What the Social Security System Does

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

The system keeps a record of your earnings history. When you reach the age to receive benefits, become disabled, or die, Social Security calculates your benefit amount based on how much you earned and how long you worked. The amount you receive is not based on how much you contributed — it is based on a formula that considers your 35 highest-earning years.

Key Takeaways

  • Social Security collects payroll taxes from workers and employers, then pays monthly benefits to retirees, disabled workers, and their family members.
  • You build a Social Security record by working and paying taxes; the SSA tracks your earnings history under your Social Security number.
  • Retirement benefits depend on your age when you claim — you can start as early as 62, but waiting until 70 increases your monthly payment.
  • Disability and survivor benefits are available to workers under retirement age and their families if the worker becomes disabled or dies.
  • You can check your earnings record and estimate your future benefits by creating an account at ssa.gov.

How You Build Your Social Security Record

Every time you work and your employer withholds Social Security tax from your paycheck, the SSA records those earnings under your Social Security number. You need 40 work credits to become insured for retirement benefits — one credit for roughly every $1,470 of earnings in 2023, though this amount changes each year. You can earn a maximum of four credits per year, so most people reach 40 credits after about 10 years of work.

If you become disabled or die before reaching retirement age, you may still have enough credits to receive benefits or for your family to receive survivor benefits. The number of credits required depends on your age when disability or death occurs — younger workers need fewer credits.

The SSA maintains your earnings record and updates it each year based on tax information from your employer. You can view your record online by creating a my Social Security account at ssa.gov. This account also shows your estimated retirement benefit amount based on your current earnings history.

Retirement Benefits and Claiming Age

You can claim Social Security retirement benefits as early as age 62, but your monthly payment will be permanently reduced — roughly 30 percent lower than if you waited until your full retirement age. Your full retirement age depends on your birth year and ranges from 66 to 67 for people born in 1943 or later.

If you wait until age 70 to claim, your monthly benefit increases by roughly 8 percent for each year you delay past your full retirement age. This means someone who waits from age 67 to age 70 receives about 24 percent more per month than someone who claims at their full retirement age. The trade-off is that you receive fewer total payments if you die early, but you receive more per month if you live into your 80s.

You can work while receiving retirement benefits, but if you claim before your full retirement age and earn above a certain amount, the SSA will reduce your benefits. Once you reach your full retirement age, you can earn any amount without a reduction.

Disability and Survivor Benefits

If you become unable to work due to a medical condition that is expected to last at least 12 months or result in death, you may be may have access to to Social Security Disability Insurance (SSDI). You do not have to reach retirement age to receive SSDI — you only need enough work credits, which depends on your age. The SSA will review your medical records and work history to determine whether your condition meets their definition of disability.

When a worker who is insured for Social Security dies, their surviving spouse, children, and in some cases parents may receive survivor benefits. A surviving spouse can receive benefits at age 60, or at any age if caring for a child under 16. Children can receive benefits until age 19 if they are in high school, or indefinitely if they became disabled before age 22.

How Your Benefit Amount Is Calculated

The SSA uses a formula based on your 35 highest-earning years to calculate your primary insurance amount — the benefit you receive at your full retirement age. If you worked fewer than 35 years, the SSA counts years with zero earnings, which lowers your average. This is why people who took time out of the workforce may receive smaller benefits.

The formula is progressive, meaning it replaces a higher percentage of earnings for lower-income workers than for higher-income workers. Someone who earned $20,000 per year will receive a larger percentage of their average earnings than someone who earned $100,000 per year, though the higher earner will still receive a larger monthly payment in dollar terms.

Your actual benefit amount depends on when you claim. Claiming early reduces it; claiming late increases it. If you are married, your spouse may be may have access to to a benefit based on your work record, though this amount is also reduced if claimed before their full retirement age.

Understanding Your Earnings Record and Estimates

Your Social Security earnings record shows every year you worked and how much you earned. The SSA uses this record to calculate your benefits. Errors in your record — such as earnings credited to the wrong person or years of work that were not reported — can lower your benefit amount. You should check your record every few years to catch mistakes early.

To view your record, create a my Social Security account at ssa.gov. You will need your Social Security number, email address, and a way to verify your identity. Once logged in, you can see your earnings history, your estimated retirement benefit at different claiming ages, and your estimated disability and survivor benefits.

If you find an error on your record, contact the SSA directly. You will need to provide documents such as W-2 forms or tax returns to prove the correct earnings. The SSA can correct errors going back several years, but it is easier to fix them sooner rather than later.

When and How to Claim Benefits

You can claim retirement benefits online at ssa.gov, by phone at 1-800-772-1213, or in person at your local Social Security office. The SSA recommends claiming about three months before you want your benefits to start. Processing typically takes two to three weeks, though it can take longer if the SSA needs additional information.

When you claim, you will need to provide proof of age (such as a birth certificate), proof of citizenship or legal residency (such as a passport), and proof of income (such as recent tax returns). If you are claiming as a spouse or survivor, you will also need to provide proof of your relationship to the worker.

Once approved, benefits are deposited directly into your bank account each month. You can change your bank account information or update other details through your my Social Security account at any time.

Frequently Asked Questions

Can I change my mind after I claim Social Security?

If you claim before your full retirement age, you can withdraw your claim within 12 months and repay all benefits received. This allows you to claim again later at a higher rate. After 12 months, you cannot withdraw your claim, though you can request a one-time increase if you reach your full retirement age.

What happens to my benefits if I work after I claim?

If you claim before your full retirement age and earn above the annual limit (which changes yearly), the SSA reduces your benefits by $1 for every $2 you earn above the limit. Once you reach your full retirement age, you can earn any amount without a reduction. Your benefit amount is recalculated at your full retirement age to account for the months benefits were withheld.

How much does Social Security cost me as a worker?

You pay 6.2 percent of your wages in Social Security tax, and your employer pays another 6.2 percent. If you are self-employed, you pay both portions, totaling 12.4 percent. This is separate from Medicare tax (1.45 percent for employees, 2.9 percent for self-employed workers).

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

You must have earned 40 work credits under the U.S. Social Security system to receive retirement benefits. If you worked in another country, you may be covered under that country's social security system instead. Some countries have agreements with the United States that allow credits from both countries to count toward benefits.

What if I disagree with the SSA's decision about my claim?

You can request a reconsideration within 60 days of receiving a denial letter. If you disagree with the reconsideration decision, you can request a hearing before an administrative law judge. You have the right to represent yourself or hire a representative, such as a lawyer or accredited advocate, to help with your case.