Understanding Social Security

The Social Security program provides retirement income to millions of Americans. Its future repeatedly makes news headlines, so you’ll want to stay informed. Start with a history of the program and then learn basics behind how to works.

The Social Security Act was signed into law by President Franklin D. Roosevelt on August 14, 1935. This social insurance program was created to pay retired workers, aged 65 or older, a continuing form of income after retirement. The benefits provided to the retiree were to be based on contributions they made into the system while employed. 

The program has grown throughout the years. In 1940, a total of $35 million in benefits were paid to retirees, and in 2020 nearly 69.8 million Americans received $56 billion in Social Security benefits in Social Security benefits. The full retirement age also is rising incrementally, and it will be age 67 for people born after 1959.

Credits are units used to determine your eligibility for Social Security benefits. Before earning benefits, you must earn enough credits to be eligible. Generally this requires 40 credits or about 10 years in the workforce. Credits are based on how much you earn in income, and you can earn a maximum of four credits per year.

The amount of your Social Security benefit will largely depend on when you take the benefit. When you reach your Full Retirement Age (FRA), you can start receiving 100% of the benefit for which you are eligible. If you retire before your FRA (as early as age 62), your benefit amount will be reduced according to how many months remain until your FRA at the time you file. On the other hand, waiting to take benefits after your FRA (up to age 70) increases the amount you will receive. You can find out your Full Retirement Age by visiting the Social Security website.

You can choose to start collecting Social Security benefits and continue working. Depending on how much you earn each year, a portion of your benefit amount may be deducted from your paycheck.  If this happens, your benefits will increase at your FRA, taking into account those months when benefits were withheld. Once you reach FRA, you are no longer subject to the annual earnings limit; you can earn as much as you like without incurring a reduction in your Social Security benefits. Your Social Security benefits may however still be subject to income taxes.

Beyond personal Social Security benefits, there are a couple of other types of retirement benefits from Social Security:

• Spousal benefits: The maximum spousal benefit is 50% of what your husband or wife receives. However, as with the personal Social Security benefit, if you retire and claim the spousal benefit before your Full Retirement Age (FRA), the benefit will be less than 50%. You can also collect Social Security spousal benefits based on an ex-spouse’s earnings as long as you were married for at least 10 years and you are currently unmarried. 
• Survivor benefits: The survivor’s benefit can be as much as 100% of the benefit received by the deceased spouse. In addition, a surviving spouse living in the same household is eligible to receive a $255 one-time payment upon the death of his or her spouse.

Your annual Social Security statement is a helpful resource to estimate what your projected retirement income benefit will be. To access this information online, visit www.ssa.gov/mystatement