Key Takeaways

• Constructing the right retirement plan starts with understanding your Social Security benefits.
• Delaying when you claim Social SecurityOpens in a new window has a big financial payoff.
• Married couples can get more out of Social Security by coordinating their benefits.

Building a good retirement plan is like constructing a pyramid. It’s hard to design the top layers unless you know the size and strength of the base.

For most retirement savers in the U.S., that base is Social Security. Problem is, as important a role as Social Security plays for retirees, most people don’t understand their actual benefits. According to the recently released 2024 TIAA Institute-GFLEC Personal Finance Index survey, for instance, only 42% of respondents could answer a basic question about how monthly Social Security benefits are calculated.¹

“The survey is worrisome because Social Security remains a vital source of retirement income for the majority of Americans,” says Surya Kolluri, head of the TIAA Institute. “It’s hard to know how much you need to save if you don’t understand what you’re starting with.”

With that in mind, here are three things every retirement saver should know about their Social Security benefits.

Monthly benefits are based on your lifelong earnings, not your final salary

A majority of Americans mistakenly believe that the amount they’ll receive in Social Security is tied to how much they earn in their final two years of full-time employment, according to the TIAA Institute-GFLEC Personal Finance Index survey. In reality, the Social Security Administration’s (SSA) benefits formulaOpens in a new window takes into account all (or nearly all) of your work history. The formula considers average pay during the 35 years when you earned the most, indexed for inflation.

This is an important distinction, especially for older workers who may want to try something new for their final act. Perhaps they’re eyeing a lower-stress “legacy track” post with their current employer or more of a do-gooder position with a not-for-profit. Either way, older workers are increasingly willing to accept lower pay in exchange for greater fulfillment and work-life balance, research shows.² The good news: This sort of job switch probably won’t have a material impact on Social Security benefits.

There are financial benefits to delaying Social Security claims

Let’s say you were born in 1960 and are now weighing three options:

1. Retire with full Social Security benefits in three years when you turn 67 (now considered “full retirement age” for those born in 1960 or laterOpens in a new window).
2. Retire in three years—but don’t take Social Security until age 70, using other savings to fill the gap.
3. Work another six years, then retire and take Social Security when you turn 70.

Obviously, “A” will be the right choice if you need the money and do not want to keep working. But if your retirement plans are flexible, the financial benefits to delaying Social Security—to choosing option “B” or “C”—are substantial. Each year you delay, your future monthly benefit will increase by 8%. That could be the difference between a monthly Social Security benefit of $2,000 versus $2,480. (Log into your SSA accountOpens in a new window to find out your exact benefits. You can also explore different scenarios with our Social Security toolOpens in a new window.) Moreover, assuming the SSA continues to pay annual cost of living adjustments (COLAs) tied to inflation, your future COLAs will be bigger since they will be calculated using the higher monthly benefit.

Coordinating Social Security benefits may make sense for married couples

Dual-income couples earn separate Social Security benefits, and those benefits do not need to be claimed at the same time. Consider married couple Ron and Kendra. They have been conscientious savers, and they are both eligible for Social Security benefits based on their work histories. (To keep things simple, Ron and Kendra are the same age.)

The spouse with lower earnings—let’s say Ron—starts taking his benefits at age 67, while higher-salaried Kendra chooses to delay taking hers until age 70. Though Social Security benefits are lower for those who claim at 67, Ron and Kendra are still getting a monthly check at 67, while also allowing Kendra to max out the benefit she’ll get by waiting to claim until age 70.

Here’s one more wrinkle to consider. Let’s say Kendra’s monthly benefit at age 70 will be $2,728 whereas Ron’s benefit at 67 is only $1,000. Once Kendra starts taking Social Security at 70, Ron’s benefit will increase to $1,100 incorporating his spousal benefit, which is equivalent to half of what would have been Kendra’s benefit ($2,200) at full retirement age (67).

If you need help understanding Social Security benefits and how they fit into your retirement plan, talk to your TIAA Wealth Management advisor. Don’t yet have an advisor? Schedule an appointmentOpens in a new window.