Social Security is one of the most important social insurance programs in the United States, providing financial assistance to millions of retired workers, disabled individuals, and families of deceased workers. Established in 1935 as part of President Franklin D. Roosevelt’s New Deal, Social Security was created to offer a safety net for Americans during old age or times of economic hardship. Today, understanding how it works is essential for financial planning and long-term stability.
How Social Security Works
Social Security is funded through payroll taxes collected under the Federal Insurance Contributions Act (FICA). Workers and employers each pay 6.2% of wages, and self-employed individuals pay the full 12.4%. These taxes go into the Social Security Trust Fund, which is used to pay current beneficiaries.
When you work and pay Social Security taxes, you earn “credits.” As of 2025, one credit is earned for every $1,730 in wages or self-employment income, and you can earn up to four credits per year. To qualify for retirement benefits, most people need 40 credits, or roughly 10 years of work.
Types of Social Security Benefits
There are several types of benefits available under Social Security:
- Retirement Benefits: The most well-known type, retirement benefits can begin as early as age 62. However, full retirement age (FRA) depends on your birth year — currently between 66 and 67 for most people. Delaying benefits past your FRA increases your monthly payments up to age 70.
- Disability Benefits: If you become unable to work due to a physical or mental condition, Social Security Disability Insurance (SSDI) provides monthly income to you and certain family members. You must have earned enough work credits and meet strict medical criteria.
- Survivors Benefits: If a worker dies, their spouse, children, or even parents may be eligible to receive survivors benefits. These benefits help replace lost income and provide financial support during a difficult time.
- Supplemental Security Income (SSI): This is a needs-based program for people aged 65 or older, or those who are blind or disabled, with limited income and resources. SSI is separate from Social Security, though it’s often administered by the same agency.
When to Claim Benefits
Deciding when to claim Social Security is a key financial decision. Claiming early means smaller monthly payments, but you’ll receive them for a longer period. Delaying your claim increases your monthly benefit. For example, someone who waits until age 70 could receive up to 32% more than if they had claimed at full retirement age.
Social Security and Your Future
With concerns about the long-term solvency of the Social Security Trust Fund, many wonder if the program will be around in the future. While current projections show the fund may face shortfalls starting in the 2030s, lawmakers have several policy options to ensure its sustainability — including adjusting the retirement age, modifying benefits, or increasing taxes.
Conclusion
Social Security is a critical part of the American financial landscape, offering essential support to millions of people. Whether you’re just starting your career or approaching retirement, understanding how the program works and planning accordingly can help you make the most of your benefits. Stay informed, review your Social Security statements regularly, and consider working with a financial advisor to build a comprehensive retirement strategy.
