How Social Security works?
Social Security is a government program that’s like a financial safety net for people who’ve worked in the U.S. It collects money through taxes from working folks and then gives that money back to folks who are disabled, retired, or their families to help them stay financially stable.
To qualify for Social Security, most people need to earn 40 credits by working and paying taxes, but if someone becomes disabled or passes away when they’re young, they might qualify with fewer credits. In 2022, a credit is worth $1,510 in income, and this goes up to $1,640 in 2023. You can earn up to four credits each year.
You can get Social Security based on your own work history if you’ve earned enough credits, or if your current or former spouse earned more than you, you might be able to get benefits based on their work history. Sometimes, even dependent children and other family members can get benefits in certain situations.
When you’re ready to apply for Social Security, you can do it online or at your local Social Security office. The government will check your information to see if you qualify, and if you do, you’ll start getting monthly payments.
Types of Social Security benefits
Social Security offers three primary types of benefits:
- Retirement benefits
- Disability benefits
- Survivors benefits
Retirement benefits
Social Security retirement benefits are designed for individuals aged 62 and older who have accumulated at least 40 work credits. The amount you receive in your benefit payments depends on your average earnings per month (known as AIME) during your 35 highest-earning years and the age at which you choose to start receiving benefits.
To receive your full standard benefit based on your AIME, you’ll need to wait until you reach your full retirement age (FRA). If you were born between 1943 and 1954, your FRA is 66. After that, it increases by two months each year until it hits 67 for those born in 1960 or later.
If you opt to begin collecting benefits at the age of 62, you’ll receive only 70% of your standard benefit if your FRA is 67 or 75% if your FRA is 66. Every month you delay taking benefits will gradually increase your monthly payments until you reach the maximum benefit at age 70. At that point, you’ll receive 124% of your standard benefit if your FRA is 67 or 132% if your FRA is 66.
If you start collecting Social Security benefits before reaching your full retirement age (FRA) and your income is high, you might end up giving some of that money back to the government. Here’s how it works: the Social Security Earnings Test takes $1 from your benefit payments for every $2 you earn above $21,240 per year in 2023 ($19,560 in 2022) if you’ll be under your FRA for the entire year. If you’ll hit your FRA in 2023, it’ll deduct $1 for every $3 you earn over $56,520 in 2023 ($51,960 in 2022) if you reach this income level before your FRA. Once you pass your FRA, the government recalculates your benefit to make up for the amount it withheld.
Certain family members can receive Social Security benefits based on your work history if it results in a higher amount than what they would get on their own.
These eligible family members include:
- Spouses
- Ex-spouses (if the marriage lasted at least 10 years and they haven’t remarried)
- Children under 18 (or up to 19 if they’re still in high school)
- Children of any age who became disabled before turning 22, meaning they can’t earn more than $1,470 per month in 2023 ($1,350 in 2022), have a severe medical condition causing significant functional limitations expected to last at least a year or result in death.
Spouses and ex-spouses need to be at least 62 years old to claim benefits. Also, spouses and children must wait for the worker to start receiving their own benefits before they can apply for family benefits based on the worker’s record.
Disability benefits
Social Security disability benefits are here to help adults aged 18 or older who can’t work due to a physical or mental disability that’s expected to last for at least a year or lead to death. Even if you haven’t earned 40 work credits, you might still qualify, depending on your age when the disability occurred. Your benefit amount is based on your average earnings during your working years, so if you earned more, your disability payments will be higher.
To apply, you’ll need to provide details about your work history and medical condition, along with any supporting documents. The Social Security Administration will carefully review your case to determine if you meet the criteria. If you’re approved, you’ll receive disability payments for as long as your disability persists, possibly for life, depending on the situation. If your claim is denied, you can request a reconsideration or appeal to an administrative law judge.
Certain family members can also claim benefits based on a disabled worker’s record if they meet the following criteria:
- Spouses aged 62 or older, or any age if they’re caring for a disabled worker’s disabled child or a child aged 16 or younger.
- Ex-spouses who were married to the disabled worker for at least 10 years and haven’t remarried, provided they meet the same criteria as spouses.
- Unmarried children up to 18 years old, or 19 if they’re still attending high school.
- Children of any age who were disabled before turning 22.
Survivors’ benefits
Survivors’ benefits are a form of support provided to the family members of workers who have passed away and were eligible for Social Security.
Here’s who can claim these benefits:
- Surviving spouses who are 60 years old or older (or 50 or older if they are disabled).
- Surviving spouses of any age who are taking care of the deceased worker’s child under 16 or a disabled child.
- Ex-spouses who meet the same criteria as surviving spouses, but they must have been married to the deceased worker for at least 10 years and not have remarried.
Children of the deceased worker who are under 18 (or up to 19 if they’re still in high school) can also receive benefits. Disabled children of any age can qualify if their disability started before they turned 22. Even the parents of the deceased worker may be eligible for benefits if the deceased worker was providing at least 50% of their financial support before they passed away.
In addition to these ongoing benefits, the surviving spouse or children may be entitled to a one-time death benefit of $255.
A quick look at Social Security’s past
Let’s take a quick look at the history of Social Security. The program came into being through the Social Security Act signed by President Franklin D. Roosevelt in 1935. The very first Social Security checks were sent out in 1940. Initially, it provided benefits solely to workers aged 65 and older. However, in the 1970s, the government made changes allowing workers to start receiving benefits as early as age 62. They also introduced yearly cost-of-living adjustments (COLAs) to help Social Security keep up with rising prices.
So far, the program has been quite effective. But there are concerns about its future, especially as there will be fewer workers supporting a growing number of Social Security recipients. The most recent Social Security Trustees’ Report predicts that by 2034, the program’s trust funds could run out of money, meaning it might only manage to pay about 77% of promised benefits to retirees. While previous reports suggested that Social Security’s disability fund might be depleted by 2057, the latest report suggests it won’t run dry in the next 75 years.
To secure the program’s long-term sustainability, the government has considered various solutions, but no concrete plans have been put in place yet. There’s no immediate risk of Social Security disappearing in the next couple of decades, but it’s possible that future benefits may not be as generous as they are today. That’s why it’s crucial for today’s workers to prioritize saving for their own retirement so they can cover most of their expenses themselves
