Social Security just turned 89 — but after all those years, many Americans still don’t understand how the program works. Here’s everything you need to know

How to know when you're eligible for Social Security

The Social Security benefit you’re entitled to in retirement is based on your earnings. There’s a formula used by the Social Security Administration (SSA) that takes your 35 highest-paid years of earnings into account and indexes earlier wages for inflation.

You’re eligible for your complete monthly Social Security benefit when you reach your full retirement age. That age hinges on your year of birth.

If you were born between 1943 and 1954, the full retirement age is 66. If you were born in 1960 or later, it’s 67. And if you were born between 1955 and 1959, the full retirement age is 66 and anywhere between two and 10 months.

"Knowing your full retirement age is key to figuring out what your benefit might be," said Epperson.

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How to assess your claiming options

Sixty-two is the earliest age you can sign up for Social Security. However, claiming benefits before full retirement age leads to a permanent reduction in those monthly payments. If you have a full retirement age of 67 and you sign up to start benefits at 62, you’ll be looking at about a 30% reduction in your monthly payments.

You can also delay your Social Security claim beyond full retirement age. For each year you do until age 70, your monthly benefit is boosted by 8%. You can technically choose to delay your filing past age 70, but there’s no financial advantage to doing so.

How to know what monthly retirement benefit to expect

Knowing how much monthly income to expect from Social Security could help you better plan for retirement. To that end, it’s wise to set up a My Social Security account. From there, you can view your annual earnings statements. These give you an estimate of your monthly benefit based on different filing ages.

"That's a really important thing to do so you have an idea how that fits into your financial life in the future," Epperson said.

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How to know if your earnings record is correct

You need a minimum of 40 lifetime work credits to qualify for Social Security. You can earn a maximum of four credits per year, and the value of a work credit changes each year. In 2024, you receive one credit per $1,730 of earnings.

It’s important to make sure you’re getting credit for every dollar you earn since it could count toward your future retirement benefits. To this end, check your annual earnings statement each year not just for an estimate of your future benefit, but to make sure your income is reported accurately.

Specifically, you’ll want to make sure your earnings record accounts for any bonus or side hustle income you brought in as well as your salaried wages. You can request corrections from the SSA if there's a mistake any given year.

How to coordinate Social Security with other retirement income

If you're an average wage earner, you can expect Social Security to replace about 40% of your annual pre-retirement earnings. Generally, it’s hard to live on those monthly benefits alone in retirement, so it’s a good thing to have other income sources at your disposal. Those could include an employer pension (though some pensions reduce the amount of Social Security you can get), an IRA, a 401(k), or other investments, like a rental home you own.

"There's no other money that's guaranteed for life," said Epperson about Social Security. So while it’s OK to rely on Social Security for basic necessities, it’s important to also have savings or other income sources to fall back on.

How to coordinate a Social Security claim with a spouse

If both you and your spouse are eligible for Social Security, you can coordinate your claims to maximize your benefits. One option is to have the lower earner file first while the higher earner delays their claim for a larger monthly benefit down the line. Or, you can do the reverse and have the higher earner file first while the lower earner delays.

You may also be entitled to spousal benefits from Social Security if you’re married to someone eligible for a monthly benefit through the program. These max out at 50% of your spouse’s benefit at their full retirement age. If you’re divorced, you can claim spousal benefits as long as you were married to your ex-spouse for 10 years or more.

How to know if your Social Security benefits will be taxable

Many people are surprised to learn that Social Security benefits can be taxable. Whether that applies to you depends on your combined income, which is calculated by taking 50% of your annual Social Security benefit and adding in your adjusted gross income and any non-taxable interest you collect (for example, municipal bond interest).

If you're a single tax filer with a combined income between $25,000 and $34,000, you may be taxed on up to 50% of your benefits. Beyond $34,000, up to 85% of your Social Security benefits may be taxed.

If you're married and filing a joint tax return with a combined income between $32,000 and $44,000, you may be taxed on up to 50% of your benefits. Beyond $44,000, up to 85% of your benefits may be taxed.

There are strategies you can use to reduce your combined income. These include keeping your retirement savings in a Roth account since those withdrawals will not count toward your combined income.