No surprises with Social Security

Nearly everyone looks forward to retirement, and many anticipate collecting Social Security. However, planning is essential.

Paula Ledney, Penn State Extension program specialist, retirement planning and business management, explained, “Social Security is a federal program that provides retirement benefits and disability income to qualified people and their spouses, children and survivors.”

The first government-run Social Security program arrived with the pilgrims in 1620, derived from a series of “poor laws” in England that made the government responsible for citizens’ welfare. The pilgrims brought that concept of poor laws with taxation to fund relief activities. Fast-forwarding to the Industrial Revolution, demographic changes included urbanization and fewer people with extended family to care for older family members.

“Americans were older and more urban, and fewer people lived on farms in extended families,” Ledney said. “These problems came to a head after the Great Depression in 1929, and in late 1935 … the Social Security program was adopted. It relied on social insurance and addressed the problems of economic security for the elderly by creating a work-related contributory system in which workers would provide for their own future economic security through taxes paid while employed.”

Social Security benefits for retirement replace a percentage of a person’s pre-retirement income based on lifetime earnings. The amount is based on the person’s highest 35 years of earnings and varies depending on earnings and when the person chooses to begin receiving benefits.

To receive disability benefits, a person must meet the definition of disability under the Social Security Act.

“You are disabled under the Act if you can’t work due to a severe medical condition that has lasted or is expected to last at least one year or result in death,” Ledney said. “The person’s medical condition must prevent them from doing work they did in the past and must prevent them from adjusting to other work.”

Social Security survivors’ benefits are for family members of deceased workers who are collecting or who were qualified for Social Security. Spouses 60 or older (50 or older if they’re disabled) can claim survivors’ benefits. Spouses of any age can claim these benefits if they are caring for children of the deceased.

Ledney noted that for some farm families, survivors’ benefits become a lifeline when a spouse is severely injured or dies in a farm accident.

Qualifying for Social Security retirement benefits requires either a minimum amount of wages or net profit for a given year or quarter of a year.

“Individuals earn one credit per quarter in which a minimum required wage or net profit is achieved,” Ledney said. “For 2026, the minimum earnings per quarter is $1,890. Individuals can earn four credits per year, making the total minimum earnings equivalent to $7,560 for 2026. To qualify for future benefits under Social Security, an individual must have earned 40 quarters or 10 years of wages or net profits.”

Those who don’t have the 40 required earned credits will not be able to collect Social Security benefits. Whether a person is qualified or how many credits they have also affects Medicare eligibility and the ability to receive Medicare Part A for free.

“Meeting the minimum standard gets you into Social Security, but the amount you earn and that you pay taxes on can increase your benefits,” Ledney said. “It’s very important to get those 40 quarters in. It’s also important to maximize your income if you want a larger benefit.”

Many farmers adjust their income to show as little taxable income as possible and frequently intend to invest in assets instead of showing profits or paying themselves wages. This can lead to not qualifying for Social Security benefits.

“Farmers can run the risk of not qualifying for Social Security retirement benefits, and would not be eligible for other benefits,” Ledney said. “It’s typically the spouse who comes in after the death of their spouse: they aren’t getting Social Security, and they don’t understand it’s because they didn’t earn their 40 credits because they were trying to show as little taxable income as possible.”

She urged farmers to know how many credits they currently have and how many additional credits are needed to qualify for benefits.

Farmers should create a strategy that includes at least one person in the farm family receiving wages to ensure at least one spouse is qualified for Social Security. This allows benefits to be extended to both spouses upon retirement.

“Think about how you’re reporting your income,” Ledney said. “Minimizing taxable income can result in not qualifying for benefits if you don’t obtain the required 40 credits. Having minimal wages and profits also affects the actual payment of Social Security benefits.”

Business structure can also affect Social Security benefits. If the farm operation is an S-Corp or a C-Corp, individuals are likely paying themselves a wage. An LLC or Schedule F for sole proprietor earns credits based on farm net income. If no profit is shown, no credit is earned.

“Be aware that getting to 40 credits makes you eligible [for Social Security], but the amount you receive is based on how much you earn on the 35 highest years of earnings,” Ledney said. “If you report and pay taxes on a higher income, your benefit will be higher in retirement.”

According to the Social Security Administration, in 2026, the average Social Security retirement benefit is $2,071/month and $24,852 yearly. Social Security uses a formula to calculate benefits.

“If you are just counting on Social Security benefits and you’re an average earner, think about how far $25,000 will get you,” Ledney said. “Social Security is never intended to be your only source of income in retirement.”

The maximum monthly benefit in 2026 is $4,873 (about $58,000 yearly). This benefit amount is for those who start collecting at full retirement age of 70 and were high earners for 35 years.

Determining future Social Security benefits begins with opening a “My Social Security Account” online. This allows the user to view their Social Security statement. Mailed statements are only sent to individuals age 60 and older who are not receiving benefits and don’t have one of these accounts. Statements are also mailed to individuals three months prior to their birthday if they are 60 or older, not receiving Social Security benefits and haven’t created an online account.

Ledney is often asked whether Social Security will be there upon retirement. “Ending or limiting Social Security benefits has been and most likely will continue to be an extremely unpopular proposal for any politician to bring before Congress,” Ledney said. “It’s reasonable to think it’s likely Social Security benefits in some form or another will be there for citizens in the foreseeable future.”

For details on Social Security, visit ssa.gov/myaccount.

by Sally Colby