Social Security Explained: How It Works and Types of Benefits

What Is Social Security?

Social Security is the Old-Age, Survivors, and Disability Insurance (OASDI) program in the United States. It's run by the Social Security Administration (SSA), a federal agency. It's best known for retirement benefits but it also provides survivor benefits and income for workers who become disabled.

Over 72 million Americans will collect benefits from Social Security in 2024.

How Social Security Works

Social Security is an insurance program. Workers pay into the program, typically through payroll withholding from their paychecks. Self-employed workers pay Social Security taxes when they file their federal tax returns.

Workers can earn up to four credits each year. One credit is granted up to $6,920 for every $1,730 earned in 2024. or up to four credits achieved.

The money goes into two Social Security trust funds: the Old-Age and Survivors Insurance Trust Fund (OASI) for retirees and the Disability Insurance Trust Fund (DI) for disability beneficiaries. These two funds are used to pay benefits to people who are currently eligible for them. The money that's not spent remains in the trust funds.

A board of trustees oversees the financial operations of the two Social Security trust funds. Four of the six members are the secretaries of the Departments of Treasury, Labor, and Health and Human Services, and the Commissioner of Social Security. The remaining two members are public representatives appointed by the president and confirmed by the Senate.

Medicare is the federal health insurance program for Americans who are age 65 and older and some people who are receiving Medicare benefits due to disability. It's also supported through payroll withholding. This money goes into a third trust fund that's managed by the Centers for Medicare & Medicaid Services (CMS).

Social Security provides benefits to retirees, their survivors, and workers who become disabled.

Who Can Get Retirement Benefits?

Workers who have paid into the Social Security system for at least 10 years become eligible for early retirement benefits at age 62. Waiting until your full retirement age (FRA) between ages 66 and 67 depending on the year you were born results in higher monthly benefits. You'll receive even more if you delay collecting retirement benefits until age 70 but benefits don’t continue to increase if you wait any longer than that.

Spouses can also claim benefits based on either their own earnings records or their spouses' records. A divorced spouse who isn't currently married can receive benefits based on an ex-spouse’s earnings record if the marriage lasted at least 10 years. Children of retirees can also receive benefits until they turn 18 or longer if the child is disabled or a student. The cutoff is age 16 if you're caring for a child who isn't your own.

How Much Can I Get in Social Security Benefits?

The amount of your Social Security retirement benefit depends on your average indexed monthly earnings (AIME) during your 35 highest-earning years. Amounts will differ significantly among retirees. The average monthly benefit was $1,866 or $22,392 annually as of April 2024.

Your annual amount increases by 8% for each year that you delay collecting benefits if your retirement age is 66 to 67. This starts with the year after you reach your full retirement age and it stops at age 70. Those who begin taking Social Security when they reach the FRA of 66 would receive 100% of their primary insurance amount (PIA). They'd receive 108% of their PIA if they delayed taking benefits until the following year. They would receive 132% by delaying until age 70.

The benefit varies depending upon when you begin taking it. The maximum monthly benefit for people aged 62 is $2,710 ($32,350 annually) in 2024. It's $4,873 ($58,476 annually) for those who have reached age 70.

Workers can get a projection of their benefits at different retirement ages by using a calculator that's provided on the Social Security Administration website.

Social Security provides a special minimum benefit for long-term low earners that was first enacted in 1972. You must have income for at least 11 years to qualify. The special monthly minimum benefit was $50.90 ($610.80 annually) for December. 2023. It increases for each additional year of low-income work, topping out at $1,066.50 or $12,798 annually for people who have worked for 30 years.

Who Can Get Disability Benefits?

People who can’t work due to a physical or mental disability that's expected to last for a year or more or result in death may be eligible for Social Security disability benefits (SSDI). You generally have to meet certain earnings tests to qualify. Family members of disabled workers can also be eligible.

How Much Can I Get in Disability Benefits?

A little over 8.39 million Americans were collecting SSDI benefits as of April 2024. The average monthly benefit was $1,395.17 ($16,742.04 annually). The monthly average for disabled workers was $1,537.57 ($18,450.84 annually). Spouses of disabled workers received an average of $418.84 monthly ($5,026.08 annually) and children of disabled workers received $494.47 monthly ($5,933.64 annually).

Who Can Get Survivor Benefits?

The spouse and children of a deceased worker may be eligible for survivor benefits based on the worker’s earnings record. This includes surviving spouses who are age 60 or older or age 50 or older and disabled. A surviving spouse who is caring for a child who is younger than 16 or disabled may be eligible for these benefits as well.

Children must generally be younger than 18 or disabled to receive benefits. A stepchild, a grandchild, a step-grandchild, or an adopted child may also qualify for benefits under certain circumstances.

Parents who are age 62 or older and who were dependent upon a deceased worker for at least half their income may also be eligible to collect benefits. Surviving spouses and minor children are also entitled to a one-time payment of $255 after an eligible worker’s death under some circumstances.

How Much Can I Get in Survivor Benefits?

Approximately 5.85 million people were collecting survivor benefits as of April 2024. The average monthly benefit was $1,503.89 or $18,046.68 annually. Survivor benefits are broken down into five categories. Average payments in April 2024 were:

• Children of deceased workers: $1,106.70 monthly ($13,280.40 annually)
• Widowed mothers and fathers: $1,268.02 monthly ($15,216.24 annually)
• Nondisabled widow(er)s: $1,781.78 monthly ($21,381.36 annually)
• Disabled widow(er)s: $926.85 monthly ($11,122.20 annually)
• Parents of deceased workers: $1,609.21 monthly ($19,310.52 annually)
  

The History of Social Security

The Social Security system came into existence in the U.S. on Aug. 14, 1935 when President Franklin D. Roosevelt signed the Social Security Act into law. The first monthly benefits checks became payable on Jan. 1, 1940. Ida M. Fuller, a retired legal secretary in Vermont, was the first person to collect one. Her check was for $22.54.

The system and its rules have evolved since 1935. Social Security was one of the largest government programs in the world as of 2023, paying out hundreds of billions of dollars each year.

The Future of Social Security

Concerns have been raised about the aging of the U.S. population and the viability of a system in which fewer active workers will support a greater number of retirees and increases in the cost of living.

The Social Security Board of Trustees forecast in its 2024 report that reserves in the retirement fund (OASI Trust Fund) will become depleted in 2033. This was unchanged from the previous year's projection. Ongoing tax revenue will be enough to pay only 79% of scheduled benefits after that time.

The trustees also projected that reserves of the Hospital Insurance (HI) Trust Fund that finances Medicare Part A will be depleted in 2036. This is five years later than projected in 2023. The program income will be able to cover 89% of scheduled benefits after 2036.

Congress will have to find ways to fill the gap if these predictions hold. This might mean higher taxes on workers, lower benefits, higher age requirements for retirees, or some combination of these elements.

The Bottom Line

The enactment of Social Security in 1935 was one of the signature achievements of President Franklin Delano Roosevelt’s administration. The program remains a cornerstone of most Americans’ retirement, serving more than 72 million people.

Benefit amounts vary depending on income and years of employment. Surviving spouses, children, parents, and disabled workers and their family members may also be eligible to collect benefits in addition to retired workers.

The average retired worker's benefit amounts to about $20,000 annually so the program shouldn’t be relied on as your sole source of retirement income. It’s important to supplement it with other sources of retirement funding such as individual retirement accounts (IRAs), employer-sponsored plans such as a 401(k) or 403(b), and other savings and investments.

Correction—May 17, 2023: A previous version of this article misstated the starting age at which delaying the collection of Social Security benefits increases them.