Social Security is well-known as a source of retirement income for workers in the United States. Beyond retirement benefits Social Security offers disability and survivor’s benefits as well.
What is Social Security?
The official name for Social Security is the Old-Age, Survivors and Disability Insurance (OASDI) program. The Social Security Administration is a governmental agency that administers retirement, survivor’s and disability benefit programs.
Social Security offers retirement benefits for workers who have paid into Social Security over their working lives and who have earned enough credits to qualify for benefits. Their spouses and ex-spouses may also be eligible for benefits based on their earnings record.
Social Security offers disability benefits to workers who qualify based on their work history and to survivors of deceased workers.
How Does Social Security Work?
Social Security is an insurance program that is funded by a payroll tax withholding. Those who are self-employed also pay into Social Security. This money goes into the two Social Security trust funds used to fund benefits.
Workers earn up to four credits for working each year based on the amount they earn. For 2022 you earn one Social Security or Medicare credit for every $1,510 in covered earnings, you must earn $6,040 to receive the maximum of four earnings credits for the year.
While Medicare is a separate program from Social Security, those who are taking their benefits at age 65 will automatically be enrolled in Medicare benefits. Those who have not yet claimed their Social Security benefits by age 65 will have to enroll in Medicare on their own.
Types of Social Security benefits
The three main types of Social Security benefits:
- Retirement benefits
- Survivor’s benefits
- Disability benefits
Retirement benefits are what most people probably think about in terms of Social Security benefits. Workers who pay into the Social Security system during their working years are eligible to receive a retirement benefit as early as age 62.
Waiting to claim your benefit until your full retirement age (FRA) results in a larger benefit. The FRA for most of today’s workers is between ages 66 and 67, with age 67 being the FRA for those born in 1960 or later. If not claimed, your benefit continues to grow until age 70 when they max out. Note for those who are working, once you reach your FRA there is no benefit reduction for earned income from employment or self-employment.
Divorced spouses can collect a retirement benefit on their ex-spouse's earnings record if certain requirements are met. These requirements include that the ex-spouse claiming a benefit be at least age 62 and unmarried, and that the marriage lasted for at least ten years.
A widow or widower can collect survivor’s benefits based on their deceased spouse’s earnings record, depending upon their situation. The surviving spouse can claim a survivor’s benefit as early as age 60, earlier if they are disabled or care for dependent children. Surviving ex-spouses of the deceased worker can also claim a survivor’s benefit on their earnings record if they were married to the ex-spouse for at least ten years and they are at least 62 years of age.
A surviving spouse can claim a survivor’s benefit as early as age 60 then switch to his or her own benefit if it is higher as early as age 62 and as late as age 70.
Social Security disability benefits are available to those who have worked in jobs covered by Social Security and who have a disability that meets Social Security’s strict definition of disability. These benefits can be notoriously difficult to qualify for.
In addition to meeting Social Security’s definition of disability, there are requirements as to how long and how recently you worked in a job covered by Social Security. The number of work credits needed to qualify for disability benefits depends on the age at which the disability begins.
In order to qualify for disability benefits, you must meet all three of these criteria:
- You are unable to work or to engage in “substantial gainful activity” due to your medical condition.
- You cannot perform the work that you previously did nor adjust to doing other types of work due to your medical condition.
- Your medical condition has lasted or is expected to last for at least one year or result in death.
How are social security benefits calculated?
Social Security retirement benefits are calculated using your “average indexed monthly earnings.” This is calculated by Social Security and is based on your top 35 years of earnings. If you have less than 35 years’ worth of earnings, then the missing years will count as zero earnings in the calculation.
You can claim your Social Security benefits as early as age 62. If you claim early, defined as any time before your full retirement age, your benefit will be reduced versus what you would receive by claiming at your FRA.
If you claim at your full retirement age, you are eligible for 100% of your benefit. The FRA for those born from 1943 to 1954 is age 66. For those born in 1955 to 1959, the FRA is 66 plus a two month increase per year. The FRA for those born in 1960 or later is age 67.
You can also delay claiming benefits beyond your FRA, and the monthly benefit amount will increase for each month you wait. The maximum benefit tops out at age 70, there is no advantage to waiting beyond age 70 to claim your benefit.
For example, here is a list of the reduced benefit levels for those claiming their benefit at age 62 versus at their FRA:
|FRA||Months between age 62 and FRA||Benefit reduction compared to taking at FRA|
Months between age 62 and FRA48
Benefit reduction compared to taking at FRA25.00%
FRA66 and 2 months
Months between age 62 and FRA50
Benefit reduction compared to taking at FRA25.83%
FRA66 and 4 months
Months between age 62 and FRA52
Benefit reduction compared to taking at FRA26.67%
FRA66 and 6 months
Months between age 62 and FRA54
Benefit reduction compared to taking at FRA27.50%
FRA66 and 8 months
Months between age 62 and FRA56
Benefit reduction compared to taking at FRA28.33%
FRA66 and 10 months
Months between age 62 and FRA58
Benefit reduction compared to taking at FRA29.17%
Months between age 62 and FRA60
Benefit reduction compared to taking at FRA30.00%
There is one other consideration for those who claim their benefit prior to reaching their FRA and who are still working. There is a reduction in benefits of $1 for every $2 of earned income once your earnings from employment or self-employment reach $19,560 in 2022. In the year that you reach your FRA this increases to a $1 reduction for every $3 in earned income above the earnings limit of $51,960 for 2022. These earnings limits are increased in most years.
Once you reach your FRA, there is no earnings limit and no benefit reduction for earned income. While you will receive any lost benefits when you reach your FRA, your benefit will be permanently reduced for having claimed it early.
How to calculate how much social security you will get
Your Social Security retirement benefits are tied to your age and your earnings history. Calculating your benefit on your own can be difficult. Your best bet is to create an account at SSA.gov and create a My Social Security account. You can get your benefits statement at any age and see what Social Security estimates your benefit will be at age 62, your FRA and at age 70. For those who are age 60 or older and who do not have a my Social Security account, a paper statement will be mailed to them each year.
Social Security offers a number of online calculators as well that can be helpful in estimating your benefits.
Your Social Security statement will show information including:
- Your retirement benefit at age 62, your FRA and at age 70.
- Your disability benefit based on your current age and the number of earnings credits you’ve accumulated.
- Survivor’s benefits for various family members.
- The statement will let you know if you are eligible for Medicare benefits at age 65 as well.
Additionally, the Social Security statement will show your complete earnings history for Social Security and Medicare benefits. It’s important to review this earnings record to ensure that nothing is missing as this could impact your retirement benefit, as well as other benefits if needed.