Key Takeaways
- To qualify for benefits, older adults must be age 62+ and have worked at least 10 years.
- Social Security benefits are progressive and based on the highest 35 years of career earnings.
- Full retirement age (FRA) is when full benefits can be claimed and the earnings limit goes away.
- Benefits are permanently reduced for those who claim Social Security before FRA.
- A portion of Social Security benefits above certain income levels is taxed as ordinary income.
- Benefits are evaluated annually with a cost of living adjustment (COLA) for inflation.
2025 is the 90th anniversary of Social Security. The program began in 1935, when the Social Security Act was signed into law. In 2025, about 73.9 million people receive benefits.
Since its creation, Social Security was meant to be a foundation to build on- not a complete retirement plan. In other words, a basic level of income protection against poverty in old age, disability, or the loss of a family wage earner. Additional income sources were always advised.
A commonly used analogy is the “three-legged stool” with Social Security, employer pensions, and private savings as the “legs” of the stool providing financial stability in later life. Relatively few retirees receive pensions today, however, so other legs of the stool can include savings and investments and other income sources (e.g., part-time work, self-employment, and rent).
This article describes key things that older adults need to know about Social Security including how to qualify for benefits and how benefits are calculated and taxed.
Qualification Factors
To qualify for benefits, older adults need 40 credits (also called quarters of coverage) or 10 years of work and must be age 62 or older. Social Security recipients earn credits when they work and pay Social Security (FICA) taxes. A quarter of coverage in 2025 is $1,810 for three months of work or $7,240 for the year. These amounts are indexed annually for inflation.
Some people have jobs that do not pay into Social Security, primarily public employees in certain states. If retirees are short credits, they might consider a part-time job or entrepreneurship to earn missing credits.
Benefit Calculation Process
Social Security benefits are based on earnings. First, a worker’s wages are adjusted for changes in wage levels over time. Next, the monthly average of the highest 35 earning years is calculated. The result is called “average indexed monthly earnings” or AIME.
Lastly, the “primary insurance amount” or PIA applies a progressive formula to AIME with different percentage rates for different increments of income. Social Security replaces a higher percentage of lower earnings and a smaller percentage of higher earnings.
Full Retirement Age
Full retirement age (FRA) is the age when you can claim your full Social Security retirement benefit (PIA) without any reduction. It depends on your year of birth. Once age 65 for all retirees, FRA has been gradually increasing in two-month increments. Older adults born between 1943 and 1954, for example, have a FRA of age 66.
Those born in 1955, 1956, 1957, 1958, and 1959 have FRAs of 66/2 months, 66/4 months, 66/6 months, 66/8 months, and 66/10 months, respectively. For those born in 1960 or later, FRA is age 67.
Early Claiming
Benefits are permanently reduced for those who claim Social Security at age 62: 25% for those born between 1943 and 1964 and 25.83%, 26.67%, 27.5%, 28.33%, and 29.17% for those born from 1955 through 1959. The benefit reduction is 30% for those born in 1960 or later. Despite reduced benefits, some people claim early due to financial need, health concerns, and fear of future benefit reductions.
The earnings limit applies to recipients under FRA, who can earn up to $23,400 in 2025 with $1 withheld for every $2 over the earnings limit. In the year that FRA is reached, recipients can earn up to $62,160 in 2025 with $1 withheld for every $3 over the earnings limit. These limits are indexed annually for inflation. After FRA is reached, beneficiaries can earn any amount without any earnings limit.
Delayed Claiming
The case for delayed claiming is bigger monthly checks. Each year that you delay past FRA, up to age 70, adds 8% to your Social Security benefit- for life. Waiting not only provides a higher benefit for workers, but it also boosts the amount that their spouse will receive.
Working While Collecting Benefits
Continued work in later life can raise your Social Security benefit. You will still pay FICA tax on post-retirement earnings, as you would at any age, while also receiving benefits. If later life earnings replace years with “0” or low earnings in the AIME calculation, your benefit will increase.
Spousal Benefits
Retirees who did not contribute much to Social Security may be eligible for benefits through their spouse. If you are married at least a year and your spouse is collecting benefits, you can receive up to 50% of your spouse’s full benefit. You won’t get both your own benefit and a spousal benefit, however. Social Security will pay the higher of the two.
If you are divorced and your marriage lasted 10 years or longer, you can receive benefits on your ex-spouse’s record, even if he or she has remarried, if you are age 62 or older, unmarried, and the benefit based on your own work record is less than what you would receive based on your ex-spouse’s work.
Survivor Benefits
When you pass away, your surviving spouse can receive 100% of your full benefit at FRA or, at age 60, 71.5% of your full benefit which gradually increases each month you wait until FRA. A couple must have been married for at least nine months with exceptions for accidental and military-related deaths.
Income Tax on Benefits
Tax on Social Security is based on a calculation called “combined income” (adjusted gross income + nontaxable interest + half of Social Security income). If combined income is greater than $25,000 for single taxpayers and $32,000 for married couples filing jointly, up to 50% of Social Security is taxable.
At combined incomes greater than $32,000 for singles and $44,000 for couples, up to 85% of benefits are taxable. Social Security recipients can request that the Social Security Administration (SSA) withhold taxes to cover their extra tax liability.
Calculating the COLA
The cost of living adjustment (COLA) for Social Security is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers or CPI-W. The three reference months are July, August, and September. This three-month average is compared to the same three-months from the previous year.
If the CPI-W increases, the percentage difference becomes the COLA. If there is no increase (or a decline), benefits remain the same. A COLA increase is applied to benefits starting in January of the following year.
Social Security Clawbacks
A clawback is when the SSA reduces or withholds a person’s monthly benefit payment to recover money that was previously overpaid due to errors, delays in reporting income, or other causes.
Recent Social Security Legislation
Social Security Fairness Act
The Social Security Fairness Act (SSFA), passed in 2025, affected about 3.2 million people who previously had Social Security benefits reduced or eliminated as a result of the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO). The WEP affected people who worked in non-Social Security covered jobs but who also qualified (40 quarters) to earn Social Security benefits. The GPO affected those receiving spousal or survivor benefits.
OBBBA
The 2025 One Big Beautiful Bill Act (OBBBA) did not eliminate taxes on Social Security. However, OBBBA did establish a new senior tax deduction for older adults age 65+ whether they are retired or claiming Social Security or not. The income phaseout range is a modified adjusted gross income of $75,000 to $175,000 for single taxpayers and $175,000 to $250,000 for married couples filing jointly.
Medicare and Social Security Connections
People who apply for Social Security before age 65 are automatically enrolled in Medicare Part A (hospital insurance). Others must reach out proactively to Medicare to sign up.
Medicare Part B and Part D premiums are generally deducted directly from Social Security benefits, thereby simplifying payments for retirees. If benefits are suspended due to a clawback, Medicare will send a bill to pay premiums directly out-of-pocket.
The Future of Social Security
The 2025 Social Security Trustees’ Report projects that Social Security’s trust fund will be depleted in 2033, after which current and future beneficiaries will see their benefits cut by 23% if Congress does not shore up the Social Security program’s financial stability. Projections are updated annually.
Possible fixes for Social Security include:
- Raising or eliminating the payroll tax cap (wage base), which is $176,100 in 2025
- Increasing the payroll tax
- Diversifying trust fund investments to include stocks instead of only U.S. Treasury securities
- Means-testing Social Security benefits
- Modifying the benefit formula
- Encouraging late claiming with incentives
About 90% of older adults receive Social Security benefits, and more than half rely on Social Security for at least 50% of their income. Key decisions such as working to earn additional quarters of coverage and a higher AIME, claiming later to receive higher benefits, and supplementing Social Security with additional income sources can help build a financially secure future in later life.
