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Retired Military Finances 101: What You Need to Know About Social Security Thumbnail

Retired Military Finances 101: What You Need to Know About Social Security

Retirement Funding

I saw an article on CNBC.com the other day that stated that only about 1/3 of Americans between the age of 55 and 65 could pass a 13 question T/F quiz on Social Security. Another 1/3 passed with a grade of “D”. Based on those results, I thought a primer on Social Security might be a good idea. So here we go.

How to Qualify for Social Security and How Your Benefits are Calculated.

To qualify for Social Security, you need to have 40 Social Security credits. As of this writing (2023) you earn a Social Security credit for each $1,640 in covered earnings that you earn per year. You are limited to 4 credits in a year. So...if you’re working full-time, you need to work 10 years to qualify for Social Security.

Calculating your benefit amount is a little more involved. At the simplest level, your benefits are calculated based on the average of your highest 35 years of earnings (it is important to note that there is a ceiling on which you pay Social Security taxes…$160,200 in 2023). The earnings are inflation adjusted when the calculation is made and an Average Indexed Monthly Earnings (AIME), which is your inflation adjusted annual earnings divided by 12, is determined. A few key things to note about the calculation.

  • Much like our tax system, Social Security payments are progressive. You’ll receive 90% of the first $1,115 of AIME, 32% of AIME between $1,116 and $6,721, and 15% of AIME above $6,721 (2023 amounts). AIME of $6,721 amounts to an annual salary of $80,562. That means a high earner will only receive 15% on approximately 50% of his or her AIME.
  • If you have 35 years of income at or above the annual income ceiling, continuing to work will not increase your benefit.
  • Conversely, if you don’t have 35 years of earnings, replacing a $0 year could help your AIME more than you might expect.


How Much Social Security Will You Get?

The result of the 90%/32%/15% calculation is called you Primary Insurance Amount (PIA). If you have 35 years of maxed Social Security taxes your PIA in 2023 is $3,653 per month.

If you retire at your Full Retirement Age (FRA), you’ll receive 100% of your PIA. If you were born in 1960 or later, your FRA is 67. If you were born prior to that, your FRA is between 66 and 10 months and 65.

If you retire before or after your FRA, your PIA will be decreased or increased. If you retire at exactly 62 years of age your monthly benefit will be reduced by 30%. Delaying after the FRA increases your benefit by 8% per year of delay.

If you’re married there are two potential PIA amounts. You’ll receive the greater of your earned benefit or 50% of your spouse’s earned benefit. It’s also important to note that when a spouse passes away, the surviving spouse will receive the greater of his or her earned benefit or the earned benefit of the deceased spouse.

Things to Think About and/or Watch Out For


  • If you claim Social Security before your FRA and continue to work, your Social Security benefits will be reduced if your wages/self-employment income exceed certain thresholds. If you’re younger than FRA for all of 2023, your Social Security is reduced by $1 for each $2 you earn above $21,240. If you reach your FRA in 2023, your benefit is reduced by $1 for each $3 you earn above $56,520. The forfeited benefits will increase your PIA at FRA, so all is not lost. If you work in the year, you hit your FRA and claim Social Security after you retire, you’re not subject to the benefit reduction.
  • Make sure you consider the surviving spouse when deciding when to claim. By delaying until age 70, the surviving spouse will get almost $1,000 a month more than claiming at FRA (assuming you’re near max benefit).
    • If you are divorced, you may be able to claim Social Security based on your ex-spouse’s earnings.
    • You only pay taxes on up to 85% of your Social Security benefits. That will be the case for most the readers of this newsletter.
    • If you served on active duty between 1978 and 2001 the earnings used to calculate your Social Security benefits should be increased. This should be automatic. Trust but verify. Read more here.
    • You can check out what your estimated Social Security benefits are here.

Military Finances are Different

As noted above, servicemembers have a unique situation when it comes to Social Security. That's often the case. Things are just a little different for an Active or Retired Senior Military Officers or NCOs than they are for a civilian. That's why we think you should work with a Financial Planner/Advisor that deals with your issues each and every day. If you'd like to chat about how we do things, use the button below to schedule a free initial consultation.

Military Finances 201: Take Social Security Early and Invest It?


Potential Retirement Surprise Waiting for Some Military Spouses: GPO


Retired Military Finances 101: Social Security and Retirement Earnings


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