Even though Social Security is best known for its retirement benefits, there are actually three distinct programs under the Social Security umbrella. Any of these may come up in conversations with clients.

These are all insurance programs which partially replace income lost in retirement, death or disability, and all three work somewhat independently with distinct features and criteria. Without getting into all the nuances, the basic features of the three programs are as follows:

1) The Retirement program—the primary topic of this series of blogs—insures against loss of retirement income and may provide benefits to the worker, a spouse, qualifying ex-spouses and children less than 18;

2) The Survivors program insures against the risk of a worker’s death and may provide benefits to a surviving spouse older than 59, qualifying ex-spouses or children less than 18; and

3) The Disability program insures against the risk of worker’s health becoming seriously impaired and them being unable to work.


Qualifying for retirement benefits is not automatic. Workers must accrue at least 40 Social Security credits in order to qualify for benefits. Each credit is one three-month period during which the worker records earnings history and pays taxes into the SS system. These credits do not have to be acquired consecutively and are saved for life. An important note: 40 credits is a hard limit. There is no qualifying for partial benefits if a worker has less than 40 credits.

The actual retirement benefits, on the other hand, are calculated based on the highest 35 years of earnings. Every year of a worker’s Social Security paying income is recorded and adjusted for inflation. If a worker has less than 35 years, zeroes are entered to fill in up to 35 years. Conversely, if a worker records higher inflation-adjusted income in later years these higher income years will bump lower income years out of the calculation.

The Social Security statement (available online at SSA.gov) lists the exact annual income in past dollars for all earning years. The highest 35 inflation-adjusted years are averaged and divided by 12 to generate an average monthly amount which is entered into a simple calculation to determine monthly benefits at full retirement age.


There are three important milestone ages for Social Security retirement benefits: 62, 66 and 70.
The first one, 62, is the earliest age at which a worker or spouse can file for SS retirement benefits. Although it is often beneficial to delay filing in order to collect enhanced future benefits, many people still file for SS at this earliest possible date.

The next one, 66 (approximately), is the official Social Security full retirement age (FRA) for individuals born between 1943 and 1960. It will be 67 for people born in 1960 or later. This is the age at which a worker or spouse has the opportunity to utilize a number of useful strategies including suspending filing in order to grow future benefits, file and suspending benefits for the benefit of a spouse and restricted filing in order to collect spousal benefits. All of these will be discussed in future blogs.

Finally, 70 is the latest age at which a worker should file for benefits. Delaying between ages 62 and 70 increases monthly benefits approximately 8% for each year delayed. But there is no benefit to delaying after age 70. The worker would only be leaving money on the table.

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Paul Norr is a financial planner in Thousand Oaks, California and writes about retirement. His website is www.paulnorr.com.