Ensuring you are financially covered during your retirement can be something of a daunting task. Yes, Social Security will have you covered but sometimes that might not be enough — especially if you are not proactive about understanding how to best maximize your claims.
Throughout your working career, you will contribute a percentage of your earnings towards the dedicated Social Security payroll tax. This will earn you work credits, which will in turn earn you the ability to claim benefits from the Social Security Administration (SSA) once you retire. Your earnings during your working career will largely determine how much you qualify to receive in benefits upon retirement. However, knowing the fine print of the SSA’s policies can help you to get the most out of your Social Security income in your later years — and it starts now, whilst you are still working. Here is what you need to know.
How is Social Security calculated?
Throughout your working career, you will contribute 6.2% of your earnings towards the dedicated Social Security payroll tax. Your employer will also match this contribution, and as such, your total contribution amounts to 12.4% of your earnings. It is also important to note that there is a wage cap in place, which means that your income is taxed only up to a certain threshold. The wage cap changes annually, and for 2025 it is $176,100. This means that any income exceeding this figure will not be considered when you are contributing towards the payroll tax.
When you begin claiming your retirement benefits from the SSA, 35 of your highest earning years are put into the calculation. If you have worked for less than 35 years, the years during which you did not work will have an income of $0, which will ultimately bring your benefit amount down. These earnings are adjusted for inflation as well when the calculation is being conducted and it is known as averaged indexed monthly earnings (AIME).
Your earnings play the most significant role is determining how much you will receive in benefits. However, knowing at which age claim can also prove to be incredibly beneficial. Benefits can be claimed from age 62, however, this is considered as claiming early and as a result, you will be locked into a reduction of up to 30%.
Alternatively, if you delay claiming until you are 70, you could qualify for up to 124% of the benefit you would have received at full retirement age (FRA). For 2025, the FRA increased to 66 years and 10 months for those born in 1959. In 2026, the FRA will increase one final time to 67 years for those born in 1960 and later.
Avoid this error
Your payroll tax contributions will be reported to the SSA directly by the IRS, however, the onus is on you to ensure that your earnings have been recorded correctly. An error in this regard could cost you hundreds of dollars each month when you begin claiming. This kind of mistake does not often occur, but it is absolutely worth keeping an eye on at least once a year.
Looking through your earnings record so as to ensure there are no discrepancies will be very beneficial in the long-run, even if only to make sure that all the years you have worked are recorded as such. It is also important to note that if you have earned above the wage cap, your income will not be reflected as such.
If you do happen to notice any issues or discrepancies, you should immediately fill out a Request for Correction of Earnings Record form and submit it to the Social Security Administration. Include any proof of income during those years along with your form as well. Generally speaking, if you need to make a change to your earnings record, you will have around 3 years and 15 days from the end of the year in which the income was earned to do so. If you delay it beyond this window, it may be more difficult to correct.