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Retirement Planning

What you should know about Social Security and retirement planning

Yes, you know there's that FICA line on your paycheck. But do you understand how your Social Security benefits are earned and calculated? Here's a quick review.
Social Security continues to be major source of income for Americans over the age of 65.1 For this reason, it's important to understand how it's earned and calculated, and how you can better estimate and manage your benefits when planning for retirement. 

How Social Security Is Earned

The dollar amount of your Social Security payments depends on how much you earned while working and what age you are when you sign up to receive your benefits. You may also be able to secure additional payments for your spouse, dependent children, and survivors.

Your employer withholds Social Security and Medicare taxes from your paycheck, and sends those taxes to the Internal Revenue Service along with a matching amount that's equal to what was withheld from your paycheck. All of your earnings are then reported to Social Security by your employer.

If you are self-employed, you pay all your Social Security and Medicare taxes when you file your tax return, and the IRS reports your earnings to Social Security. You pay a rate equal to the combined employee/employer share, but are allowed special income tax deductions that may help offset your taxes.

Calculating Social Security Benefits

Your Social Security benefit is a percentage of your average lifetime earnings and is calculated based on the 35 years in which you have earned the most. For example, a worker earning average wages can expect a retirement benefit that replaces about 40 percent of his or her average lifetime earnings.2 If you haven't worked for at least 35 years, zeros are averaged into the calculation, which can lower your payout.

Want to get a better estimate of what your Social Security benefits may be? You can use one of the Social Security Administration's online calculators, or better yet, create a personal account at My Social Security, where you can learn more about what the Social Security program provides and doesn't provide for you, as well as the ability to manage, keep track of, and verify your earnings every year. Learn more about Social Security facts with Protective Life.

Earning Social Security 'Credits'

As you work and pay Social Security taxes, you also earn “credits” that count toward your eligibility for Social Security benefits. (Depending on your earnings, you can earn up to four credits each year.) Most people need 10 years of work (40 credits) to qualify for benefits.3 Younger people need fewer credits to qualify for disability benefits or for their families to qualify for survivors' benefits.


Social Security was never intended to be your sole source of income when you retire or become disabled, or to be your family's only income when you pass away. Its purpose is to be a supplement to your savings, investments, pensions, and insurance plans.

1."Fast Facts & Figures About Social Security 2017", Social Security Administration





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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Learning Center articles may describe services and financial products not offered by Protective Life or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective Life or its subsidiaries.

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