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 people who are retired, disabled, or whose family members have died. The program is funded through payroll taxes — money taken from your paychecks while you work, matched by your employer.

Many people think of Social Security as money they saved up over their working years. That is not how it works. The taxes you pay today go directly to people receiving benefits right now. When you retire, taxes paid by people working at that time will fund your benefits. It is a transfer system, not a personal account.

You earn the right to Social Security benefits by working and paying into the system. The SSA tracks your earnings record and uses it to calculate how much you will receive. The longer you work and the more you earn, the higher your benefit amount will be.

Key Takeaways

  • Social Security is funded by payroll taxes (FICA) taken from your paycheck and matched by your employer, not by money you personally save.
  • You earn Social Security credits by working and paying taxes, and you need 40 credits (roughly 10 years of work) to be may be able to access for retirement benefits.
  • Social Security pays three main types of benefits: retirement, disability (SSDI), and survivor benefits for family members of deceased workers.
  • Your benefit amount depends on your highest 35 years of earnings and the age you start receiving benefits — waiting longer means a larger monthly payment.
  • The SSA maintains your earnings record and calculates your benefits based on your work history, so checking your record for errors is important.

How you earn the right to Social Security benefits

Social Security uses a credit system to track your work history. You earn one credit for each quarter (three-month period) you earn a certain amount of income. In 2024, you earn one credit for each $1,705 you make, up to a maximum of four credits per year. The amount needed for a credit changes each year based on national wage levels.

To receive Social Security retirement benefits, you need 40 credits total — which typically takes about 10 years of work. You do not have to earn these credits consecutively; gaps in your work history are fine as long as you eventually reach 40 credits. If you become disabled before reaching 40 credits, you may still be may be able to access for disability benefits with fewer credits, depending on your age.

Your earnings record is the foundation of your benefits. The SSA keeps track of every year you worked and how much you earned. You can view your record online through your personal my Social Security account, which you can create at ssa.gov. Checking your record occasionally helps catch errors before they affect your benefits.

The three types of Social Security benefits

Retirement benefits are monthly payments you receive after you reach a certain age and stop working (or reduce your work). You can start receiving retirement benefits as early as age 62, but your monthly payment will be smaller than if you wait. If you wait until your full retirement age (which ranges from 66 to 67 depending on your birth year), you receive your full benefit amount. If you wait until age 70, your benefit increases by about 8 percent per year.

Disability benefits, officially called Social Security Disability Insurance (SSDI), go to people under full retirement age who have a medical condition expected to last at least 12 months or result in death. You do not have to be retired to receive SSDI — you can be any age. The SSA has a strict definition of disability, and the process to get approved involves medical evidence and can take several months.

Survivor benefits go to family members of a worker who has died. A widow or widower can receive benefits at age 60 (or 50 if disabled), and children under 19 (or 19 if still in high school) can receive benefits based on a deceased parent's work record. A surviving spouse caring for a child under 16 can also receive benefits regardless of age.

How your benefit amount is calculated

The SSA looks at your highest 35 years of earnings to calculate your benefit. If you worked fewer than 35 years, they count zeros for the missing years, which lowers your average. This is why people who work longer often receive higher benefits.

Your benefit also depends on when you start receiving it. If you claim at 62, your monthly payment is permanently reduced — roughly 30 percent less than your full retirement amount. If you claim at your full retirement age, you get 100 percent of your calculated benefit. If you delay until 70, you get about 124 percent of your full retirement amount. This increase is permanent, so the longer you wait, the more you receive each month for the rest of your life.

The SSA sends you a benefit estimate statement through your my Social Security account. This estimate shows what you might receive at different ages based on your current earnings record. The estimate updates each year as you earn more credits.

When you can start receiving benefits

The earliest you can claim Social Security retirement benefits is age 62. However, claiming early means a permanent reduction in your monthly payment. Most people reach their full retirement age between 66 and 67, depending on their birth year. At full retirement age, you receive your full benefit with no reduction.

If you continue working past your full retirement age and delay claiming, your benefit grows. For every year you wait past full retirement age until 70, your benefit increases by roughly 8 percent per year. After age 70, your benefit no longer increases, so there is no financial reason to delay beyond that age.

If you are still working when you reach full retirement age, you can receive your full benefit with no earnings limit. If you claim before full retirement age and continue working, the SSA reduces your benefit by $1 for every $2 you earn above a certain limit (which changes yearly). Once you reach full retirement age, this earnings limit no longer applies.

How to check your Social Security record

You can create a free account at ssa.gov to view your earnings record, see your benefit estimate, and manage your Social Security information online. To create an account, you will need your Social Security number, email address, and a way to verify your identity (such as a driver's license or passport).

Your my Social Security account shows your complete earnings history year by year. Review it for accuracy — if you spot an error, such as missing earnings or earnings credited to the wrong year, contact the SSA to correct it. Errors are usually caught within a few years, but it is better to fix them early.

If you do not have internet access or prefer to speak with someone, you can call the SSA at 1-800-772-1213 (TTY 1-800-325-0778 for deaf and hard of hearing). You can also visit your local Social Security office in person. Wait times at offices have been long in recent years, so calling or using the online account is often faster.

Frequently Asked Questions

Can I work and receive Social Security at the same time?

Yes, but it depends on your age. If you have reached your full retirement age, you can work and receive your full benefit with no limit on how much you earn. If you claim before full retirement age and work, the SSA reduces your benefit by $1 for every $2 you earn above an annual limit (which changes yearly). Once you reach full retirement age, the earnings limit no longer applies.

What happens to my Social Security if I move out of the country?

You can receive Social Security benefits while living outside the United States, with some exceptions. Citizens of certain countries may have restrictions, and you must still report your income and other required information to the SSA. Contact the SSA before moving to understand any rules that may explore to your situation.

How much does Social Security take out of my paycheck?

Social Security tax is 6.2 percent of your wages, taken from your paycheck. Your employer matches this with another 6.2 percent, for a total of 12.4 percent. Self-employed people pay both portions themselves (12.4 percent total). There is a wage cap — in 2024, you only pay Social Security tax on earnings up to $168,600, though this amount changes yearly.

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

If you claimed Social Security within the past 12 months, you can withdraw your claim and stop receiving benefits. This allows you to delay and receive a higher benefit later. You must repay all benefits you received. After 12 months, you cannot withdraw your claim, but you can suspend your benefits at full retirement age or later, which allows your benefit to grow until age 70.

What is the difference between Social Security and SSI?

Social Security (OASDI) is based on your work record and taxes you paid. Supplemental Security Income (SSI) is a needs-based program for people with low income and limited resources, regardless of work history. SSI is funded by general tax revenue, not payroll taxes. The two programs have different rules, benefit amounts, and may be able to access requirements.