Social Security: Part 1 – The Fundamentals
Feel confident about maximizing your Social Security through this series of posts.
Social Security: Critical but Confusing
Social Security plays a huge role in your retirement, but navigating it is not easy. In fact, only 15% of people feel very confident about maximizing their benefits. This isn’t surprising. Social Security is confusing. People trying to figure out their best path forward are, unfortunately, not set up to succeed. Here are a just few examples.
[Begin sarcasm]
A straight-forward, easy to understand benefit formula? The easiest.
Helpful acronyms like PIA, FRA, WEP, GPO? The more acronyms, the better.
A user-friendly website to answer all your questions? Apple wishes it were this user-friendly.
A friendly, knowledgeable customer support team to answer those questions not answered by the helpful website? Move over, Chick-fil-A.
And lots of “free” advice from friends and relatives to help? This is where the best ideas come from.
[End sarcasm]
So given the importance of Social Security but challenges in understanding how to maximize one’s benefits, I wanted to make a series of posts on Social Security. The goal is to help you make this decision with confidence and maximize your benefits. Let’s start by understanding the basics.
Types of Social Security Benefits
When most people hear “Social Security” they think of the retirement benefit component of Social Security. This is the main component of Social Security but there are others. Below are the components of Social Security.
Retirement Benefit: The retirement benefit is the primary benefit component of Social Security. It is designed to replace a portion of a qualified worker’s income when they retire.
Spousal Benefit: The spousal benefit allows spouses (and ex-spouses) to receive up to 50% of their spouse’s full-retirement benefit amount. This benefit is available regardless of whether one has contributed to Social Security.
Disability Benefit: The disability benefit is available to qualified disabled recipients.
Survivor Benefit: The survivor benefit is available to surviving spouses (i.e., widows/widowers) of qualified Social Security beneficiaries.
Eligibility and How Your Benefit is Funded
To be eligible for your personal retirement benefit you need at least 40 quarters (10 years) of eligible wages. “Eligible wages” just means you must make a minimum amount to qualify as a credit. For 2025 that amount is $1,810/quarter or $7,240/year. You can see the wages used to calculate your benefit by reviewing the second page of your Social Security statement at ssa.gov.
There are three critical ages for receiving your retirement benefit: Age 62, Full Retirement Age (FRA), and Age 70. Age 62 is when you can receive a reduced retirement benefit. Full Retirement Age is based on your birth date but is between age 66 and 67. Age 70 is the age at which you can receive your maximum Social Security benefit.
Your personal Social Security benefit is funded by your contributions, your employer’s, or both if you’re self-employed. In general, the higher your lifetime wages, the higher your benefit will be. Importantly, though, there is a maximum amount that is taxed that changes annually. In 2025, that amount is $176,100. This maximum amount also creates a cap for how much a retiree will receive in Social Security benefits.
To calculate your benefit, Social Security takes your 35 highest earning years. This means, generally, you aren’t penalized if you take a lower paying job (e.g., part-time) before receiving your benefits if you have 35 years of higher wages (a common retiree scenario). Also, prior wages are adjusted for inflation using the Average Wage Index (AWI).
Common Myths and Misconceptions
Given the above, here are a few common misconceptions and myths I’ve heard regarding Social Security benefits.
Myth: “Taking a part-time job before I retire will reduce my benefits.”
Fact: Because your benefits are based on your highest 35 years of wages, taking a lower paying job will not necessarily reduce your benefit.
Myth: “I haven’t paid into Social Security, so I shouldn’t expect to receive anything”
Fact: The spousal benefit was designed specifically for spouses who haven’t paid into Social Security. As long as your spouse is eligible, you may be eligible for up to 50% of their benefit.
Myth: “I’m divorced and now expect to receive a reduced benefit because my ex-spouse was a higher earner.”
Fact: If your spouse was fully qualified, you’re at least 62, were married at least 10 years and have not remarried, you’re still eligible to receive the spousal benefit based on your ex-spouse’s income (assuming you aren’t entitled to a larger benefit on your own). Your ex-spouse also does not need to provide consent or approval to provide this benefit. It does not impact their own benefit.
Go and Do this Now
Social Security is complicated. I’m just scratching the surface in this post. But if you take nothing else away from this post, do this: Go to ssa.gov and review your most recent benefits statement. Understand your benefit estimates. Verify your earnings. Confirm your eligibility. I can’t tell you how many retirees I’ve met with haven’t reviewed their statement. It’s worth the 15 minutes to get an understanding of such a critical factor in your retirement.
In my next post, I’ll look at strategies to optimize your benefits. Stay tuned and email me with any questions or thoughts you have in the meantime!
Disclosure: The views expressed in this article are those of the author as an individual and do not necessarily reflect the views of the author’s employer Astoria Strategic Wealth, Inc. The research included and/or linked in the article is for informational and illustrative purposes. Past performance is no guarantee of future results. Performance reported gross of fees. You cannot invest in an index. The author may have money invested in funds mentioned in this article. This post is educational in nature and does not constitute investment advice. Please see an investment professional to discuss your particular circumstances.