Four Factors That Impact Social Security Benefits

Image: Four Factors That Impact Social Security Benefits

With countless rules enforced by the Social Security Administration (SSA) and many potential strategies for collecting Social Security benefits, it’s no wonder pre-retirees and retirees alike often feel overwhelmed and confused when it comes time to claim benefits. What it comes down to, however, is that there are no one-size-fits-all solutions for collecting Social Security, and those of us without a basic understanding of how Social Security works are more likely to make uninformed decisions—which can lead to poor claiming strategies and overall reduced benefits. And the first step to making financially-responsible decisions regarding Social Security and in turn, the best plan of action for your individual situation, is to know your options.


What four things can affect your Social Security benefits?

Before you can determine when the best time is for you to begin collecting Social Security benefits, you need to know what factors impact the overall size of your benefit. Your monthly Social Security benefit is determined by four main factors: your work history, your earnings history, your birth year, and your claiming age. Let’s break down each factor.

Work history

When calculating your monthly Social Security benefit, the SSA will take your 35 highest-earning, inflation-adjusted years into consideration. But don’t worry if you took a few years off to care for the kids or were unemployed briefly; accumulating less than 35 years in the workforce doesn’t mean you’re destined to work forever. Each year fewer than 35 that you worked will simply result in a $0 salary averaged into your earnings history.

Earnings history

As mentioned under the previous bullet, your earnings over your highest-paid 35 years in the workforce will influence your benefit. Higher lifetime earnings often equate to a higher Social Security benefit, in terms of dollar amounts, but the actual percentage of pre-retirement income that’s replaced may be lower for higher income workers. According to the SSA, when retirees begin claiming benefits at full retirement age, as much as 75 percent of pre-retirement income may be replaced for very low earners, 40 percent for medium earners, and 27 percent for high earners.1

Related: How Much Should You Save for Retirement?

Birth year

Full retirement age is defined as the age that grants you 100 percent of your monthly Social Security benefit, which sounds simple upfront, but things get more complicated from there. For starters, your full retirement age varies based on the year you were born. Currently, the full retirement age for those born between 1943 and 1959 is 66 and some change, but if you were born after 1960, you’ll have to wait until age 67 to receive full retirement benefits. Use this resource from the SSA to help you determine your own full retirement age based on your birthdate.

Claiming age

To make things even more confusing, you don’t necessarily need to wait until your full retirement age to begin claiming Social Security, but there are certain benefits for doing so. While retired employees can begin claiming benefits at age 62, your monthly benefit will be permanently reduced by approximately one-half of one percent for each month you receive benefits before reaching full retirement age. While this may not necessarily seem like a big deal at first glance, the permanent reduction can add up to a large dollar amount over the course of a retirement.

Additionally, workers aren’t required to begin collecting Social Security benefits once they reach their full retirement age. In fact, you can wait until age 70 before being required to take distributions—and in return, the SSA will increase your benefit for each month you delay collecting benefits after full retirement age. And with a yearly benefit increase of about 8 percent for each year past full retirement age, a retiree waiting to claim until age 70 can receive anywhere from 54 to 88 percent more per month than a retiree who claimed benefits at 62.

Learn more: Social Security Benefit Planning


Why is it important to have a Social Security claiming strategy?

There are a variety of reasons it’s vitally important to have a Social Security claiming strategy when approaching retirement age. Average life expectancy continues to climb, which means people are responsible for funding more years in retirement than in the past. And since Social Security benefits account for about 30 percent of income of the elderly, with nearly nine in ten people who are 65 or older receiving a Social Security benefit2, it becomes clear that Social Security can have a big impact on financial security in retirement.


For additional tools to help you get there, check out our Retirement Saving Resources or contact us at 888-652-8086.



1"Understanding the Benefits" Social Security Administration, 2023. 
2"Social Security Fact Sheet" Social Security Administration, 2023.