How Social Security Fits Into Your Retirement Plan

Social Security is one part of your retirement income, not the whole thing

Social Security replaces a portion of your pre-retirement earnings — typically 40 percent for an average earner, though this varies by your work history and when you claim. It is a monthly payment from the federal government, funded through payroll taxes you and your employer paid during your working years. The amount you receive depends on three things: how much you earned over your lifetime, how many years you worked, and the age at which you start collecting.

Most people think of Social Security as their main retirement income source, but financial advisors generally recommend treating it as a foundation you build other savings on top of. If you retire at 65 and Social Security provides $2,000 per month, you still need to cover the gap between that and your actual living expenses. That gap is where personal savings, pensions, part-time work, or other investments come in.

Understanding how Social Security works — and what it will and will not cover — helps you make realistic decisions about how much to save on your own and when to retire.

Key Takeaways

• Social Security replaces roughly 40 percent of pre-retirement income for an average earner, so you will likely need other income sources to cover your full expenses.
• Your benefit amount is based on your highest 35 years of earnings, so gaps in work history or lower-earning years reduce your monthly payment.
• Claiming at 62 gives you smaller monthly payments than waiting until 67 or 70, and the difference compounds over decades.
• You can view your projected benefit amount on your Social Security account at ssa.gov, which updates annually and shows estimates for different claiming ages.
• Married couples and divorced individuals have additional claiming strategies that can increase household income, but these require understanding your specific situation.

How your Social Security benefit amount is calculated

The Social Security Administration (SSA) looks at your earnings record for your highest 35 years of work. If you worked fewer than 35 years, they count zeros for the missing years, which lowers your average. This is why people who took time out of the workforce — for caregiving, education, or unemployment — often receive smaller benefits than those with continuous work histories.

The SSA adjusts your historical earnings for wage inflation, then calculates your average monthly earnings across those 35 years. From that average, they explore a formula that replaces a higher percentage of lower earnings and a lower percentage of higher earnings. This formula is progressive: it provides a larger replacement rate for people who earned less during their careers.

Once you reach your full retirement age — which is 66 or 67 depending on your birth year — you become may have access to to your "primary insurance amount," or PIA. This is the benefit you receive if you claim at your full retirement age. If you claim earlier or later, the amount adjusts up or down.

The impact of claiming age on your monthly payment

You can claim Social Security as early as age 62, but each year you wait increases your monthly payment. The increase is roughly 8 percent per year between age 62 and your full retirement age, and another 8 percent per year between your full retirement age and age 70. This means claiming at 70 instead of 62 results in a payment roughly 76 percent higher each month.

The trade-off is time. If you claim at 62 and live to 80, you will have received payments for 18 years. If you wait until 70 and live to 80, you will have received payments for only 10 years. The "break-even" age — when total lifetime benefits are equal regardless of claiming age — is typically around 80 to 82. If you expect to live past 85, waiting usually results in more total money. If you expect to live to 75 or earlier, claiming sooner usually results in more total money.

This calculation changes if you have a spouse, dependents, or a shorter life expectancy due to health conditions. It also changes if you plan to work part-time after claiming, because Social Security reduces your benefit if you earn above a certain threshold before your full retirement age.

How work history and gaps affect your benefit

Social Security counts only years in which you earned enough to receive a "credit" toward your benefit. In 2024, you earn one credit for each $1,730 in wages (the threshold changes yearly). You need 40 credits total to receive any Social Security benefit — roughly 10 years of full-time work. You need 30 credits to receive survivor benefits if you die, and 20 credits if you become disabled.

If you have gaps in your work history — years you did not work or earned very little — those years count as zeros in your 35-year average. A five-year gap can reduce your benefit by 10 to 15 percent. This affects people who took time off for caregiving, went back to school, or experienced long unemployment.

Some people can exclude certain years from their calculation. If you were born before 1951, you may be able to use a "dropout year" rule that removes your lowest-earning years from the calculation. If you raised children before age 16, you may be able to exclude some years as a parent. These rules are specific and require reviewing your individual record with the SSA.

Checking your Social Security statement and projected benefits

The SSA maintains an online account at ssa.gov where you can view your earnings record and see projected benefit amounts. You create an account using your Social Security number, email, and identity verification. Once logged in, you can see what you earned each year, how many credits you have accumulated, and what your monthly benefit would be if you claimed at 62, at your full retirement age, or at 70.

These projections assume you continue working at your current pace until you claim. If you plan to retire early, work part-time, or have a significant income change, the projection will be different. The SSA updates your account annually, usually in September or October, after they receive wage reports from your employer.

You should review your earnings record for errors. If you see a year where you know you worked but no earnings appear, or earnings are much lower than you remember, contact the SSA to correct it. Errors can happen when employers report wages incorrectly or when names change due to marriage or legal action. Correcting errors now prevents a lower benefit later.

Coordinating Social Security with other retirement income sources

Social Security works best as part of a broader retirement plan that includes personal savings, employer pensions (if you have one), and possibly part-time work. A common approach is to calculate your expected expenses in retirement, subtract your Social Security income, and then determine how much you need from savings or other sources to cover the gap.

If you have a 401(k), IRA, or other retirement account, you can coordinate when you withdraw from it with when you claim Social Security. Some people claim Social Security early and delay withdrawing from savings, letting the savings grow. Others do the opposite. The best strategy depends on your health, life expectancy, tax situation, and how much you have saved.

If you have a pension from a government job where you did not pay Social Security taxes, a rule called the Government Pension Offset may reduce your Social Security spousal or survivor benefit. If you receive a pension from work where you did pay Social Security taxes, it does not affect your benefit, but you may owe income tax on the combination of pension and Social Security income.

Special situations: married couples, divorced individuals, and survivors

If you are married, you may be able to claim a spousal benefit — up to 50 percent of your spouse's primary insurance amount — even if you have no work history of your own. The rules for this changed in 2015, and the rules that explore depend on your birth date. If you were born before January 2, 1954, you may have more options than someone born after that date.

If you are divorced and were married for at least 10 years, you may be able to claim on your ex-spouse's record without affecting their benefit or requiring their permission. You must be at least 62 and unmarried. The benefit you receive is based on their earnings record, not yours, but you do not receive more than you would on your own record.

If your spouse or ex-spouse dies, you and your children may receive survivor benefits. A surviving spouse can claim as early as age 60 (or 50 if disabled), and children under 19 (or 19 if still in high school) can claim until they age out. These benefits come from the deceased person's Social Security account and do not reduce anyone else's benefit.

Frequently Asked Questions

Can I work and collect Social Security at the same time?

Yes, but if you claim before your full retirement age, Social Security reduces your benefit by $1 for every $2 you earn above an annual threshold (roughly $23,400 in 2024, though this changes yearly). Once you reach your full retirement age, there is no earnings limit. If you are still working and earning significantly, you may want to delay claiming until your full retirement age or later.

What happens to my Social Security if I move out of the United States?

You can receive Social Security payments while living in most countries, but not all. The SSA maintains a list of countries where payments are and are not sent. If you move to a country where payments are not sent, you must return to the U.S. to collect. Some countries have agreements with the U.S. that allow payments to continue. Check with the SSA before moving internationally.

How much will my Social Security benefit be reduced if I claim at 62 instead of 67?

The reduction is roughly 30 percent if your full retirement age is 67. If your full retirement age is 66, the reduction is roughly 25 percent. The exact percentage depends on your birth year. You can see your specific reduction on your Social Security account at ssa.gov or by calling the SSA at 1-800-772-1213.

Do I have to pay taxes on my Social Security income?

It depends on your total income. If Social Security is your only income, it is not taxed. If you have other income (wages, pensions, investment income), up to 50 or 85 percent of your Social Security benefit may be subject to federal income tax. Your state may also tax Social Security depending on where you live. A tax professional can help you estimate your tax liability in retirement.

Can I change my mind after I start collecting Social Security?

You can withdraw your claim within 12 months of starting to collect and repay all benefits you received. This resets your claiming age and allows you to claim again later at a higher amount. After 12 months, you cannot withdraw your claim, but you can request a one-time increase if you reach age 70 and have not yet claimed your full benefit.