By Matthew Theal, CFP®

For most people, Social Security will serve as the backbone of their retirement, making up most (if not all) of their guaranteed income.

Currently, the Social Security system covers over 90% of working Americans. These hardworking Americans have taxes deducted from their paychecks every pay period, and those taxes go into a pot (really, it’s a trust fund) that will start paying out benefits to the workers when they retire.

History of Social Security

Social Security was signed into law in 1935; it is known as a government entitlement program. The program was born out of the Great Depression to help senior citizens who could no longer find work. Interesting fact, back in 1935 “too old to work” was considered 60–62.

To fund Social Security, the government collects a tax. The first tax was collected in 1937, and the first benefit check was paid out in 1940.

Since it was signed into law in 1935, Social Security has been adjusted over 100 times, with the most notable changes coming in 2015 through a bipartisan congressional bill.

How Do You Qualify for Social Security?

Each worker becomes eligible for Social Security based on a credit system. You will get one credit for every $1,360 in covered wages earned during the calendar year. You can get a maximum of four credits per year. Earnings not subject to self-employment tax or FICA withholdings do not get counted toward the system. Examples would be S-corporation earnings.

To qualify for Social Security, you need to have worked 40 quarters or 10 years. Once that has happened, you will be eligible to receive a Social Security benefit.

How Is Your Benefit Calculated?

To calculate your benefit, the government uses a 35-year income average. This would mean that if you worked for only 10 years, you would have 25 years of 0’s included in your benefit calculation. If you have worked for 35 years, Social Security will adjust your wages for inflation using the National Average Wage Index. After that, the system will keep your 35 highest-earning years and generate an AIME (Average Index Monthly Earnings).

After the AIME has been generated, an income replacement formula is used to calculate your primary insurance amount (PIA). The PIA is the amount of monthly income a person will receive at their full retirement age (FRA).

Tip: The easiest way to find out your PIA is by going to and creating an account.

When Can You Collect Your Benefit?

The earliest you can collect your benefit is on your 62nd birthday, but you can delay the benefit until you reach FRA and even until age 70. The only way to collect your benefit earlier than 62 is if you are deemed disabled and can no longer work.

There is no advantage to waiting until after 70 to collect your check, as the amount of your check will not increase. If you start collecting at 71 or 72, that money you could have collected is staying with the government.

Tip: Once your account has been created at, you will be able to see your estimated benefit at age 62, FRA, and 70.

How Does Your Benefit Increase?

Between the age of 62 and your FRA (most likely 66 or 67), each year you delay collecting your benefit will increase it by 6.25%. From FRA to age 70, each year you delay collecting your benefit will increase it by 8%.

See the chart below, which assumes an FRA of age 66:

Filing Age Factor
62 75.0%
63 80.0%
64 86.7%
65 93.3%
66 100.0%
67 108.0%
68 116.0%
69 124.0%
70 132.0%

When Should You Collect You Benefit?

The correct answer is usually “It depends on your personal financial situation.”

If you are still employed and making a good living, the best time to collect is generally when you retire and after your FRA (both conditions need to be met). If who don’t need the money (i.e., wealthy), then waiting and collecting at 70 is a good move.

If you are under financial hardship or have a serious health issue, then collecting early could make sense. However, if you decide that you have made a mistake by collecting early, then you have one year to reverse your decision. You will have to write a check to the government for the amount you have already collected. For example, if you have collected 10 checks at $2,000 apiece, then you must write a check for $20,000.

As you can see, it would be wise to talk with a retirement planner before making a life-altering decision.

Schedule a complimentary 30-minute phone call with a fee-only financial advisor to discuss your situation.