Almost 70 million individuals benefit from programs established by the Social Security Administration. Knowing the ins and outs of Social Security may help you strategize your retirement goals and evaluate financial decisions you may want to consider as you age.
What Is Social Security?
Social Security is a United States federal benefits program that provides payments to qualified individuals. Qualified individuals may include retired adults and their spouses, people with disabilities, those whose spouses or ex-spouses have passed away, and children of beneficiaries.
Payroll tax contributions fund the program. The Internal Revenue Service (IRS) collects these funds and deposits them into the Social Security Trust Fund. Benefit distributions come from this fund.
The History of Social Security
President Franklin D. Roosevelt established the Social Security program in 1935 in response to the Great Depression. Its intended purpose is to provide income to those who are aging or disabled or to spouses or ex-spouses who have passed away. Monthly payments to retirees started in 1940, and the first recipient was Ida May Fuller of Ludlow, Vermont, for $22.54. She continued receiving payments until age 100.
Types of Social Security Benefits
The following are the types of Social Security benefits available.
- Retirement Benefits. These benefits are eligible to people at 62 as long as they have earned 40 lifetime credits through their earnings. You can collect partial benefits at 62, but if you wait until 70 to receive your Social Security, you will be eligible for the full amount.
- Spousal Benefits. A spouse who didn’t receive enough benefits to qualify for Social Security or who didn’t work can be eligible to receive their spouse’s benefit starting at age 62.
- Survivor Benefits. When a spouse dies, the surviving spouse can receive benefits starting at age 60. Survivors can switch to their benefits when they reach retirement age if that amount is higher.
- Disability Benefits. Individuals who work and become disabled are eligible to receive Social Security benefits. There are eligibility requirements to qualify—Disability must be on the Social Security impairment list, individuals must be unable to do the job they previously held, or not be able to perform the duties of a job they qualify for. The disability must be expected to last a year or more.
- Supplemental Security Income Benefits. Those 65 years or older who are blind, disabled, have low income, and limited resources may qualify for this benefit.
How to Qualify for Social Security
Workers contribute to Social Security with each paycheck through payroll deductions or, if self-employed, through income tax filings.
The Social Security Administration compiles credits based on the amount the worker contributes through payroll tax deductions or income tax filings. You can earn up to four credits per year. To qualify for Social Security, you need a minimum of 40 credits.
People become eligible to begin collecting Social Security at age 62. However, many people find it beneficial to wait to collect their benefits. The longer you wait, the larger your monthly benefit will be. If you wait until age 70, you will collect 8% more than at age 62. After 70, your benefit is at its maximum and won’t continue to increase, even if you wait.
You can check your eligibility, estimated benefits, and earning history on the Social Security Administration’s website.
How the SSA Calculates Benefit Amounts
Your Social Security benefit amount depends on how much you contributed over your 35 highest earning years and when you decide to take social security payments. The older you wait to claim social security, the higher likelihood you will receive more money.
A higher salary during your working years will provide greater benefits for your social security payments. There is a maximum amount of social security that anyone can receive. The maximum is determined by different factors, including the following: your age, earning history, and the year you decide to collect Social Security.
In 2023, the maximum benefit an individual can receive at full retirement age of 66 is $3,627 a month. For those who qualify and can delay receiving benefits at age 70, the maximum benefit is $4,555.
Deciding how you can maximize your social security takes some strategizing on your part. You’ll want to think about how long you expect to live and your retirement plan before deciding the best time to start collecting your benefit.
How Long Do Social Security Benefits Last?
Once an individual begins collecting Social Security benefits, they will continue to collect those benefits for life, with a few exceptions.
- Survivor Benefits. The surviving spouse will also receive benefits without an expiration date. However, there may be restrictions on divorced spouses.
- Disability Benefits. As long as you qualify for the disability, your benefits will continue. The Social Security Administration will determine if you still meet disability eligibility requirements.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.