Retirement and Estate Planning

How Payments Are Calculated

Your Social Security benefit payments are based on your work history. In short, the more money you have earned over your career, the higher your benefits will be.

The age when you retire will also have an impact. Although you are allowed to begin collecting payments at age 62, you will not yet have earned full benefits. That means that your payments will be about 25% less than they would have been if you had waited until full retirement age. In addition, early retirees will face benefit forfeitures for working while receiving benefits.

If you continue to work to age 70 and beyond, you will receive more than the full benefit amount when you finally do decide to collect your benefits. Remember, too, that anyone born in 1938 or later will no longer receive full benefits if they choose to collect Social Security benefits at age 65, which for many years was considered the official retirement age.
Depending on the year you were born, you may have to wait as late as age 67 to retire with full benefits.

So, when’s the best time to retire? If you are a healthy person who enjoys working, it’s probably best to continue doing so as long as possible without drawing on Social Security. Sometimes, the decision to continue working might be less about choice and more about the necessity to work. If you are in poor health, it may be best to take your payments as soon as possible. (You can apply for Social Security disability benefits at any age if you are no longer able to work.)

However, if you have a large retirement nest egg and don’t need the maximum Social Security benefit, you can always choose an early retirement. Whatever choice you make, don’t forget to sign up for Medicare health care coverage when you become eligible for it at age 65 (if a person is still employed and has employer provided or sponsored health care insurance, he or she should sign up for Part A only).

Every year, you can go online to the Social Security website and view a statement that details your own earnings history and offers estimates of what your payments will be if you retire at different ages. It also discusses the disability benefits you can expect if you are severely disabled and describes the survivor’s benefits that eligible family members will receive if you die. The Social Security Administration stopped mailing statements. These can only be received online now.

This statement is a great tool to use as part of your overall retirement plan. You’ll find more information at the Social Security website at

Your Social Security payments will likely replace about 40% of your pre-retirement income, according to the Social Security Administration.

The government also estimates that you will be able to live during retirement on about 70% to 80% of your previous income, although some advisers believe you may realistically need 100% of your pre-retirement income. This depends on your retirement lifestyle.

That means that your Social Security checks will likely not be enough to provide you with a comfortable retirement. In addition to any pension payments you may receive from your former employer, you should also plan to have sufficient personal savings and investments to cover your costs.

If you have questions about the best time to begin drawing Social Security payments—-or about other retirement planning issues—-be sure to consult your local CPA. He or she can help you find the answers to your family’s financial questions.

(Updated 2015) Reviewed and edited by Ben Simiskey, CPA, PLS Advisory, LLC

Copyright American Institute of Certified Public Accountants