Social Security is a federal program that provides benefits to retirees, disabled individuals, and survivors of deceased workers. Whether you’re approaching retirement or dealing with a disability, Social Security is designed to offer a safety net during times of need. It is funded primarily through payroll taxes collected from workers and their employers. The program is administered by the Social Security Administration (SSA), an independent agency of the U.S. federal government.Â
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Understanding the Social Security Process and Benefits
If social security feels cumbersome or confusing to you, you're not alone. Millions of Americans depend on social security for their financial stability and have faced the same questions you might be asking now. Whether you are new to the program or need a refresher, this guide will walk you or your loved one through the essentials of social security.Â
What is Social Security?
How Does Social Security Work?Â
1. Payroll Taxes: Social Security is funded by a payroll tax on earned income. As of 2024, workers contribute 6.2% of their earnings up to a limit of $168,600. Employers match this contribution, and self-employed individuals pay both the employee and employer portions, totaling 12.4%.Â
2. Earning Credits: To qualify for Social Security benefits, workers must earn credits through their work history. You earn up to four credits per year, and the amount needed to earn a credit changes annually. As of 2024, you earn one credit for every $1,710 in earnings.
3. Benefit Calculation: Social Security benefits are based on your average earnings during your working years. The SSA uses a formula to calculate your Primary Insurance Amount (PIA), which determines how much you receive each month. The formula takes into account your highest 35 years of earnings, adjusting for inflation.Â
What are the Types of Social Security Benefits?Â
1. Retirement Benefits: The age at which you can receive full benefits is known as your Full Retirement Age (FRA), which ranges from 66 to 67 depending on your birth year. However, the benefits are available to anyone who has reached the age of 62 and has earned enough credits. You can choose to start receiving benefits as early as age 62, but your monthly benefit will be reduced if you do so before reaching your FRA.Â
2. Disability Benefits: This type of social security benefit is provided to workers who become unable to work due to a qualifying disability. To qualify, you must have a medical condition that is expected to last at least one year or will result in death and have earned enough credits.Â
3. Survivor Benefits: Offered to family members of deceased workers who have earned sufficient credits. Eligible survivors can include a spouse, children, and sometimes dependent parents. Benefits vary based on the survivor's relationship to the deceased and the deceased’s earnings record.Â
4. Dependent and Spousal Benefits: Certain family members of retired or disabled workers may also receive benefits. Spouses, for example, can receive up to 50% of the worker’s benefit amount, depending on their own work history and age. For more details, visit https://www.ssa.gov/oact/quickcalc/spouse.html
How do you apply for Social Security?Â
You can apply for Social Security benefits online, by phone, or in person at a Social Security office. The application process typically involves providing personal information, including your work history and financial details. It’s recommended to apply for benefits about three months before you plan to start receiving them.Â
Understanding how Social Security works, the benefits it offers, and how to apply can relieve anxiety and help you plan for you or a loved one’s financial future. For personalized information, visiting the SSA’s official website or consulting with a financial advisor can provide additional guidance tailored to your individual situation. Please also see our article on Creating an Online Social Security Account.Â