Social Security is a pivotal program in the United States that ensures financial stability for retirees, disabled individuals, and their families. Administered by the Social Security Administration (SSA), it plays a crucial role in supporting over 71 million Americans as of 2023. It is essential to understand how Social Security functions and how to optimize your benefits. Here’s an in-depth look at the program and the benefits it offers.
Key Takeaways
- Social Security provides retirement, disability, and survivor benefits to qualified individuals and their dependents.
- Workers who have paid into the system for at least 10 years and are 62 years or older can claim retirement benefits, with increased benefits if they delay claiming until age 70.
- Disability benefits are available for those who can no longer work due to a substantial medical condition, and survivor benefits support the families of deceased workers.
- Benefit amounts vary based on your earnings record and the age at which you start claiming benefits.
How Social Security Works
Social Security functions as an insurance program where workers contribute through payroll taxes deducted by their employers. Self-employed individuals also contribute when they file their federal tax returns. These contributions build up credits, up to four annually. For instance, in 2023, each $1,640 earned equates to one credit, with $6,560 being the threshold for four credits.
The funds collected are placed into two specific trust funds: the Old-Age and Survivors Insurance Trust Fund (OASI) and the Disability Insurance Trust Fund (DI). A board of trustees consisting of federal officials oversees the management of these funds to ensure financial stability.
Medicare, the health insurance program for individuals aged 65 and older, is funded separately but aligned with Social Security through its trust fund managed by the Centers for Medicare & Medicaid Services (CMS).
Who Can Get Retirement Benefits?
Eligibility for retirement benefits requires a minimum of 10 years of contributions to the Social Security system, with benefits starting as early as age 62. However, waiting until the full retirement age (FRA)—between 66 and 67 depending on the birth year— results in higher monthly benefits. Delaying until 70 yields even greater benefits, though further delays do not increase the benefit.
Spouses (including divorced spouses) and children of retirees may also qualify for benefits. Here are more details:
- A divorced spouse who isn’t remarried can claim benefits based on their ex-spouse’s earnings if the marriage lasted at least 10 years.
- Retirees’ children can claim benefits until they turn 18 (longer if they are disabled or students).
How Much Can I Get in Social Security Benefits?
Benefit amounts are calculated based on your Average Indexed Monthly Earnings (AIME) from your 35 highest-earning years. For 2023, the average monthly retirement benefit is $1,841, amounting to $22,092 annually.
Delaying benefits past your full retirement age increases payments by 8% annually until age 70. For example:
- Starting benefits at FRA (66) gives you 100% of your Primary Insurance Amount (PIA).
- Waiting one year gives you 108% of your PIA.
- Waiting until 70 grants 132% of your PIA.
Maximum benefits in 2023 were $2,572 monthly for those starting at age 62, and $4,555 for those starting at 70. There’s an annual cost-of-living adjustment (COLA) to keep up with inflation, which was 8.7% for 2023.
Who Can Get Disability Benefits?
Individuals unable to work due to significant physical or mental disabilities lasting a year or longer (or expected to result in death) may qualify for Social Security Disability Insurance (SSDI). As of September 2023, over 8.5 million Americans were receiving SSDI.
How Much Can I Get in Disability Benefits?
Average monthly SSDI benefits were $1,350 in 2023, with disabled workers averaging $1,486.89, and benefits also available for their spouses and children.
Who Can Get Survivor Benefits?
Survivor benefits are available to the families of deceased workers, including:
- Surviving spouses aged 60 or older (50 or older if disabled)
- Surviving spouses caring for children under 16 or disabled children
- Children under 18 or disabled
- Parents aged 62 or older who were financially dependent on the deceased worker
How Much Can I Get in Survivor Benefits?
As of August 2023, the average monthly survivor benefit was $1,454.48. Specific amounts for various categories included:
- Children: $1,067.20 monthly
- Widowed parents: $1,241.27 monthly
- Non-disabled widow(er)s: $1,715.77 monthly
- Disabled widow(er)s: $895.66 monthly
- Parents of deceased workers: $1,538.65 monthly
The History of Social Security
Social Security was established on August 14, 1935, under President Franklin D. Roosevelt. Monthly benefits began on January 1, 1940, with the first check going to Ida M. Fuller for $22.54. Today, Social Security is among the largest government programs globally, paying out billions annually.
The Future of Social Security
Concerns about the aging population and the sustainability of Social Security funds are ongoing. The Social Security Board of Trustees projected in its 2023 report that OASI Trust Fund reserves could be depleted by 2033, covering 77% of scheduled benefits thereafter. Medicare Part A is forecasted to be sufficient until 2031.
Additional Details
Social Security benefits can be supplemented with other retirement savings options, such as individual retirement accounts (IRAs) and employer-sponsored plans like 401(k)s and 403(b)s.
It’s vital to plan adequately for your retirement to ensure financial security beyond Social Security benefits alone.
Related Terms: OASDI, FICA, Medicare, Retirement Age, Disability Insurance.
References
- Social Security Administration. “Monthly Statistical Snapshot, September 2023”.
- Internal Revenue Service. “Self-Employment Tax (Social Security and Medicare Taxes)”.
- Social Security Administration. “How is Social Security Financed?”
- Social Security Administration. “Fact Sheet: 2024 Social Security Changes”, Page 1.
- Social Security Administration. “Social Security Credits”.
- Social Security Administration. “What Are the Trust Funds?”
- Social Security Administration. “Old-Age & Survivors Insurance Trust Fund”.
- U.S. Centers for Medicare and Medicaid Services. “What’s Medicare?”
- U.S. Centers for Medicare & Medicaid Services. “How Is Medicare Funded?”
- Congressional Research Service. “Social Security: The Trust Funds”, Page 1.
- Social Security Administration. “Benefits For Your Family”.
- Social Security Administration. “How You Earn Credits”, Page 2.
- Social Security Administration. “Starting Your Retirement Benefits Early”.
- Social Security Administration. “Delayed Retirement Credits”.
- Social Security Administration. “Social Security Benefit Amounts”.
- Social Security Administration. “Effect of Early or Delayed Retirement on Retirement Benefits.”
- Social Security Administration. “Cost-of-Living Adjustment (COLA) Information”.
- Social Security Administration. “Workers With Maximum-Taxable Earnings”.
- Social Security Administration. “Special Minimum Benefit”.
- Social Security Administration “Social Security Benefit Tables”, Select Enter Year for Specific Table: 2023.
- Social Security Administration. “Disability Benefits”.
- Social Security Administration. “If You Are the Survivor”.
- Social Security Administration. “Historical Background and Development of Social Security”.
- Social Security Administration. “The 2023 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds”, Page 2.
- Social Security Administration. “A Summary of the 2023 Annual Reports”.
- Congressional Research Service. “Social Security: The Trust Funds”, Pages 1-2.
- Social Security Administration. “Understanding Supplemental Security Income (SSI) Overview – 2023 Edition”.
