Do you know what affects your Social Security benefit amount?

Social Security was never intended to be a retiree's sole source of retirement income. Still, it will likely provide thousands — even hundreds of thousands — of dollars over the course of your retirement years. Even if you realize its importance, though, you may be planning for retirement without fully knowing what to expect from your Social Security benefit.

There are several factors that will impact the amount you can expect to receive, but you will not know the exact amount until you actually file.

5 factors impacting Social Security benefits

1. Earnings and the primary insurance amount (PIA)

Your benefit amount is primarily determined by your earnings. This may sound straightforward, but the Social Security Administration (SSA) considers the 35 highest-earning years, adjusts them for inflation, and applies a complex formula to arrive at your primary insurance amount. You can plan to receive this expected benefit at full retirement age (FRA), which will fall between ages 66 and 67 depending on your birth year. Your benefit cannot exceed the maximum amount (as adjusted annually for inflation).

However, even after claiming Social Security benefits, you can boost your benefit amount by working, if your current earnings are at least high enough to replace the lowest earnings number used in the PIA calculation.

2. Filing age

While earnings determine the PIA, this only represents the amount you will receive if you claim benefits at FRA. Claiming benefits early (as early as age 62) results in a decreased benefit amount. Delaying past FRA will increase your benefit by 8 percent per year up to age 70. Because there are limited options to change your mind once you've decided, choosing when to file is one of the more important financial decisions you'll make.

The Social Security Administration designed the reduction for early filing to provide essentially the same total benefit as a retiree would have received filing at FRA, just in smaller amounts over more years. However, the longer you live, the greater the impact you will enjoy from any increases you receive by waiting to file. You should therefore factor your health and life expectancy into your filing decision.

3. Inflation adjustments

The benefit amount, once claimed, is permanent in most cases. There is nothing more you can do to increase the benefit at that point, with a few exceptions. However, all Social Security benefits are indexed annually for inflation. In 2024, the increase was 3.2 percent.

4. Tax on benefits

About 40 percent of Social Security recipients pay income tax on a portion of their benefits. Benefits become taxable based on other sources of income — wages, pension, withdrawals from retirement accounts and investment income (including tax-exempt interest on municipal bonds). To determine whether benefits are taxable, take your total income from the sources above and add half your benefit amount.

• If the total is greater than $32,000 (joint) or $25,000 (single), up to 50 percent of the benefit is taxable.
• If the total is greater than $44,000 (joint) or $34,000 (single), up to 85 percent of the benefit is taxable.
  
  This applies to federal taxes. States may also tax Social Security benefits. You should consider the impact of taxation in decisions regarding continued employment.

5. Employment

If you file early (before FRA) and continue to work, your benefit will be temporarily reduced based on your earnings. However, once you reach FRA, earnings of any amount will no longer reduce your benefits. In fact, the SSA will recalculate your benefit amount, giving credit for any amounts previously reduced or withheld due to excess earnings.

An estimated benefit amount

It is valuable to create a "my Social Security" account on the Social Security Administration website. You can verify your official earnings history and use the SSA calculator to get a rough estimate of your expected benefit at full retirement age.

It is also valuable to talk to your financial professional — someone who can discuss the many factors that can impact this estimated benefit amount and guide you through important decisions related to filing age and continued employment. Your estimated benefit amount is useful information when considering future retirement income and planning how to address any anticipated gaps between income and expenses in retirement. A fixed indexed annuity may be the right fit if you need to fill that income gap and help plan future expenses.

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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Not affiliated with or endorsed by the Social Security Administration or any governmental agency. This material contains educational information regarding the availability and details surrounding the Social Security program and is not intended to promote any product or service offered by Athene. The information represents a general understanding of the Social Security Program and should not be considered personalized advice regarding Social Security, tax, or legal advice. Details of the Social Security Program are subject to change. A tax or legal advisor should be consulted prior to making any decision. Visit www.ssa.gov for additional details.