Learn About Social Security Benefits and Work

Understanding Social Security: What It Is and How It Works

Social Security is a federal insurance program run by the Social Security Administration (SSA). The program provides monthly payments to millions of Americans in different life situations. These payments come from payroll taxes that workers and employers contribute throughout a worker's career.

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The program operates on a pay-as-you-go system. Current workers' taxes fund current retirees' benefits. When you work and earn wages, your employer deducts Social Security taxes from your paycheck. Self-employed individuals pay both the employer and employee portions. These contributions are tracked using your Social Security number, and the amount you've paid in affects the benefits you may receive later.

Social Security has three main types of benefits. Retirement benefits go to workers who reach a certain age. Disability benefits go to workers who become unable to work before retirement age. Survivor benefits go to family members of workers who have died. In 2024, approximately 67 million people received some form of Social Security benefit, with an average retirement benefit of about $1,907 per month.

Understanding how Social Security works is important for planning your financial future. The program is not designed to be your only source of retirement income. Social Security replaces roughly 40 percent of an average worker's pre-retirement income. Most financial advisors suggest that retirees have additional savings, pensions, or income sources to maintain their standard of living.

Practical takeaway: Learn that Social Security is a foundation-level benefit program funded by payroll taxes. Recognize that it covers retirement, disability, and survivor situations, but should be part of a broader financial plan rather than the sole retirement income source.

Work Credits and How They Connect to Your Benefits

Social Security uses a "work credits" system to determine who may receive benefits. You earn work credits based on your yearly income, not on the number of hours you work. In 2024, you earn one credit for each $1,730 of income you make, up to a maximum of four credits per year. These numbers change yearly based on wage growth.

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Different benefit types require different numbers of credits. To receive retirement benefits at full retirement age, you generally need 40 credits, which typically means working about 10 years. If you become disabled, you may be able to receive disability benefits with fewer credits, depending on your age when the disability begins. Younger workers need fewer credits. For survivor benefits, family members of a deceased worker may receive benefits if that worker had earned at least six credits in the three years before death, though 40 total credits is the standard requirement for full benefits.

Your work history directly affects the amount of your benefit. Social Security calculates your benefit based on your highest 35 years of earnings. If you have worked fewer than 35 years, zeros are counted for the missing years, which lowers your benefit amount. This is why working additional years, especially if you had low-earning years earlier in your career, can increase your benefit calculation. Someone who worked 40 years instead of 35 years can replace one of their lowest-earning years with a higher-earning year.

The Social Security Administration keeps an earnings record for each worker. This record shows how much you earned each year and how many credits you've accumulated. You can review your earnings record through the SSA's website. Checking your record periodically helps you ensure the information is correct, since errors could affect your future benefits. If you find an error, you can contact the SSA to have it corrected, though this should be done within a certain timeframe.

Practical takeaway: Understand that work credits are earned through income and are necessary to receive any Social Security benefits. Know that your 35 highest-earning years determine your benefit amount, and that additional years of work can increase your benefits by replacing lower-earning years.

Retirement Benefits: Age, Amount, and Timing Decisions

Retirement benefits are the most common form of Social Security payment. The age at which you may start receiving benefits depends on your birth year. Full retirement age ranges from 66 to 67 for people born in 1943 or later. You can start receiving reduced benefits as early as age 62, but the reduction is permanent. If you wait until after your full retirement age, your benefit increases by about 8 percent per year until age 70.

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The timing of when you start benefits is a significant financial decision. Someone born in 1960 with a full retirement age of 67 might receive about $1,800 monthly if they start at age 62, or about $2,400 monthly if they wait until age 67. If they wait until age 70, the monthly payment could reach approximately $2,976. Over a lifetime, someone who lives into their mid-80s often comes out ahead by waiting, while someone who dies earlier would have received more total benefits by starting at 62.

Your earnings before full retirement age can affect your benefits. If you continue working and start Social Security before your full retirement age, your benefits are reduced if your earnings exceed certain limits. For 2024, benefits are reduced by one dollar for every two dollars earned above $23,400 annually. However, this reduction is temporary—once you reach full retirement age, your benefit amount is recalculated higher to account for the months your benefits were reduced.

Married couples face additional timing considerations. A spouse who did not work enough to get their own benefit may receive spousal benefits based on their partner's work record. These benefits are also affected by when each person starts receiving Social Security. Divorced individuals who were married at least ten years may also be able to receive benefits based on an ex-spouse's record, without affecting the ex-spouse's benefits. Understanding these options helps couples make informed decisions about when to start benefits.

Practical takeaway: Recognize that retirement benefit age ranges from 62 to 70, with significantly different monthly amounts at each age. Understand that delaying benefits increases the monthly amount, and that continuing to work before full retirement age can temporarily reduce benefits. Consider personal factors like life expectancy, financial needs, and family circumstances when thinking about timing.

Social Security Disability Benefits: Support When You Cannot Work

Social Security Disability Insurance (SSDI) provides monthly benefits to workers under full retirement age who have a medical condition expected to last at least twelve months or result in death. Unlike retirement benefits, disability benefits are not based on age. A worker of any age who has the required work credits and meets the medical requirements may receive benefits. The medical definition is specific: the condition must prevent you from doing substantial gainful activity, meaning work that provides significant income.

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To receive disability benefits, you must have earned enough work credits. The number required depends on your age, but generally, younger workers need fewer credits than older workers. Someone in their late 20s might need only six credits earned in the last three years. Someone in their mid-40s might need 24 credits earned in the last ten years. The exact requirements vary based on age at the time of disability.

The application process requires substantial medical documentation. You must provide records from doctors, hospitals, and other treatment providers that describe your condition and its severity. The SSA has a list of medical conditions that automatically meet the disability requirements if your medical records match certain criteria. For conditions not on the list, the SSA reviews whether your specific condition prevents all types of work. This review examines your age, education, work experience, and how your condition affects your ability to function.

Family members may also receive benefits based on a disabled worker's record. A spouse, ex-spouse, or child may receive dependent benefits if certain conditions are met. These benefits do not reduce the disabled worker's benefit amount. The disabled worker continues receiving benefits until reaching full retirement age, at which point their benefits convert to retirement benefits at the same amount. If a disabled worker returns to work and earns above a certain threshold, their benefits may be suspended, though there are work incentive programs designed to encourage return-to-work attempts.

Practical takeaway: Learn that disability benefits are available to workers of any age with sufficient work credits and a condition expected to last twelve months or longer that prevents substantial work. Understand that the application requires detailed medical records and that family members may also receive related benefits.

Survivor Benefits: Protection for Your Family After Death

Social Security survivor benefits provide payments to family members of a worker who has died. These benefits recognize that many workers support family members and help replace lost income. Survivor benefits are available to the worker's spouse, ex-spouse, children, and parents, depending on their relationship and age.

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