Social Security 101: Everything You Need to Know
Written by
Ana Gotter
Edited by
Nupur Gambhir
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Social Security is a federal program designed to provide a financial safety net for millions of Americans. It offers income support to people who qualify, most commonly those who have reached retirement age, individuals with certain disabilities, and family members eligible for survivors’ benefits after a worker’s death. F
unded through payroll taxes, Social Security plays a central role in helping people cover living expenses when they can no longer work or have lost a primary breadwinner. Read on to learn what the program is, how it works, who qualifies, and the steps to apply.
A Quick Overview of Social Security
Social Security is a comprehensive federal program that provides income support to eligible Americans across various life circumstances.
The program primarily covers three groups:
- Retirees who have worked and contributed to the system
- Disabled individuals who can no longer work due to qualifying conditions
- Survivors of deceased workers
What makes Social Security unique is that it’s funded through payroll taxes, specifically the Federal Insurance Contributions Act (FICA) taxes that are automatically deducted from your paycheck.
When you work and pay into Social Security, you’re not just contributing to a savings account for yourself. Instead, you’re participating in a system where current workers fund current beneficiaries, while earning credits toward your own future benefits. This pay-as-you-go structure has provided financial stability for many Americans since it was created in the 1930s.
How Does Social Security Work?
The mechanics of Social Security are relatively straightforward, though the calculations behind benefit amounts can be complex.
Every time you receive a paycheck, you and your employer each contribute 6.2% of your taxable income to Social Security, up to a certain wage cap that adjusts annually. If you’re self-employed, you pay both portions, totaling 12.4%.
As you work and contribute, you earn “credits” toward Social Security eligibility. In 2025, you earn one credit for every $1,810 in covered earnings, and you can earn a maximum of four credits per year. To qualify for retirement benefits, you generally need 40 credits, which equals about 10 years of work.
Your future benefit amount is calculated based on your average indexed monthly earnings (AIME), which considers your highest 35 years of earnings, adjusted for inflation. The Social Security Administration uses a complex formula to convert your AIME into your primary insurance amount (PIA), which determines your monthly benefit at full retirement age.
Types of Social Security Benefits
There are multiple types of Social Security benefits available under the singular program. This can help provide financial support to people in different situations.
Retirement Benefits
Retirement benefits are what most people think of when they hear the term “Social Security.”
You can begin claiming retirement benefits as early as age 62, but doing so will permanently reduce your monthly payments since you won’t wait for your full retirement age. Your full retirement age (FRA) depends on when you were born, but is currently 67 for people born in 1960 or later.
If you wait beyond your full retirement age to claim benefits, you can earn delayed retirement credits, which increase your monthly benefit by 8% for each year you delay, up until age 70. For example, if your FRA is 67 and you wait until 70 to claim benefits, your monthly payment will be higher than if you claimed at 67.
The calculation of your monthly benefit considers your work history, earnings, and the age at which you claim. The Social Security Administration provides online tools and annual statements to help you estimate your future benefits based on different claiming strategies.
Disability Benefits (SSDI)
Social Security Disability Insurance (SSDI) provides monthly benefits to individuals who are unable to work due to a qualifying disability. Unlike retirement benefits, there’s no minimum age requirement for SSDI, but you must have worked long enough to qualify.
To receive SSDI, your disability must be expected to last at least one year or result in death, and it must prevent you from performing basic work-related activities. The Social Security Administration maintains a list of qualifying conditions, though disabilities not on the list may still qualify if they meet the severity requirements.
The application process for SSDI can be lengthy and complex, often requiring extensive medical documentation and sometimes multiple appeals. However, if approved, your benefit amount is based on your average lifetime earnings, similar to retirement benefits.
Survivor Benefits
When a Social Security-covered worker dies, their family members may be eligible for survivor benefits based on the deceased’s earnings record. These benefits can provide crucial financial support during an already difficult time.
Eligible survivors can include:
- Widows and widowers (including divorced spouses under certain conditions)
- Unmarried children under 18 (or up to 19 if still in high school)
- Adult children who became disabled before age 22
- Dependent parents age 62 or older
The amount of survivor benefits depends on the deceased worker’s earnings history and the relationship of the survivor to the worker.
In some cases, survivor benefits can be quite substantial. A surviving spouse, for example, may be able to receive 100% of the deceased worker’s benefit amount if they wait until their own full retirement age to claim.
Supplemental Security Income (SSI)
Supplemental Security Income (SSI) is different from Social Security Disability Insurance, even though both are administered by the Social Security Administration. SSI is a needs-based program for elderly, blind, or disabled individuals with very limited income and resources.
Unlike other Social Security benefits, SSI is funded by general tax revenues rather than Social Security taxes. This means you don’t need a work history to qualify for SSI — eligibility is based purely on financial need and disability status. However, the income and resource limits for SSI are quite strict, and the benefit amounts are generally lower than SSDI.
Who Is Eligible for Social Security?
Eligibility for Social Security benefits primarily depends on your work history and citizenship status.
U.S. citizens who have worked in jobs covered by Social Security are generally eligible for benefits if they’ve worked long enough. Some legal residents may also qualify, depending on their immigration status and work authorization.
- Retirement benefits usually require 40 work credits — about 10 years of covered employment.
- Disability benefits have different requirements depending on your age when you become disabled, but you generally need both recent work and enough total work history.
- If you don’t have enough credits on your own, you may still qualify based on a spouse’s or ex-spouse’s work record. This can be especially valuable for those who spent time out of the workforce caring for family members.
How to Apply for Social Security Benefits
Applying for Social Security benefits has become more convenient with online options, though you can still apply by phone or in person at a local Social Security office. The application process and required documentation vary depending on the type of benefit you’re seeking.
- Retirement benefits: Apply online at the Social Security Administration’s website up to four months before you want benefits to start. You’ll need proof of age, citizenship, and work history. Most people apply about three months before their desired start date.
- Disability benefits: Require detailed medical documentation showing your condition and its impact on your ability to work. You can start the application online, but some parts may need to be completed by phone or in person.
- Survivor benefits: Family members should contact Social Security as soon as possible after a death. You’ll need the deceased’s Social Security number, proof of death, and documents showing your relationship to them.
The Bottom Line on Social Security
Social Security serves as a critical safety net for millions of Americans, providing financial security during retirement, disability, and after the loss of a loved one. Understanding how the program works and what benefits you may be entitled to is essential for effective financial planning.
Social Security typically replaces about 40% of pre-retirement income, so it should be just one part of your overall retirement plan alongside savings, investments, and other accounts. Plan early–whether for retirement, disability coverage, or family protection–and use the Social Security Administration’s online tools to understand your benefits and decide when and how to claim them.
FAQ
Understanding your Social Security benefits can be essential to better retirement planning. Read below for more common questions about how Social Security works.- How do I know if I'm eligible for Social Security?
- You can check your eligibility by creating an account on the Social Security Administration's website and reviewing your Social Security Statement. This statement shows your earnings history and provides estimates of your future benefits. Generally, you need 40 work credits (which you can earn based on taxable income or after 10 years of work) to be eligible for retirement benefits.
- What’s the difference between SSDI and SSI?
- SSDI (Social Security Disability Insurance) is for people who have worked and paid Social Security taxes but can no longer work due to a disability. SSI (Supplemental Security Income) is a needs-based program for elderly, blind, or disabled people with very limited income and resources, regardless of work history. SSDI benefits are generally higher and based on your earnings record, while SSI has strict income and asset limits.
- Can I collect Social Security and keep working?
- Yes, you can work while collecting Social Security, but there may be limits on how much you can earn without affecting your benefits. If you're under full retirement age, Social Security will reduce your benefits if you earn more than certain annual limits. Once you reach full retirement age, you can work and earn any amount without penalty to your Social Security benefits.
- What happens if I claim Social Security early?
- If you claim Social Security early (which is before your full retirement age of 67 for those born in 1960 or later), your monthly benefits will be permanently reduced. The reduction can be significant — if your full retirement age is 67 and you claim at 62, your benefits will be reduced by about 30%. However, you'll receive benefits for a longer period, which may make early claiming beneficial in some situations.
- Are Social Security benefits taxable?
- Social Security benefits may be subject to federal income tax depending on your total income. If your combined income (adjusted gross income plus nontaxable interest plus half of your Social Security benefits) exceeds certain thresholds, you may have to pay tax on up to 50% or 85% of your benefits. Some states also tax Social Security benefits, while others, like Florida, do not. Note that there are also ways to minimize the taxes you pay on retirement savings.
