Basic Financial Planning for Newlyweds




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How Does Social Security Work?


Your Initial Financial Plan:


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Hopefully, retirement benefits from social security will be around for a long, long time. Even so, don't count on a monthly social security check as your only source of retirement income.

That being said, the basic rules for social security, as they currently stand, are as follows:

  • To be eligible to collect social security, you need to pay into the system for at least ten years. You pay into the system if you are an employee and have the 6.2% social security tax withheld from you salary each pay period, or if you are self-employed and pay the 15.3% self-employment tax as part of your federal income tax return.

  • When the Social Security Administration calculates your benefit when you retire, your benefit will be based on your 35 years of highest earnings. If you work less than 35 years, each non-working year will still be factored in, thus reducing the benefit that you will be entitled to receive.

  • If you were born after 1959, your full retirement age will be 67. Full-retirement age has been 65 for many years. However, beginning with people born in 1938 or later, that age will gradually increase until it reaches 67 for people born after 1959.

  • Even though the full retirement age is increasing to age 67, you can still begin to collect your social security retirement benefits upon turning age 62. A person born after 1959 who starts taking benefits at age 62 will forfeit 30% of his annual retirement benefit for life. If you start collecting social security before reaching full retirement age, you will forfeit approximately 0.5% of your benefit for every month you retire early.

  • Once you reach full retirement age (age 67 if you were born after 1959), you can earn any amount of income without giving up any of your social security benefit. Prior to reaching full retirement age, a person collecting social security will forfeit $1 of benefit for every $2 of earned income over a certain threshold ($10,080 in 2000).

  • If you delay collecting from social security until after reaching full retirement age, your annual benefit will actually increase by as much as 8% per year until you reach age 70. Once you reach 70, your benefit will no longer increase, even if you continue to delay collecting.

  • If you are married, you will receive the greater of your earned benefit, or 50% of your spouses full retirement benefit, subject to certain restrictions.

A great place to get more information about your projected social security benefit is from the Social Security Administration's website which can be found at In addition to containing plenty of easy to understand information, their site contains a calculator which enables you to calculate your projected benefit based on whatever criteria you enter.





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