Social Security Benefits: Everything You Need to Know to Avoid Mistakes That Could Cost You
Social Security is something most Americans will rely on at some point in their lives. For many, it’s a key source of income in retirement. However, despite its importance, many people still lack basic knowledge about how Social Security works. Understanding your Social Security benefits and how to maximize them can significantly affect your financial situation later in life.
Social Security Facts You Should Know
As of 2024, nearly 68 million Americans are receiving Social Security benefits, with around $1.5 trillion paid out annually to retirees, disabled workers, and their families. In fact, Social Security makes up about 30% of the average retiree’s income, with typical monthly payments ranging between $1,500 and $1,900.
But here’s the surprising part: A 2024 survey by MassMutual found that 41% of Americans failed a basic Social Security quiz, scoring below 54%. This highlights a critical issue: Many people are unaware of how Social Security works and how to take full advantage of it. It’s essential for everyone, especially younger generations, to understand the system and avoid costly mistakes.
What is Social Security?
Social Security, created under President Franklin D. Roosevelt in 1935, was designed to provide financial security for the elderly and disabled workers. Contributions to the program are made through payroll taxes, which are collected under the Federal Insurance Contributions Act (FICA). Over time, Social Security became the primary financial support system for American workers and their families.
But Social Security is not just for retirees. According to the Center on Budget and Policy Priorities, one in five recipients receive benefits due to disability. It also provides life insurance coverage—an important safety net for families. In 2023, for example, the average worker with a spouse and two children had life insurance coverage worth nearly $950,000.
When Are You Eligible for Social Security?
In the U.S., you can start receiving Social Security benefits at the age of 62, but the earlier you start, the lower your monthly payments will be. The full retirement age is currently 67, but you can continue to defer your benefits until age 70, which allows you to increase your monthly payout with delayed retirement credits. These credits can increase your monthly benefits by up to 8% per year.
However, waiting to claim your benefits isn’t always simple. You should also consider when to enroll in Medicare, as delaying Social Security while enrolled in Medicare could result in higher costs down the line.
How Much Should You Expect to Receive?
The amount you can expect to receive from Social Security depends on when you claim it. For example, if you retire at age 62 in 2025, your monthly benefit might be about $1,950. However, if you wait until full retirement age (around 67), that amount can increase to $4,018 per month. Delaying further until age 70 could result in a maximum benefit of $5,108 per month.
This difference can add up to significant amounts over time, demonstrating why waiting until full retirement age (or beyond) to claim your benefits can be highly beneficial.
How to Apply for Social Security Benefits
Applying for Social Security benefits is a straightforward process, but there are some key steps to keep in mind. You should first check your eligibility, which depends on factors like your age, work history, and whether you have a disability. The Social Security Administration (SSA) provides an online tool that helps estimate your benefits and allows you to adjust your estimated future earnings.
Once you’ve confirmed your eligibility, you can apply through the SSA website. Be sure to also understand the tax implications of your benefits, especially if your total income exceeds $25,000 per year as an individual or $32,000 per year as a couple.
The Social Security Tax
Social Security taxes are automatically deducted from your paycheck. As of 2024, employees contribute 6.2% of their wages to Social Security, with employers matching that contribution. This means that a total of 12.4% of your earnings goes into the Social Security fund, up to a yearly earnings cap of $168,600.
Over the course of your working life, you’ll pay hundreds of thousands of dollars into Social Security. For example, someone earning a median wage throughout their career might contribute around $367,000, while someone with a higher income might contribute $588,000.
Recent Changes and Adjustments
The Social Security system underwent several changes in 2024 to address inflation, with higher payments being made to beneficiaries. The COLA (Cost of Living Adjustment) Act, signed by President Biden, aims to ensure that benefits keep up with rising costs. However, there are concerns that the system’s reliance on contributions from current workers could put its future at risk, especially as younger generations express concerns about the program’s sustainability.
Maximum Social Security Benefits at Different Ages
If you retire at age 62, you might expect a monthly payment of around $1,950. However, by waiting until full retirement age (around 66 or 67), your monthly benefit could increase to $4,018. Delaying your benefits until age 70 could result in a maximum monthly payout of $5,108.
Supplemental Security Income (SSI)
In some cases, individuals who are receiving Social Security benefits may also qualify for Supplemental Security Income (SSI). SSI provides additional financial support to those with minimal income or disabilities. As of 2025, individuals with total income less than $987 per month may qualify for SSI, depending on other factors such as assets and family status.
How to Pause Your Social Security Benefits
If you reach full retirement age, you can request to pause your Social Security benefits. This allows you to continue earning delayed retirement credits for every month you delay. Once you reach 70, your benefits will automatically restart, and you’ll begin receiving the full amount.
Conclusion
Social Security is an essential part of retirement planning, and understanding how it works can make a significant difference in your financial future. By knowing when to claim, how to maximize your benefits, and understanding the tax and eligibility implications, you can ensure that you’re making the most of the system. Whether you’re young or nearing retirement age, staying informed about Social Security is a smart step towards securing your financial future.
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