Social Security benefits are a critical component of retirement income for the majority of households. If you feel that you don’t totally understand how benefits are calculated, you’re not alone.

According to a recent MassMutual study, just 3 percent of respondents were able to correctly answer a 12-question true/false quiz on Social Security. Below are seven “need to know” items that can help you make the most of your retirement benefits.

Social Security is not meant to be the only source of retirement income. Social Security is part of what is known as the “three-legged stool,” to be bolstered with personal savings and employer-provided pensions.

The average beneficiary will receive about 40 percent of her pre-retirement income from Social Security, about half of what financial planners suggest retirees need. If Social Security is the primary source of retirement income, workers may want to consider delaying benefits in order to increase income.

Delaying your benefits can have a huge impact on annual income for the rest of your life. Surveys show that most people underestimate how much benefits increase by waiting to collect. Waiting to take benefits can be difficult, but the extra monthly income for the rest of your life may be well worth it, especially if you are in good health.

Workers born in 1960 or later can get 70 percent of their full retirement benefit at age 62, or they can get 124 percent of their full retirement benefit if they wait until age 70. In dollar terms, this means a worker with a typical $2,000 monthly full retirement benefit could get $1,400 per month at age 62 or $2,480 per month at age 70.

Clearly, an additional $1,000-plus per month would make a huge difference for anyone except Bill Gates (I haven’t talked to him about whether he delayed his own benefit).

Spouses and ex-spouses may qualify for a benefit even if they didn’t work.

If your own earned benefit is small or nonexistent, you may qualify for a benefit on your spouse’s earnings record. The standard “spousal” benefit is half of the worker’s benefit. This amount is reduced if benefits are taken prior to the full retirement age.

Ex-spouses may also qualify based on their ex-spouse’s earnings record. If you were married at least 10 years, divorced for at least two, and not remarried, you can claim half of your ex-spouse’s benefit if it is greater than your own earned benefit.

Benefits increase with the cost of living. Social Security benefits receive an annual cost-of-living adjustment based on the change in the consumer price index. This means that if food and gas prices rise, so does your Social Security income.

In the past, some of this increase has be eaten up by increases in Medicare costs. However, this inflation protection is important in an environment of rising prices for retirees living on a fixed income.

Benefits may be taxable. Depending on other income, such as pensions or withdrawals from an individual retirement account, up to 85 percent of your Social Security benefit may be taxable at ordinary income tax rates. Retirees who saved in IRAs and 401(k) plans are often surprised to find that income taxes in retirement can still be quite high.

You can keep working while on Social Security. There is an “earnings test” that can reduce benefits for claimants prior to the full retirement age. However, those reduced benefits are not “lost,” they simply accrue for higher benefits in the future.

After your full retirement age, you can work as much as you want and it will not reduce your benefit. This can be helpful for retirees who need to supplement Social Security income with part-time work.

Just because the system is in a tenuous financial position is not a reason to claim early. To create a more sustainable program, either benefits will need to be cut, payroll taxes raised, or some combination of the two. But, no one can say for sure exactly what the future of the system looks like, so to claim early based on an uncertain future could be detrimental to your personal long-term financial objectives.

If you are really concerned about receiving less than you are promised, you may be better served by increasing your personal savings and perhaps holding out for a higher benefit at age 70.

The Social Security system and calculation of benefits is complex, but that is no excuse for making an uninformed financial decision. The Social Security website is a good place to start reading more as you approach retirement. You can also sign up there to see expected benefits based on your current earnings record. Check it out at

Luke F. Delorme is director of financial planning at American Investment Services in Great Barrington.

He can be reached at