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How Much Do Social Security Retirement Benefits Pay?

Copyright © 2012 AARP. All rights reserved.

Although you have to rack up 40 credits to qualify for Social Security retirement benefits, that doesn’t determine the size of the payment that goes to you or your dependents. The Social Security Administration (SSA) bases the amount of your benefit on your lifetime earnings — specifically (for workers born after 1928), the 35 highest-paid years in which you paid Social Security taxes. Your 35 highest years don’t have to be consecutive, and they don’t have to be the most recent 35 years, but 35 is an important number. If you have less than 35 years of earnings, the SSA will add zeros to reach 35. The impact of those zeros will vary, depending on your earnings history.

As you may expect, more career earnings means a bigger benefit. Highly paid workers who contributed more taxes throughout their working careers end up with bigger Social Security payments (although the benefit formula is skewed to provide low earners a larger share of their working wages in retirement than high earners receive).

Social Security benefits rise due to cost-of-living increases that are meant to help retirees keep up with inflation. Congress may debate whether to tweak the cost-of-living formula, but the importance of inflation protection is widely recognized, and it remains one of the most politically popular features of Social Security.

Other things affect your benefit amount as well, including the following:

  • How old you are when you start collecting benefits: You can start receiving Social Security as early as age 62, but you won’t get as much as you will if you wait until you’re 70.

  • If you worked in any jobs that weren’t covered by Social Security: Your full benefit may be reduced by any periods of your working career in which your job was not covered by Social Security, a reality for many government workers.

  • If you’re working while drawing benefits: Social Security may withhold a portion of your retirement benefits if you earn above a certain amount while receiving benefits and you haven’t yet reached the full retirement age, which is currently 66.

Social Security also takes money off the top of your retirement benefit to pay for Medicare coverage if you’ve reached 65 and you’re enrolled in Medicare. The monthly premium for Medicare Part B, supplementary medical insurance (doctor’s and some other services), is deducted automatically if you’ve reached 65 and entered Medicare. The standard Part B premium paid by most Medicare enrollees was set at $99.90 for 2012. Premiums — and the Medicare deduction — generally rise with inflation.

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