Social Security is a federal insurance program, not a savings account

Social Security is a federal insurance program run by the Social Security Administration (SSA). It pays monthly benefits to workers who reach retirement age, to workers who become disabled before retirement, and to the surviving family members of workers who die. The program is funded through payroll taxes — both you and your employer contribute a percentage of your wages during your working years.

The money you pay in does not sit in an account with your name on it. Instead, current payroll taxes pay current benefits to current retirees, disabled workers, and survivors. When you retire, your benefits come from payroll taxes paid by workers at that time. This is called a "pay-as-you-go" system, and it is the reason Social Security is described as an insurance program rather than a personal retirement savings plan.

Social Security is separate from Medicare (health insurance for people 65 and older) and Medicaid (health insurance for low-income individuals and families). It is also separate from Supplemental Security Income (SSI), which is a needs-based program for people with low income and limited resources. Many people receive more than one of these programs, but they are different programs with different rules.

Key Takeaways

  • Social Security is a federal insurance program funded by payroll taxes, not a personal savings account or investment.
  • The program pays monthly benefits to retired workers, disabled workers under full retirement age, and surviving family members of deceased workers.
  • You earn Social Security credits through work, and you need a certain number of credits to be covered by the program.
  • Your benefit amount is based on your highest 35 years of earnings and the age at which you start receiving benefits.
  • Social Security is separate from Medicare, Medicaid, and SSI, though you may be covered by more than one program.

The three types of Social Security benefits

Retirement benefits are paid to workers who reach their full retirement age. Full retirement age depends on the year you were born — it ranges from 66 to 67 for people born between 1943 and 1960, and is 67 for people born in 1960 or later. You can start benefits as early as age 62, but your monthly payment will be permanently reduced. You can also delay benefits past your full retirement age and receive a higher monthly payment.

Disability benefits are paid to workers under full retirement age who have a medical condition that is expected to last at least 12 months or result in death, and who have earned enough work credits. You do not have to be retired to receive disability benefits. Family members of a disabled worker — including a spouse, ex-spouse, and children — may also receive benefits based on that worker's record.

Survivor benefits are paid to the family members of a worker who dies. A surviving spouse, ex-spouse, children, and dependent parents may all be covered. The total amount paid to a family is limited, but individual family members can each receive a monthly benefit. You do not have to be retired or disabled for your family to receive survivor benefits after your death.

How you earn the right to Social Security benefits

You earn Social Security coverage through work. Each year you work and pay Social Security taxes, you earn credits (also called quarters). In 2024, you earn one credit for each $1,730 of wages you earn, up to a maximum of four credits per year. The dollar amount that earns a credit changes each year.

To be covered by Social Security retirement benefits, you need 40 credits total — which is roughly 10 years of full-time work. To be covered by disability and survivor benefits, you need fewer credits, and the number depends on your age when you become disabled or when you die. A younger worker needs fewer credits than an older worker.

If you do not have enough credits, you will not receive benefits under your own record. However, you may still be covered as a family member — for example, as a spouse or child of a worker who does have enough credits.

How your benefit amount is calculated

Your Social Security benefit is based on your highest 35 years of earnings. The SSA adjusts your past earnings for inflation, adds them up, and divides by the number of months you worked. This produces your Primary Insurance Amount (PIA), which is your full retirement age benefit.

If you start benefits before your full retirement age, your monthly payment is reduced by a percentage that depends on how many months early you claim. If you delay benefits past your full retirement age, your monthly payment increases by a percentage for each month you wait, up to age 70. The exact reduction or increase depends on your birth year.

Your benefit is not based on how much you paid in taxes or how long you worked — it is based on your 35 highest-earning years. If you worked fewer than 35 years, the SSA counts zero-earning years in the calculation, which lowers your benefit. If you worked more than 35 years, only your 35 highest-earning years count.

What happens to your benefits if you work while receiving them

If you receive Social Security retirement benefits before your full retirement age and you work, the SSA will reduce your benefits if your earnings exceed a certain limit. In 2024, the limit is $23,400 per year. For every $2 you earn above the limit, your benefits are reduced by $1. This reduction applies only in the year you turn full retirement age and only to earnings before the month you reach full retirement age.

Once you reach your full retirement age, you can earn any amount without a reduction to your benefits. Disability benefits have different rules — if you are receiving disability benefits and you work, your benefits may stop if your earnings are too high, because the SSA may determine you are no longer disabled.

How to create a Social Security account and check your record

You can create a personal account on the Social Security Administration's website at ssa.gov. With an account, you can view your earnings record, see an estimate of your future benefits, and manage your benefits if you are already receiving them. You will need to verify your identity using information from your credit file or by uploading documents.

Your earnings record shows the wages you earned each year and the credits you earned. It is important to check this record periodically because errors can affect your benefit amount. If you find an error, you can contact the SSA to request a correction. You have a limited time to correct errors — generally three years, three months, and 15 days from the end of the year in which you earned the wages.

If you do not have internet access or prefer to speak with someone, you can call the Social Security Administration at 1-800-772-1213 (TTY 1-800-325-0778) or visit a local Social Security office. Wait times are often shorter early in the week and early in the day.

Common misconceptions about Social Security

Many people believe Social Security is a personal savings account or investment. It is not. Your payroll taxes do not earn interest or grow over time. They fund current benefits for current beneficiaries. The amount you receive in retirement depends on your earnings history and the age at which you claim, not on how much you paid in.

Another common misconception is that Social Security will not exist when you retire. While the program does face long-term funding challenges, the SSA projects that even without changes to the program, it will be able to pay approximately 80% of scheduled benefits from incoming revenue after 2033. Congress has changed Social Security rules many times in the past and may do so again.

Some people also believe that if they die before reaching their full retirement age, their family receives nothing. This is not true. Surviving family members may receive benefits based on the deceased worker's record, regardless of the worker's age at death.

Frequently Asked Questions

Can I receive Social Security benefits if I did not work in the United States?

You may be covered if you worked for a U.S. employer and paid Social Security taxes, even if you were not a U.S. citizen at the time. If you worked in another country, you may be covered under a totalization agreement between the United States and that country, which allows you to combine work credits from both countries. Contact the SSA to learn whether your foreign work counts.

What is the difference between Social Security and SSI?

Social Security is an insurance program based on your work history. SSI (Supplemental Security Income) is a needs-based program for people with low income and limited resources who are 65 or older, blind, or disabled. You do not need work credits to receive SSI, but you must meet strict income and resource limits. Many people receive only one program, but some receive both.

Do I have to pay taxes on my Social Security benefits?

It depends on your total income. If your combined income (adjusted gross income plus non-taxable interest plus half your Social Security benefits) exceeds certain thresholds, a portion of your benefits may be taxable. The thresholds are $25,000 for single filers and $32,000 for married couples filing jointly. The SSA sends a form each year showing how much of your benefits were taxable.

Can I change my mind after I start receiving Social Security?

If you have been receiving benefits for fewer than 12 months, you can withdraw your process and repay all benefits you received. This allows you to stop your benefits and restart them later at a higher amount. After 12 months, you cannot withdraw your process, but you can suspend your benefits at your full retirement age and restart them later at a higher amount.

What happens to my benefits if I move out of the United States?

If you move to most countries, you can continue to receive your benefits. However, if you move to certain countries (including Cuba, North Korea, Iran, Syria, and a few others), your benefits will stop. If you are a non-citizen, there are additional restrictions. Contact the SSA before you move to learn how it will affect your benefits.