The Social Security Administration (SSA) issues payments to those who qualify by having enough credits earned through working. The number of required credits depends on the type of benefit. An application needs to be submitted to the SSA for any of the following provisions:

  • Retirement
  • Disability
  • Family survivors
  • Medicare

Your Social Security Statement includes a personalized projection of payments in each of the scenarios above. For retirement, the pay is estimated at early and full retirement age as well as at age 70. Access to benefit calculators is available online at Typically, the older you are, the more accurate the estimates will be, but the actual amount of your benefit cannot be confirmed until you apply.

How pay is calculated
The Social Security Administration determines a recipient’s level of benefits based on employment income records. That is why it is critical to register on the “my Social Security” website, review SS statements annually, retain all federal W-2 and 1099 forms, and report any errors to the SSA immediately.

The benefit calculation is based on the highest 35 years of earnings. Note: it is the earnings rather than the amount of taxes paid or credits earned that determines how much will be paid out in SS benefits.

Factors causing estimates to skew
The Social Security Administration provides individual projections with a caveat. Benefit estimates are established around current law, which may change as a result of depleted fund reserves. This is predicted to happen by 2035.

Following are other situations that may impact SS payments:

  • Shift in future earnings, cost-of-living adjustments, military service, railroad employment and pensions where Social Security tax was not withheld.
  • Death of a spouse or, if divorced, an ex-spouse, which may result in an increased survivor benefit based on the spouse’s work.
  • Collecting Social Security benefits at age 62 while continuing to work, which results in a benefit reduction.
  • Social Security subject to income tax, which varies depending on the state of residence, income level and tax filing status.

Social Security benefits as a source of income
Although it is good to know the size of the safety net you can expect in the future, continue to be prudent with any other revenue streams you may have. The Social Security Administration estimates that SS payments will replace an average of 40% of yearly pre-retirement income, suggesting that this benefit is intended to serve as a supplement to savings, investments, pensions, IRA plans and 401K accounts. Sage advice is to manage your money so that SS is not your sole source of income.

Related articles:

Do Social Security Benefits Expire?(Opens in a new browser tab)

What is the Medicare Savings Program?(Opens in a new browser tab)