The Social Security program was established in 1935 to provide retirement income for certain U.S. workers. It was later expanded to cover most of the country's workforce and remains America’s pension plan and the financial lifeline many people use to stay afloat during retirement.
In 2024, nearly 68 million Americans per month will receive a monthly Social Security benefit, totaling $1.5 trillion in paid benefits. Social Security benefits represent about 30% of the income of people over age 65.
Key Takeaways
- Social Security income is an important public pension system in the U.S.
- Americans become eligible for Social Security benefits at age 62, but benefit amounts depend on how early individuals elect to start.
- Full retirement benefits are paid at age 67 for people born in 1960 or after, and age 66 for those born from 1943 to 1954.
1. When Am I Eligible?
Individuals are eligible for full retirement benefits as early as 65 or as late as 67. If you opt to receive Social Security at age 62, monthly benefits are permanently reduced. For example, for those who take benefits at 62 with a full retirement age of 66, benefits are reduced by 25%.
Those who postpone benefits past full retirement age are rewarded with a higher benefit: 8% for each year up to age 70 for those born in 1943 or later, when benefits max out and there is no further incentive to delay signing up.
- If you were born before 1938, your full retirement age is 65.
- If you were born from 1938 to 1942, the age ranges from 65 and two months to 65 and 10 months.
- If you were born from 1943 to 1954, it’s 66.
- If you were born from 1955 to 1959, it ranges from 66 and two months to 66 and 10 months.
- If you were born in 1960 or later, it’s 67.
2. How Is Eligibility Determined?
Eligibility for Social Security is based on credits earned during an individual's working years. As of 2024, for every $1,730 you make, one credit is earned, up to a maximum of four per year. If you were born in 1929 or later, you need 40 credits or 10 years of full-time work to receive Social Security benefits.
3. How Much Do I Pay in?
As of 2024, workers pay 6.2% of their wages into Social Security, up to $168,600 of their income. Employers contribute another 6.2%. Self-employed individuals have to pay both portions or 12.4%.
You can collect Social Security retirement benefits even if you’re still working.
4. How Much Will I Get?
Social Security benefits are based on lifetime earnings. The formula is complicated, but it averages the income from your 35 highest-earning years. If you already accumulated 40 Social Security credits, you can use the online Social Security Retirement Estimator to calculate your benefit.
5. Can I Get Social Security If I Work?
Individuals can receive Social Security benefits while they work. If you’ve reached full retirement age, you can earn as much as you’d like and receive full benefits. If you’re under full retirement age, your benefits are temporarily reduced. Social Security will credit the reduction to your record when you reach full retirement age, resulting in a higher benefit.
The reduction is $1 for every $2 of earned income over $22,320 in 2024 for those younger than full retirement age. The year you reach full retirement age, benefits will be reduced by $1 for every $3 in income over $59,520 in 2024 and continue until the month when you become fully eligible.
Retirees can contribute to individual retirement accounts (IRAs) as long as they have earned income. However, Social Security benefits are not considered earned income for this purpose.
6. How Does the Spousal Benefit Work?
Spouses can claim benefits regardless of whether they ever held paid jobs based on their partner’s record. To qualify, the spouse with a work history must be receiving retirement or disability benefits, and the non-working spouse must be at least age 62.
Spousal benefits are permanently reduced if the nonworking spouse collects before full retirement. If the non-working spouse waits until full retirement age, they will receive a spousal benefit of up to 50% of their partner’s full retirement benefit.
Widowed spouses become eligible for 100% of their partner’s full benefit unless the benefit they’ve earned through their income is higher. Generally, the widowed spouse must be at least 60 years of age to receive benefits from the deceased spouse’s record, and the amount will be reduced if the surviving spouse elects to receive benefits before their full retirement age.
If a surviving spouse remarries before age 60, they will forfeit the deceased spouse’s benefit. In some cases, divorced spouses are also eligible for spousal benefits based on their former partner’s record.
7. Do I Owe Taxes on Social Security?
Individuals pay federal income taxes on their benefits if their combined income which includes 50% of their benefit amount plus any other earned income exceeds $25,000 per year for single filers. For those who file jointly, the income limit is $32,000.
8. How Do I Apply for Benefits?
You can apply at a local Social Security office, by phone (1-800-772-1213), or online. Applications require documents such as a birth certificate. Social Security Form SSA-1 has a complete list. The SSA allows individuals to apply up to four months before the date they want their benefits to start.
9. How Is Social Security Funded?
Money paid in by current workers through taxes is used to pay the benefits for current retirees. Any remaining money goes into the Social Security Trust Fund, used in future years when current contributions become insufficient to cover all of the program’s obligations.
Two trust funds pay retirement benefits: the Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund. By law, the money in the trust funds is invested in U.S. government securities.
10. Is Social Security in Trouble?
The Social Security system faces financial challenges as fewer workers pay into the system for every retiree who is drawing money out. People are living longer than when the program was envisioned in the 1930s and collecting benefits for more years.
The two funds that maintain Social Security are the Old-Age and Survivors Insurance (OASI) Trust Fund, which pays Social Security retirement benefits, and the Disability Insurance (DI) Trust Fund, which pays Social Security related to disability. According to the 2024 Trustees Report, the retirement program is projected to pay full benefits until 2035, when the trust fund will be depleted. After this, 83% of scheduled benefits will be paid with continuing tax income.
As of 2024, the OASI Trust Fund is expected to be depleted by 2033, when it will only pay out 79% of benefits. The Disability Insurance (DI) Trust Fund is projected to pay 100% of total scheduled benefits through 2098.
What Is the Maximum Social Security Benefit You Can Get?
In 2024, the maximum social security benefit for someone retiring at full retirement age is $3,822. The full retirement age is between 66 and 67, based on the date of birth.
Should You Take Social Security at 62 or 67?
You can start receiving retirement benefits at 62 years old, but the amount will be higher if you wait until the fullretirement age, which is either 66 or 67, depending on when you were born. Those who wait even longer, until age 70, can see an increase in benefits each year until retiring.
How Much Is the Social Security Cost of Living Adjustment?
The Social Security cost-of-living adjustment for 2024 is 3.2%. The Consumer Price Index (CPI) is a monthly read on the changes in the prices consumers pay for a select basket of goods and is used to calculate the COLA each year.
The Bottom Line
Social Security is a popular and important pension in the lives of Americans during their retirement years. Knowing how to manage the ins and outs and understanding the benefits of social security allows individuals to maximize their benefits.
