According to SSA, 84 percent of households with someone 65 or older received Social Security benefits in 2014. To qualify for benefits, an individual must typically earn at least 40 credits, based on earnings on which they and their employer pay Social Security payroll taxes. According to SSA, as of 2015, 69 percent of the population age 20 and over had earned 40 credits. The amount of initial monthly retirement benefits depends on the beneficiary’s earnings history and the age at which he or she chooses to begin receiving benefits. SSA figures monthly retirement benefits by calculating the individuals’ average indexed monthly earnings (AIME) during his or her highest 35 years of earnings, with earnings from past years adjusted to reflect the growth in average wage levels over time. (If the individual has earnings in less than 35 years, non-earning years count as zeroes in the AIME calculation.) Retirement benefits are then determined by a formula that converts an individual’s AIME into a Primary Insurance Amount (PIA). The PIA is the monthly benefit a claimant receives if he or she chooses to begin benefits at the FRA (see fig. 1). Benefits are generally adjusted based on inflation each year. Up to 85 percent of retirement benefits are also potentially subject to income tax, depending on total income. The FRA has risen from 65 originally to 66 for individuals born from 1943 to 1954, and it will be 67 for individuals born in 1960 or later. Beneficiaries may generally elect to begin receiving Social Security benefits as early as age 62; however, an age-62 claimer will receive less each month than if he or she waited to claim until reaching FRA. As the FRA has risen, so has the reduction in benefits for pre-FRA claiming, relative to PIA. An eligible individual with an FRA of 66 who claims at 62 would receive a monthly benefit equal to 75 percent of PIA (see fig. 2). Future retirees with an FRA of 67 who claim at 62 will receive 70 percent of PIA. Although SSA uses the term “full retirement age” to refer to the age at which workers receive unreduced benefits (sometimes called “full benefits”), those who wait to claim benefits beyond their FRA receive “delayed retirement credits” that boost monthly benefits to more than 100 percent of PIA. An eligible claimant born in 1943 or later can receive delayed retirement credits equal to 8 percent of PIA per year past FRA until age 70. For example, a claimant with an FRA of 66 who claims at age 70 receives 32 percent higher monthly benefits than PIA. Thus, a retiree with an age 66 FRA and a PIA of $1,000 per month would receive $750 per month if claiming at age 62, $1,000 per month if claiming at age 66, or $1,320 if claiming at age 70. Individuals who claim benefits at ages in between would receive a monthly benefit between $750 and $1,320. According to SSA, someone who lives to an average life expectancy should receive about the same amount in lifetime benefits irrespective of when they claim benefits because the lower monthly benefit amount and earlier start date would offset each other. However, several factors affect the tradeoffs of claiming at different ages. For example, how long a person expects to live, based on family history or current health status, can affect when he or she claims. For married couples, the longevity of both spouses could affect the lifetime household benefits received because Social Security pays survivors benefits to widowed spouses. Increasing life expectancy and years spent in retirement raise the potential cost to retirees of receiving lower monthly benefit amounts from claiming earlier. According to the 2016 Social Security Trustees report, average life expectancy at age 65 has increased from 12.7 years in 1940 for men to 19.1 in 2015, and from 14.7 to 21.5 years for 65-year-old women. However, lower-income individuals have shorter-than-average life expectancy, which means that, on average, they can expect to receive Social Security benefits for substantially fewer years than higher-income individuals who have longer-than-average life expectancy. Moreover, disparities in life expectancy by income have grown, according to studies that examined trends over time. Interest rates also affect the tradeoffs of claiming early versus later. When market interest rates exceed price inflation by less than usual, delaying claiming may become more financially attractive for those with the ability to continue working or to live off of other financial resources. Several studies that have examined the Social Security benefit formula and claiming decision process show that many people would receive higher lifetime benefits by delaying claiming benefits. A spouse, ex-spouse, or surviving spouse of an eligible worker can receive benefits based on the primary worker’s earnings, if this benefit exceeds the benefit he or she would receive based on their own earnings history. Spousal benefits generally amount to 50 percent of the primary worker’s PIA, if the spouse is at FRA when claiming them. For survivors, the age at which the primary worker claims benefits can potentially affect the monthly benefit of the surviving spouse. A spouse can generally claim as early as age 62, and survivors may begin receiving benefits as early as age 60 (50 for disabled survivors); to qualify for benefits at age 50, a surviving spouse must be disabled under the Disability Insurance program rules. As with regular benefits, both spousal and survivors benefits are reduced if the spouse or survivor begins receiving them prior to their FRA. Unlike with regular benefits, spouses and survivors do not receive delayed retirement credits if the spouses or survivors delay claiming beyond their FRA. Individuals who claim benefits before their FRA but continue to work for pay face a retirement earnings test, with earnings above a certain limit resulting in a temporary reduction of monthly benefits. In 2016, SSA withholds $1.00 of benefits for every $2.00 of earnings above $15,720 for someone younger than FRA for the full year. In the year the claimant reaches FRA, the earnings limit rises to $41,880 (for 2016), and $1.00 of benefits is withheld for every $3.00 in earnings in the months prior to the claimant reaching FRA. Benefits withheld under the earnings test are not forfeited, but are really deferred, and are, on average, paid back later with interest. In addition, every year after the initial claim for benefits, any new earnings the worker has are reflected in a recomputation of the AIME and a potential increase in the PIA. Many other rules can potentially complicate claiming decisions, creating challenges in understanding key information for claimants and their spouses. For example, there are rules covering eligibility for dependent children (or grandchildren) and for maximum family benefits, to name a few. Over time, changes have been made to eligibility ages, the retirement earnings test, the FRA, and other important factors affecting claiming. The Bipartisan Budget Act of 2015 recently eliminated two complex strategies utilized by some married couples. One allowed a person at or older than FRA to file for benefits, but then immediately suspend this claim so that no benefit would be paid. This “file-and- suspend” strategy allowed that person’s spouse to claim spousal benefits on the suspender’s record, while the primary worker’s benefit accrued delayed retirement credits in suspension. Another strategy allowed a person at FRA or older to file a claim only for spousal benefits based on the earnings record of a primary worker who had claimed benefits. This allowed the spouse to receive a benefit while allowing the spouse’s own benefit to grow, then later switch to their own benefit as late as age 70. The 2015 act eliminated the file-and-suspend strategy, effective April 30, 2016, by no longer allowing anyone to claim benefits on another person’s record while the primary claimant’s benefits are suspended. It also eliminated spousal-only claims for anyone born after January 1, 1954. SSA pays retirement benefits from the Old Age and Survivors Insurance (OASI) Trust Fund. The fund receives revenue from, among other sources, Social Security payroll taxes paid by current workers, and pays current beneficiaries. Workers and employers currently each pay a payroll tax of 6.2 percent of an employee’s covered earnings, for a combined total tax rate of 12.4 percent, into the Social Security Trust Funds. This payroll tax applies only to workers’ earnings up to an annual limit ($118,500 for 2016); this limit changes each year with changes in average wages and has generally increased each year. According to the 2016 report of the Social Security Trustees, the OASI Trust Fund is projected to become depleted in 2035, at which point payroll taxes of current workers are estimated to be enough to pay only 77 percent of promised benefits. Our review of survey reports and academic studies, and interviews with people with Social Security expertise, suggest that most individuals do not understand important rules and details that could affect their retirement benefits or the benefits of their spouses and survivors. Specifically, many people approaching retirement age are unclear on how claiming age affects the amount of monthly benefits, how earnings (both before and after claiming) affect benefits, the availability of spousal benefits, and other factors that may influence their claiming decision. Understanding this key information is central to making informed decisions about when to claim Social Security benefits because they concern the tradeoffs of claiming benefits (and perhaps retiring) earlier versus later—generally permanent decisions—and ultimately affect the amount of lifetime benefits and people’s retirement security. GAO recognizes that financial literacy is critical to empowering and helping individuals and families to stay financially healthy and stable and the role the federal government plays in promoting financial literacy. It also has highlighted financial security for older Americans as a key issue, including the importance of ensuring financial literacy in understanding the key factors that can affect their retirement income.