Social Security: A Complete Guide for Retirement Planning

When planning for retirement, many people wonder: How much will Social Security contribute to my income? Understanding how the program works and when to collect benefits can help you plan effectively and ensure you save enough to enjoy your retirement.

What is Social Security?

Social Security is a government program that provides benefits to:

  • Retirees
  • People with disabilities
  • Survivors of deceased workers

How It’s Funded

Social Security contributions come from you and your employer:

  • Employees pay 6.2% of earnings.
  • Employers match with 6.2%.
  • Total contribution: 12.4% of your income.

These funds are collected via FICA (Federal Insurance Contributions Act) taxes and used to pay benefits to eligible recipients. The system relies on a continuous cycle: current workers fund retirees, and future workers will fund your benefits.

When Should You Collect Benefits?

Timing matters. How much you receive each month depends on when you start collecting Social Security. Your Full Retirement Age (FRA) is based on your birth year:

Full Retirement Age (FRA) by Birth Year

 

1942 or earlier → FRA = 65
1943-1954 → FRA = 66
1955 → FRA = 66 and 2 months
1956 → FRA = 66 and 4 months
1957 → FRA = 66 and 6 months
1958 → FRA = 66 and 8 months
1959 → FRA = 66 and 10 months
1960 or after → FRA = 67

Key points:

  • Collecting before FRA reduces monthly benefits
  • Collecting at FRA gives full benefits
  • Collecting after FRA increases benefits

How Much Will Social Security Pay?

Social Security typically replaces about one-third of your pre-retirement income, meaning it’s important to save outside of Social Security. Use it alongside:

  • 401(k) plans
  • IRAs
  • Personal investments

Social Security alone may not cover all living expenses during retirement.

Working While Collecting Benefits

You can work and collect Social Security, but it can affect your payments:

  • Before FRA: Earnings above the annual limit may reduce benefits.
  • At or after FRA: Earnings do not reduce benefits, though taxes may apply.
  • Higher earnings prior to retirement can increase your benefits if they exceed lower earning years used in the calculation

This flexibility allows you to supplement your income and even increase your retirement benefit if you continue working.