Social Security • July 29th, 2020

How Are Social Security Benefits Affected by Your Income?

Gail Kellner

Key Takeaways
  • Your income affects the amount of your Social Security benefits
  • Getting benefits before full retirement age (FRA) will reduce your benefit
  • Some of your Social Security income may be taxable

Almost everyone qualifies for some Social Security benefits when they retire, but not everyone receives the same amount. What factors affect how much you receive in Social Security benefits? Is it based on income? Here’s everything you need to know about what is considered income for Social Security benefits and how benefits are calculated.

Are Social Security Benefits Affected by Your Income?

Yes. There are many factors that go into how much your Social Security benefit check is, but how much money you earned over the course of your lifetime has the biggest effect.

To receive Social Security, you must have worked somewhere that deducted social security taxes from your paycheck. The Social Security Administration (SSA) uses a formula where you earn credits based on work. In 2020, you earn one credit for every $1,410 you earned. You must earn at least four credits a year, so everyone who earned at least $5,640 meets their yearly bare minimum. You must earn a total of 40 credits to qualify for retirement benefits, or ten years of working. If you’re self-employed, the SSA figures it out based on your tax returns. That’s just the minimum, though; the actual amount of your SSA benefit check will depend on your total social security earnings history.

How are Social Security Benefits Calculated?

The SSA uses your lifetime earnings to calculate your benefits. They figure out the 35 years when you earned the most money, and apply a formula so that your wages are adjusted for inflation. They use this information to come up with an amount, and that’s how your Social Security benefits are calculated. The more money you made, the higher your benefit will be, up to a cap. The taxable earnings cap for 2020 is $137,700. If you earned anything over that, the SSA calculates your benefits as if you had earned $137,700. For 2020, the most your monthly Social Security check can be is $3790.

There are a few things that will reduce your benefits:

  • Retiring before you reach full retirement age
  • Working in retirement

You can start collecting Social Security benefits when you turn 62, but full retirement age isn’t until 67 if you were born after 1960. If you start collecting benefits at age 62, your benefits will be reduced about 30%. They don’t increase when you turn 67, either, so this is a permanent reduction in benefits. On the other hand, if you wait until you’re 70, you’ll earn delayed retirement credits, which will increase your benefit. The SSA offers a helpful chart, so you can calculate your benefits.

If you’re a government worker with a pension, or if you get a retirement or disability pension from work and didn’t pay Social Security taxes, the SSA uses a different formula to calculate your benefits.

Receiving Social Security Income while Working

If you claim Social Security benefits before your full retirement age and continue to work, the SSA will adjust the amount that they pay you based on your income. For 2020, your benefits will be reduced $1 for every $2 you earn over $18,240. Once you reach FRA, you can earn as much as you want and your benefits are unaffected.

The year you reach FRA, in the months you work the SSA will reduce your benefits $1 for every $3 you earn, up to $48,600. After you reach FRA, you can collect your full benefit amount, no matter how much you earn.

Depending on how much you earned, some of your Social Security benefits are taxable. If you:

  • File as an individual, and your income is between $25,000 and $34,000, your benefit is taxable up to 50%
  • If your income is more than $34,000, then 85% of your Social Security may be taxable
  • Married, filing jointly, with a combined income between $32,000 and $44,000, your benefits are taxable up to 50%
  • Married, filing jointly, if you earn more than $44,000 up to 85% of your benefits will be taxed

Bottom Line

Figuring out how much your Social Security benefits will be can be complex. Sometimes, it helps to have a Certified Financial PlannerⓇ go over things with you, so you can retire with the maximum benefit available.


Gail Kellner

Gail Kellner lives with her husband, two sons, and various fur-children. She writes about personal finance and insurance mostly, with a little bit of parenting thrown in. She also writes YA Fantasy fiction in her spare time, and her first YA novel will be published later this year.