Social Security

Social Security (officially the Old-Age, Survivors, and Disability Insurance — OASDI — program) is a federal insurance system that provides monthly benefits to retired workers, disabled workers, and survivors of deceased workers. It is funded primarily by payroll taxes paid by employees, employers, and self-employed individuals and administered by the Social Security Administration (SSA).

Key takeaways

• Social Security pays retirement, disability, and survivor benefits based on work history and payroll-tax contributions.
• Workers generally need 40 credits (about 10 years of work) to qualify for retirement benefits.
• Delaying retirement benefits past full retirement age (FRA) increases monthly benefits by roughly 8% per year up to age 70.
• Trust funds are projected to face shortfalls: the OASI fund is projected to be depleted by 2033, which could reduce scheduled benefits unless Congress acts.

How Social Security works

• Funding: Payroll taxes (FICA/SECA) finance benefits. Employees and employers each pay a share; self-employed people pay both shares when filing taxes.
• Trust funds: Benefits are paid from two trust funds — the Old-Age and Survivors Insurance (OASI) Trust Fund for retirees and survivors, and the Disability Insurance (DI) Trust Fund for disabled workers. Unspent revenue is held in these funds. A separate trust fund finances Medicare Part A.
• Oversight: A board of trustees (including federal officials and public appointees) monitors the finances and issues annual reports on solvency.

Retirement benefits

Eligibility
* Typically requires earning 40 work credits (about 10 years).
Early retirement is possible at age 62 with reduced benefits.
Full retirement age (FRA) depends on birth year (generally between 66 and 67).
* Delaying benefits past FRA increases monthly payments up to age 70; there is no additional increase after 70.

How benefits are determined
* Benefits are based on average indexed monthly earnings (AIME) from your 35 highest-earning years and converted into a primary insurance amount (PIA).
* The monthly benefit you receive depends on your PIA and the age at which you begin claiming.

Typical amounts (examples)
* Average monthly retirement benefit (June 2024): about $1,870.
Maximum monthly benefit in 2024: $2,710 at age 62; $4,873 at age 70.
Delayed retirement credits increase benefits roughly 8% per year for each year you postpone claiming between FRA and age 70.

Special minimum benefit
* A special minimum benefit exists for long-term low earners who meet eligibility years (e.g., 11+ years); the minimum increases with additional years of low-income work.

Disability benefits (SSDI)

Eligibility
* SSDI provides benefits to workers who are unable to engage in substantial gainful activity because of a medically determinable physical or mental impairment expected to last at least one year or result in death.
* Eligibility also depends on meeting recent work and earnings tests; certain family members may qualify for auxiliary benefits.

Typical amounts (examples)
* About 8.3 million people collected SSDI (June 2024).
* Average monthly SSDI benefit (June 2024): roughly $1,398 overall; about $1,538 for disabled workers.

Survivor benefits

Who can qualify
* A surviving spouse (age 60 or older, or 50+ if disabled), a spouse caring for a child under 16, dependent children (generally under 18, or up to 19 if still in secondary school, or disabled), and dependent parents (62 or older) may qualify based on the deceased worker’s earnings record.
* There is sometimes a one-time lump-sum death payment (commonly $255) for eligible survivors.

Typical amounts (examples)
* About 5.8 million people received survivor benefits (June 2024).
* Average monthly survivor benefit (June 2024): about $1,508, with variation across categories (children, widowed parents, disabled widows/widowers, etc.).

Spousal, divorced-spouse, and dependent benefits

• Spouses and divorced spouses (if marriage lasted at least 10 years and other eligibility rules are met) may claim benefits based on a worker’s record instead of—or in addition to—their own, whichever yields a higher payment, subject to eligibility rules.
• Children, stepchildren, adopted children, and certain other dependents can qualify for benefits under specific conditions.

Medicare and Social Security

• Medicare Part A (hospital insurance) is funded separately through payroll withholding and has its own trust fund administered by the Centers for Medicare & Medicaid Services (CMS). Some people qualify for Medicare based on age (65+) or disability status tied to Social Security.

Brief history

• The Social Security Act was signed into law in 1935. Monthly benefits first began in 1940. The program has evolved through expansions and rule changes and is now one of the largest social insurance programs in the U.S.

Financial outlook and challenges

• Demographic trends (aging population and lower worker-to-beneficiary ratios) strain the system.
• The SSA trustees projected that the OASI Trust Fund reserves may be depleted by 2033; after that, incoming payroll taxes would be sufficient to pay about 79% of scheduled retirement and survivor benefits unless Congress changes the law.
• The Medicare Part A trust fund is projected to be depleted later in the 2030s, with a potential reduction in payable benefits unless addressed.
• Possible responses include changes to payroll taxes, benefit formulas, retirement ages, or other policy adjustments.

Practical guidance

• Use SSA tools (online calculators and your Social Security statement) to estimate benefits at different claiming ages.
• Social Security is intended to replace a portion of pre-retirement income; it is generally not sufficient as the sole retirement resource. Consider supplementing it with employer plans (401(k), 403(b)), IRAs, and personal savings.
• Timing matters: delaying benefits increases monthly payments, but personal circumstances (health, finances, spousal benefits) affect the best claiming strategy.

Bottom line

Social Security is a cornerstone of retirement, disability, and survivor support for millions of Americans, providing inflation-adjusted monthly benefits funded by payroll taxes. While it offers essential income protection, projected funding shortfalls mean recipients and planners should treat it as one part of a broader retirement strategy and consider additional savings and investment options.