How Social Security Benefits Work
Social Security provides retirement, disability, and survivor benefits
Social Security is a welfare program in the United States that provides income to people who are retired or unable to work. It was created during the Great Depression of the 1930s in order to provide income to seniors who would otherwise be living in poverty. It is funded by a specific Social Security tax.
Social Security benefits are available to most people who work and earn income in the United States and their dependents. You can receive Social Security benefits if you are:
- The spouse or child of someone receiving benefits
- The divorced spouse of someone eligible for benefits or of a worker who has died
- The dependent or spouse of a worker who has died
As of June 2019, about 177 million people in the United States works and paid Social Security taxes, and 64 million people received monthly Social Security benefits. It is the most successful anti-poverty program in the history of the United States.
Social Security Definition
While you work and earn income, you and your employer each pay 6.2% of your earnings in Social Security taxes. This money then goes into the Social Security trust fund.
If you are self-employed, you pay both the employer share and your employee share, or 12.4% of your income, in Social Security taxes. However, the employer portion of this payment is tax-deductible.
The money you pay in Social Security taxes is not held in trust for you personally; instead, it is used to pay benefits to current recipients. When you eventually receive benefits, those payments will come from the Social Security taxes of current workers.
There are three main types of Social Security benefits: retirement, disability, and survivor. Approximately 85 cents of each dollar paid in Social Security taxes go to the trust fund for retiree and survivor benefits, while 15 cents go to the trust fund for disability benefits.
Importance of Your Social Security Number
Your Social Security number is a confidential identifying number that is assigned to you either when you are born, when you become a U.S. Citizen, or when you are authorized to work in the United States.
Sharing or giving out your Social Security number can lead to identity theft. Be very careful about who you share your Social Security number with, and never carry your Social Security card around with you.
You need your Social Security number to work and pay taxes in the United States. You will need to give it to your employer so they can pay you and withhold taxes on your behalf. It is used to track your earnings while you work and your benefits after you begin to receive them.
How to Qualify for Social Security Retirement Benefits
The majority of Social Security recipients are retirees and their families. In June 2020, out of 64 million total people receiving Social Security benefits, there were 48 million people receiving retirement benefits.
For many Americans, Social Security benefits provide 50% or more of their income in retirement. By learning how you qualify for Social Security benefits, you can make decisions that help you get the most out of the program.
Although you pay into the system while working, your benefit amount in retirement is not determined by how much you and your employer contribute. Instead, your benefit is determined by:
- How long you work
- How much you earn
- What age you file for benefits
1. How Long You Work
While you work and pay into the Social Security system you accumulate credits. A credit is approximately equivalent to one calendar quarter of work.
To qualify for Social Security retirement benefits, you must have 40 credits or 10 years of work where you paid into the Social Security system. In 2020, you can earn one credit for every $1,410 you earn. You can receive a maximum of four credits per year.
Your highest 35 years of earnings are used to calculate your retirement benefit amount. To get more benefits, you'll need to have a full 35 years where you work and pay into the Social Security system.
Some government employers have their own retirement system. Employees in these programs do not pay into Social Security, so the years worked in these jobs do not count toward accumulating Social Security benefits. This most commonly affects:
- Postal workers
- Police and law enforcement employees
- Teachers and others in the education system
2. How Much You Earn
The higher your earnings, the higher your retirement benefit is likely to be, but there is a cap. Social Security is designed to replace more income for lower earners than for higher earners, so each year you pay into the system only up to the Social Security wage base.
If you want to see how many years of earnings you have in the Social Security system, look at your Social Security statement, which you receive every five years from age 25 to age 60 (and each year after 60) or create a my Social Security Account online.
You do not pay Social Security taxes on income over the wage base, so that income is not replaced with your retirement benefits. The wage base is increased each year based on inflation; in 2020, the wage base was set at $137,700.
3. What Age You File
You can claim retirement benefits as early as age 62, but you get a higher benefit amount if you wait until age 70 to file. Exactly how much you get at what age depends on your full retirement age (FRA) which varies by year of birth.
|Social Security Full Retirement Age|
|Year You Were Born||Full Retirement Age|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
If you file for retirement benefits before you have attained FRA and continue to work, a portion of your benefits will be held back due to something called the earnings limit. In 2020, your benefits are reduced by $1 for every $2 that you earn over $18,240 if you are below full retirement age. If you will reach your FRA in 2020, your benefits are reduced by $1 for every $3 you earn over $48,600 until the month you reach FRA.
Once you reach your full retirement age, the earnings limit no longer applies. You can receive your full benefit even if you are also working and earning and income.
If you are married and you have a higher potential Social Security benefit than your spouse, the age you claim will also impact your spouse’s survivor benefits.
You can get the highest benefit amount by working and paying into the system for 35 years, earning up to the Social Security wage base each year, and waiting until age 70 to begin your benefits.
Even though the FRA is rising, it is still best to apply for Medicare benefits three months before your 65th birthday. If you wait longer, your medical insurance and prescription drug coverage (Medicare Parts B and D) may be more expensive.
How to Qualify for Social Security Disability Benefits
The Social Security disability program is meant to cover a long-term disability that is expected to last at least one year or expected to result in death. It is not a short-term disability program and so does not cover you if you are out of work for a few weeks or months due to illness or an accident.
It can take time for a disability claim to be processed by the Social Security Administration, so if you do become disabled, you should file your paperwork as soon as possible.
To be eligible for disability benefits, you must:
- Have worked and paid into the Social Security system and accumulated the minimum amount of credits needed based on your age
- Meet Social Security’s definition of disability
Minimum Credits Needed for Disability
The number of credits you need to be eligible for disability benefits depends on the age at which you become disabled.
- Under age 24: You are eligible if you have at least 6 credits earned in the three year period ending in the year your disability starts.
- Age 24–31: You are eligible if you have credit for working at least half the time between age 21 and the year you became disabled.
- Age 31–42: You are eligible if you have 20 credits.
- Age 43–61: You are eligible if you have between 21 and 39 credits, increasing by one credit each year (for example, 21 credits at age 43, 22 credits at age 44, 23 credits at age 45).
- Age 62 and up: You are eligible if you have at least 40 credits.
Definition of Disability
Before you can receive a disability benefit, you must meet Social Security’s definition of disabled. The Social Security Administration provides a list of impairments as part of how they evaluate whether an impairment meets the criteria for long-term disability.
If your disability is not on the list of impairments, that does not automatically mean you are ineligible. In that case, the adjudicator working with you must take other steps to determine whether you qualify for disability benefits.
Social Security disability benefits are available for those with both physical and mental disabilities.
In general, your impairment must prevent you from doing the work you did before your disability, and it must prevent you from adapting to a different kind of work.
The Social Security Administration's definition of disability is not the same as some other programs, and just because you are eligible for disability payments from other programs or government agencies does not mean you will be eligible for Social Security disability benefits. To help your application be processed more quickly and prove your eligibility, you can provide:
- Medical records and treatment dates
- Your last 15 years of employment history
- Any relevant test results
- Names, addresses, and other contact information for any medical professionals involved in your care or diagnosis
- A list of all medications you are taking
How to Qualify for Social Security Survivor Benefits
For your survivors to be eligible for a benefit upon your death, as with other benefit types, you must have worked and paid into the Social Security system. The number of credits required depends on your age at death. Nobody needs more than 40 credits, which is equal to 10 years of work.
A special rule allows survivors of young workers to be eligible for benefits if the worker had at least six credits of work in the three years prior to death.
If you die while already receiving retirement or disability benefits, your surviving spouse or dependents are paid based on that benefit. Your credits will not be recalculated.
There are two main types of Social Security survivor benefits:
- Benefits paid to your spouse in retirement
- Benefits paid if you have minor children or other dependents such as a disabled adult child or dependent parent
1. Retirement Survivor Benefits for a Spouse
If you and your spouse are both already receiving retirement benefits, your spouse (if married at least nine months) will continue to receive either the larger of your benefit or their own after your death.
Surviving spouses can receive benefits:
- At age 60 or older
- At age 50 or older if disabled
- At any age if caring for a child of the deceased who is under age 16 or disabled
Survivors may also be eligible for a one-time lump sum payment of $225. Survivors must apply for this benefit no more than two years after the date of death.
2. Survivor Benefits for Ex-Spouses
An ex-spouse is also eligible for survivor benefits if:
- They are at least 60 years old (50 years old if disabled) if the marriage lasted at least 10 years.
- They are any age and caring for a child of the deceased who is under age 16 or disabled.
- They are not entitled to a Social Security of their own that is equal to or higher than the survivor benefit.
- They are not currently remarried, or the marriage occurred after age 60 (age 50 if disabled).
Filing for this benefit it does not impact the benefits that a current spouse or other dependent may receive.
3. Survivor Benefits for Dependents
Survivor benefits may be paid to four types of dependents:
- Minor children under the age of 18
- Children 18-19 years old if attending elementary or secondary school as a full-time student
- A child who was disabled before reaching age 22
- A dependent parent age 62 or older
Children must be unmarried in order to receive survivor benefits, even if they otherwise qualify.
Dependents, spouses, and ex-spouses cannot apply for survivor benefits online. To report a death and apply for benefits, you must contact the Social Security Administration by phone. You can also call or visit your local Social Security office.
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