Key Take-Aways About Social Security From a Webinar

I recently attended a webinar about Social Security retirement and survivor benefits by OneOp with an emphasis on retirement and survivor benefits. Below are seven key take-aways:

 Benefit Payments- Retirement benefits are determined by the amount workers earn and pay in FICA (Federal Insurance Contributions Act) tax, which often shows on paychecks as OASDI. Total FICA tax is 15.3% of gross earnings: 7.65% each paid by workers and their employers. The 7.65% tax is divided: 6.2% is for Social Security and 1.45% for Medicare.

 

Benefit Credits- Workers earn credits (a.k.a., quarters of coverage) when they work and pay FICA tax. To qualify for future benefits, they need 10 years of work (40 credits) and must be age 62 or older. In 2024, at least $1,730 of earnings in a three-month period provides one credit and workers can earn a maximum of four credits per year.

 

Benefit Calculation- Workers’ wages are inflation-adjusted for changes in wage levels over time and the highest 35 years of earnings are used to determine “average indexed monthly earnings” upon which benefits are based. If there are less than 35 years of career earnings, years without earnings are counted a $0 in the benefit calculation formula.

 

Benefit Reductions- Workers with a pension derived from work not covered by Social Security who qualify for Social Security anyway (e.g., by earning 40 credits from side hustles) will have a different benefit computation resulting in a lower Social Security benefit. Those under full retirement age (67 if born in 1960 or later) who work while receiving benefits are affected by an annually inflation-adjusted earnings limit ($22,320 in 2024).

 

Taxation of Social Security- Tax on Social Security is based on a calculation called “combined income” (adjusted gross income + nontaxable interest earned + half of Social security income). If combined income is greater than $25,000 for single taxpayers and $32,000 for couples filing jointly, a portion of Social Security is taxable. Social Security recipients can request that the Social Security Administration withhold taxes to cover their extra tax liability.

 

Spousal Benefits- Spouses receive the higher of a benefit based on their own work record or half their spouse’s benefit. If a spouse’s own benefit is less than 50% of a worker’s, they are combined to equal 50% of the worker’s. Spousal benefits are not paid until a worker collects.

 

Divorced Spouses- Divorced spouses may receive benefits on a former spouse’s record if the marriage lasted at least 10 years, they are unmarried, they are age 62 or older, and the ex-spouse is at least 62 and eligible for retirement or disability benefits, even if not collecting. A current spouse and ex-spouse get the same amount up to the total cap for all benefits.

 

For additional information about Social Security, visit www.ssa.gov or schedule an in-office appointment at 1-800-772-1213. Get a personal Social Security benefit estimate at www.ssa.gov/myaccount.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.