To claim retirement benefits in the US, you must first earn 40 ‘credits’, which can be earned during one year of work. The maximum that can be earned in a year in four, but even if you’re turning 40 soon, it’s usually a bad idea to retire right away.
This is because there multiple factors that affect how much you can claim in Social Security retirement benefits. These are how much you earned earning these credits, your highest salary per year in 35 years, and your retirement age.
Retiring too early can result in you not earning more during your retirement. It is therefore usually best to delay your retirement for as long as possible, at least until full retirement age of 66.
What is the difference with not working for 35 years?
Your last Social Security benefit is calculated using the 35 years of work history in which you earned money. This doesn’t have to be consecutive, so if you took a two-year break from work and then made more money on your return, the following years would crowd out the years you earned the least.
That’s true, but conversely, you may not have worked for years. For example, if you haven’t worked for five years in a 35-year period, then five years of your salary would be $0. The higher your wages over the 35 years you file, the higher your monthly Social Security benefits will be.
In practice this means that your benefit will be much lower than for someone who has worked the full 35 years, so that is usually required to work full 35 years if you have little or no private savings and are completely dependent on state aid.
WASHINGTON (AP) — Social Security checks are up 5.9% as inflation fuels the largest COLA for retirees in nearly 40 years.
— Jonathan Lemire (@JonLemire) October 13, 2021
How does the retirement age affect your benefit?
The maximum benefit depends on the year in which you retire. Those who chose to retire before the age of 65 will be penalized with reduced benefits. These are the splits for 2021, depending on retirement age:
- $3,895 for someone who files a tax return at age 70,
- $3,148 for someone who applies at full retirement age (currently 66 and 2 months),
- $2,324 for someone who files a tax return at age 62.
You can check your own estimated monthly benefits using the Social Security Administration’s online calculator. You need to know or estimate your annual income for the past 35 years.