What You Need to Know about Social Security

By Nathan Davis, CFP®, CFA

While it may be true in some cases that what you don’t know won’t hurt you, that doesn’t apply to Social Security. Despite being the subject of off-and-on debate in Congress, it seems pretty clear that Social Security will continue to be an important source of retirement income for most Americans. But it’s a matter that deserves careful attention and planning as retirement approaches.   

First of all, it’s important to note that in 2024, about 67 million Americans—around 20% of the population—received some form of payment from Social Security, whether retirement benefits, disability benefits, or survivor’s benefits. And yet, in a recent survey conducted by the financial website GoBankingRates.com, significant numbers of respondents couldn’t answer some of the most basic questions about this very important program, such as when you can start claiming retirement benefits (70% didn’t know), how much the average monthly benefit is (half missed this answer), or how to apply for spousal benefits (43% didn’t even know spousal benefits existed).   

It’s slightly encouraging to learn that older participants in the survey seemed somewhat better informed about Social Security than their younger counterparts, but don’t forget that many individuals in their 20s, 30s, and 40s, may need to assist their parents with making smart choices about when to begin receiving benefits, how to file, and other important decisions surrounding Social Security. So, let’s take a look at a few basics that everyone should know.  

Your free online account.

The first step in making more informed decisions about your Social Security benefits is setting up your free online account at MySocialSecurity (https://www.ssa.gov/myaccount/). Even if you’re ten or more years from retirement, you should register for this free, online access to your Social Security information. For one thing, having your account set up will make it harder for identity thieves to claim benefits in your name. But the principal benefit is the access your account will provide to your official record of earnings, various planning tools, estimates of your Social Security benefits at various ages, calculators, and even online applications for benefits. If you have an older parent, relative, or friend who hasn’t set up their account, help them do it as soon as possible—and while you’re at it, set up your account, too.

Receiving benefits.

Only 30% of the participants in the GoBankingRates.com survey knew that eligible persons can apply for and begin receiving retirement benefits from Social Security as early as age 62 (“early retirement”). However, if you begin receiving benefits early, your benefits will be permanently reduced. Full retirement age, when you can begin receiving an unreduced benefit, is between age 66 and 67, depending on when you were born:

• Persons born 1943–1954: age 66 

• Persons born 1955–1959: somewhere between age 66 and 67 

• Persons born 1960 and later: age 67 

But you aren’t required to begin receiving benefits at full retirement age. You can wait as late as age 70, and for each year you wait, your full retirement benefit is increased by 8% per year. Once you reach age 70, however, your benefit is capped; it won’t increase any more, no matter how long you wait.  

Eligibility.

If you work for an employer who withholds wages or if you are self-employed and pay self-employment tax, you can become eligible to receive Social Security benefits. In 2025, for each $1,810 you earn, you receive one credit in the Social Security system. You can earn a maximum of four credits per year, and when you have accumulated 40 credits, you become eligible to receive Social Security retirement benefits. For disability benefits, you can become eligible with as few as six credits, depending on your age at the time of becoming disabled. Survivors of young workers who accumulated at least six credits prior to their death may be able to receive survivor benefits.

When to start your application.

For retirement benefits, you should start the application process at least four months before you intend to begin receiving benefits. To apply, you’ll need:

• Your Social Security number 

• Your date and place of birth 

• If applicable, your spouse’s name, date of birth, and Social Security number 

• If applicable, the name, date of birth, and Social Security number for any former spouses 

• Your divorce decree (if applicable) or certificate of death of former spouse (if applicable) 

• The month you want your benefits to begin. 

There may be additional documentation required in some cases, which is why you shouldn’t wait until the last minute to begin the process. 

Should You Ever Consider Filing Early?  

While most may benefit by waiting as long as possible to begin receiving benefits (because of the 8% annual increase), there are some situations where it can make more sense to file as early as possible. Here are some examples: 

• You are in poor health. Life expectancy following retirement is probably the number-one variable that we must contend with when helping people plan for retirement. If your health is poor, filing earlier for Social Security benefits may be a wise choice. Even if you file at the earliest possible time, at age 62, you are still eligible to receive 75 percent of your full benefit, and that extra monthly payment can make your life much easier, especially if you have other assets with which to supplement your income. But before committing, you might wish to have a frank discussion with your physician. A 2015 study by Stanford University researchers indicated that two-thirds of retirees who claimed early actually had enough assets to be able to wait two years or more before beginning Social Security payments. If your health is not great but also not dire, it could still make sense for you to wait until age 64 or 65. 

• Your spouse is ten to twelve years older than you. In this situation, claiming early, especially if you have significantly lower earnings, can put you ahead in certain circumstances. According to Baylor University’s Bill Reichenstein, if, for example, you are a woman who is twelve years younger than your spouse, and he waits until age 70 to begin claiming benefits, you might consider claiming at age 62. It would take you until about age 78 (when your husband is 90) before the money you would have received by delaying your payment would exceed what you received by filing earlier. Given the time value of money, collecting for a longer period of time is better than waiting for the bigger payments. And if, as is statistically likely, your husband predeceases you, you’d be able to switch to a survivor benefit equal to his monthly payment. 

• You have qualifying dependent children. When you file, your qualifying dependent children may also qualify for payments. This one can be complicated, so do the math carefully, and you may also want to consult with a qualified advisor. But in some cases, this can be a win-win strategy. 

 

In all these scenarios, of course, it is always best to seek the advice of a qualified financial professional who is familiar with your situation and other resources.   

Making smart choices about Social Security, other pension income, retirement accounts, and healthcare costs can feel overwhelming, but these decisions are interconnected. For example, the age at which you claim Social Security often overlaps with when you first enroll in Medicare, and both programs come with complex rules, deadlines, and potential penalties. Understanding one without the other can leave important gaps in your retirement plan. At Aspen Wealth Management, we help retirees and those preparing for retirement see the bigger picture, coordinating income strategies with healthcare planning to create confidence in the years ahead. To explore this critical connection further, we invite you to read our companion article, “Medicare Made Easy: Preparing for Healthcare Costs in Retirement.”