What is Social Security?

Social Security is a federal program that provides income to people who are retired, disabled, or survivors of deceased workers. It’s primarily funded through payroll taxes under the Federal Insurance Contributions Act (FICA), where both employees and employers contribute a percentage of the employee's earnings.

Social Security also offers Supplemental Security Income (SSI), which provides benefits to individuals with limited income and resources who are either disabled, blind, or aged 65 or older.

How Social Security Benefits Are Funded

Social Security benefits are funded through payroll taxes paid by workers and employers. This tax is automatically deducted from your paycheck, and the amount is based on your earnings. The Social Security Administration (SSA) uses this fund to provide benefits to those who qualify.

• Employees and employers each pay 6.2% of earnings (up to a certain income cap) into Social Security.
• Self-employed individuals pay the full 12.4% on their income.
• The Social Security Trust Fund holds the money collected from these taxes and uses it to pay out benefits.

Eligibility for Social Security Benefits

To be eligible for Social Security benefits, you must meet certain criteria based on the type of benefit you’re seeking.

• Retirement Benefits: You become eligible for Social Security retirement benefits once you reach the age of 62. However, the amount you receive will depend on how much you have worked and contributed to Social Security.
• Full Retirement Age (FRA): If you were born in 1960 or later, your FRA is 67 years old. If you claim benefits before your FRA, your monthly benefit will be reduced.
• Early Retirement: You can choose to begin receiving benefits as early as age 62, but your benefit will be reduced.
• Disability Benefits (SSDI): To qualify for Social Security Disability Insurance (SSDI), you must have worked for a sufficient period and paid into the system, and you must have a medical condition that prevents you from working.
• Work Credits: Generally, you need 40 work credits to qualify for SSDI, with at least 20 of those credits earned in the last 10 years.
• Medical Condition: Your condition must be severe enough to prevent you from engaging in any substantial gainful activity (SGA) for at least 12 months or result in death.
• Survivor Benefits: When a worker passes away, certain family members may be eligible for survivor benefits. This can include:
• Widows/widowers
• Dependent children
• Dependent parents
• Supplemental Security Income (SSI): If you are aged 65 or older, blind, or disabled, and have limited income and resources, you may qualify for SSI benefits, which are need-based rather than work history-based.

How Are Social Security Benefits Calculated?

Your monthly Social Security benefit amount is calculated based on your average indexed monthly earnings (AIME) over the course of your working lifetime. The SSA uses a formula to determine how much you will receive in benefits based on your AIME.

• The more you earn and pay into the system over the years, the higher your Social Security benefits will be.
• The SSA adjusts earnings for inflation using a system called indexing, ensuring that earnings from earlier years are accounted for in current-dollar terms.

Social Security Benefit Example:

• For retirement benefits, if you earn a higher income, you will receive a higher benefit. However, there’s a cap to how much you can earn and still receive full Social Security credit.
• Disability Benefits are based on your earnings record, similar to retirement benefits.

Applying for Social Security Benefits

There are different processes depending on the type of benefits you’re applying for:

• Retirement Benefits: You can apply for retirement benefits online through the Social Security Administration’s (SSA)  website or by visiting your local SSA office. The application asks for information about your work history and income, and you’ll need to provide your Social Security number, birth certificate, and bank information for direct deposit.
• Disability Benefits (SSDI): To apply for SSDI benefits, you can visit the SSA website and fill out the online disability application, or apply by calling the SSA or visiting a local office. You’ll need to provide your medical records, work history, and personal details about your condition.
• Supplemental Security Income (SSI): If applying for SSI, you can apply online, over the phone, or at your local SSA office. The process will include a review of your financial situation, including income and assets.

How Long Does It Take to Get Social Security Benefits?

The time it takes to receive Social Security benefits can vary based on the type of benefit and your individual situation.

• Retirement Benefits: If you apply online, it typically takes about two to three months to process and begin receiving payments.
• Disability Benefits: SSDI applications can take several months to process, often taking three to five months or longer. If denied, you have the right to appeal the decision.
• Supplemental Security Income (SSI): SSI applications also require extensive documentation and can take several months to process.

What to Do After Receiving Social Security Benefits

Once you start receiving Social Security benefits, you will typically get paid on a monthly basis. You’ll also receive annual statements from the SSA showing your earnings and estimated benefits.

• You can adjust your benefits (such as delaying your retirement benefits for higher monthly payments) or apply for changes if your financial or medical situation changes.
• The SSA provides an online account for beneficiaries, where you can monitor your benefits, update personal information, and apply for changes to your benefits.

Social Security and Taxes

Social Security benefits may be taxable depending on your total income. If your total income is over a certain threshold, part of your benefits may be taxed. These rules can vary based on whether you file as single or married, and your total household income.