision, which I explain later in this chapter.)

How much you get

Although you have to tote up 40 credits to qualify for benefits, that doesn’t determine the size of the payment that goes to you or your dependents. The SSA bases the amount of your benefit on your lifetime earnings – specifically (for workers born after 1928), the 35 highest-paid years in which you paid Social Security taxes. Your 35 highest years don’t have to be consecutive, and they don’t have to be the most recent 35 years, but 35 is an important number. If you have fewer than 35 years of earnings, the SSA adds zeros to reach 35. The impact of those zeros varies depending on your earnings history.

As you may expect, more career earnings means a bigger benefit. Highly paid workers who contributed more taxes throughout their working careers end up with bigger Social Security payments (although the benefit formula is skewed to provide low earners a larger share of their working wages in retirement than high earners receive).

Social Security benefits rise because of cost-of-living increases that are meant to help retirees keep up with inflation. Congress may debate whether to modify the cost-of-living formula to save money or even to increase payouts, but the importance of inflation protection is widely recognized, and it remains one of the most popular features of Social Security.

Other things affect your benefit amount as well, including the following:

❯❯ How old you are when you start collecting benefits: You can start receiving Social Security as early as age 62, but your payment will be larger the longer you wait to claim, potentially to age 70. (See Chapter 3 for a discussion of when to begin receiving retirement benefits.)

❯❯ If you worked in any jobs that weren’t covered by Social Security: Your full benefit may be reduced by any periods of your working career in which your job wasn’t covered by Social Security, a reality for many government workers. (See the earlier sidebar “Which jobs aren’t covered.”)

❯❯ If you’re working while drawing benefits: Social Security may withhold a portion of your retirement benefits if you earn above a certain amount while receiving benefits and you haven’t yet reached the full retirement age, which is currently 66. (See Chapter 13 for a detailed explanation of how benefits may be affected by earnings.)

Social Security also takes money off the top of your retirement benefit to pay for Medicare coverage if you’ve reached 65 and you’re enrolled in Medicare. The monthly premium for Medicare Part B, supplementary medical insurance (doctors’ and some other services), is deducted automatically if you’ve reached 65 and entered Medicare. The standard Part B premium paid by most Medicare enrollees was set at $134 for 2017. Premiums – and the Medicare deduction – generally rise with inflation.

In the following sections, I cover how to estimate your benefit, and how much your spouse and children can expect to receive based on your work history.

Estimating your retirement benefit

The average monthly retirement benefit is about $1,360 (in early 2017), but the amounts vary. Higher-paid workers who start benefits at full retirement age and have paid the maximum taxable amounts for their entire careers receive almost twice that amount ($2,687). If you wait beyond full retirement age, you can get a lot more.

So, what’s your number? If there were a quick and easy way to do the math yourself, I’d tell you right here. But there isn’t. Fortunately, Social Security makes it easy to get a ballpark estimate by using one of its online tools: the Social Security Quick Calculator (www.ssa.gov/oact/quickcalc) or the Retirement Estimator (www.ssa.gov/estimator). (See Chapter 6 for more discussion about Social Security calculators, including a helpful tool from AARP.)

Make sure that your employer’s records match up with Social Security. Every year your employer sends a copy of your W-2 to Social Security, which relies on the name and number on that form to put credits on your earnings record. That record determines whether you qualify for benefits and how much you’ll get. If your employer and Social Security are using different names or numbers, it could cost you money, so it’s smart to pay attention. It’s also your responsibility to correct mistakes. If you’re incorrectly identified on your work records or if your income is reported incorrectly, let your employer know. You can contact the SSA (see Chapter 1) to correct an error in the name on your Social Security card.

You have 3 years, 3 months, and 15 days from the end of the year in which you earned money to correct errors that may turn up on your earnings record. If you don’t bring errors to the attention of the SSA within that time, it may not fix them.

Your employer is the one who points out W-2 errors to the SSA. If your employer refuses, you should bring the matter to the attention of the Internal Revenue Service (IRS). You can contact the IRS at 800-829-1040.

THE WINDFALL ELIMINATION PROVISION: IF YOU QUALIFY FOR A PENSION AS WELL AS SOCIAL SECURITY

Have you spent part of your life working for an employer who wasn’t part of the Social Security system, and are you earning a pension from that employer? If so, you could get hit by the Windfall Elimination provision, which means that the SSA uses a different formula to compute your benefit, and your benefit is reduced. The Windfall Elimination provision is complex and has various exceptions, but be aware that it may apply if you turned 62 or became disabled after 1985 and you first qualified for a pension based on work in which you didn’t pay Social Security taxes after 1985. Importantly, this provision doesn’t apply to federal workers hired after December 31, 1983.

Although the Windfall Elimination provision may cost you, it’s capped at 50 percent of your uncovered pension. If you have an uncovered pension of $1,000 per month, the most that your Social Security benefit can be reduced by is $500, and depending on the specific facts of your situation, that amount may be a lot less.

Want to find out more? A good place to start is the Social Security website. You can find out more about the impact of a pension from uncovered work on your benefits at www.ssa.gov/pubs/10045.html.

THE GOVERNMENT PENSION OFFSET PROVISION

Say you qualify for spousal or survivor’s benefits in Social Security, but you also get a pension because of your own work in local, state, or federal government. If so, your Social Security may be reduced under the Government Pension Offset provision. The reduction is significant: It comes to two-thirds of the amount of your government pension. Suppose you have a government pension of $900 per month, and you’re eligible for a Social Security widow’s benefit of $1,200 per month. In this case, Social Security may reduce your widow’s benefit by $600 (two-thirds of $900), leaving you with a Social Security benefit of .

Congress enacted the Government Pension Offset provision to make sure that Social Security benefits for government workers are reduced in a similar manner as for individuals who have worked entirely within the Social Security system. For example, if you qualify for a Social Security spousal or survivor’s benefit, but your own work record makes you eligible for an even larger benefit, you get only the benefit you’ve earned yourself. You can’t receive both your larger benefit and the smaller spousal or survivor’s benefit. In practice, several factors can preserve your full Social Security benefit, such as the following:

● Your government pension isn’t based on earnings.

● Your government pension is based on a job in which you paid Social Security taxes and you filed for Social Security benefits before April 1, 2004, or your job ended before July 1, 2004, or you paid Social Security taxes on your earnings during the last five years of government work.

● You’re a federal employee who switched from civil service retirement to the Federal Employees Retirement System (FERS) after December 31, 1987, and you filed for Social Security spousal or widow/widower benefits before April 1, 2004; your job ended before July 1, 2004; or you paid Social Security taxes on five years of earnings for government employment between January 1988 and when you become entitled to benefits.

You can find out more about the Government Pension Offset provision at www.ssa.gov/pubs/10007.html.

Covering your spouse and children with retirement benefits

Social Security benefits for spouses are part of the economic foundation of older households. Under the rules, a spouse may get up to half the full benefit given to the retired breadwinner.

The spouse may qualify at 62, but benefits are reduced for every month they’re claimed before the spouse reaches full retirement age. If a spouse takes spousal benefits at 62, and the full retirement age is 67, the amount comes to 32.5 percent of the breadwinner’s full retirement payment. If the spouse waits until full retirement age, the amount comes to 50 percent of the breadwinner’s full payment.

A noteworthy exception is when the spouse is caring for a child who also qualifies. In this case, the spouse gets 50 percent of the breadwinner’s full payment regardless of the spouse’s age. (For a deeper exploration of spousal benefits, including issues for spouses who qualify based on their own working records, see Chapter 9.)

The reduction for early collections of the spousal benefit works like this: Benefits are reduced by of 1 percent for each month the benefit is claimed before full retirement age – up to 36 months before full retirement age. If a spouse claims the benefit earlier than 36 months ahead of full retirement age, the benefit is further cut by a factor of of 1 percent per month.

Here’s an example: Max has just retired at 66 and begun collecting a full retirement benefit of $1,600 per month. Olivia, his wife, who is 63, qualifies for a spousal benefit of half that amount – $800 – if she waits until her full retirement age of 66 to claim it. But that’s three years away. If Olivia collects the spousal benefit now, Social Security reduces her benefit by 25 percent, to $600. (Unlike the basic retirement benefit, which continues to increase up to age 70 if you don’t claim it at full retirement age, spousal benefits don’t grow after the spouse reaches full retirement age.)

Social Security offers an online calculator that can tell spouses what percentage of the breadwinner’s full retirement they’ll get, depending on the age at which they begin collecting a spousal benefit. Go to www.ssa.gov/oact/quickcalc/spouse.html to use this handy tool.

You may also earn benefits that cover your dependent children if you die, retire, or become disabled. Suppose an older dad has a child. If the father begins to collect Social Security retirement benefits while his young child still lives at home, the child may qualify for as much as half the father’s benefit (75 percent of the benefit if the father dies).

Social Security may make no distinction among biological children, adopted children, and stepchildren. For that matter, a dependent grandchild may also qualify. (See Chapter 10 for more details on child and family benefits.)

Say Johnny is a securities lawyer married to a much younger woman. When Johnny hits 60, his 30-year-old wife, Larissa, gives birth to a daughter, Janniva. Johnny plugs away at the law firm for six more years and then retires at 66, claiming a Social Security retirement benefit of $2,466. Janniva qualifies for a child benefit of $1,233 (half her father’s full retirement benefit), and she gets that benefit as a dependent child until she turns 18. If Johnny dies at age 66, Larissa can also get a benefit, even though she’s only 36 years old. As a young surviving spouse who is caring for the deceased worker’s dependent child, she gets a monthly payment of $1,233. The SSA applies different time limits to some of the family benefits that involve children. In the preceding example, the money Larissa gets as Janniva’s mother ends when her daughter turns 16.