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First created in 1935 as part of President Franklin D. Roosevelt’s New Deal, the Social Security Administration (SSA) – originally called the Social Security Board – sprang out of a need to assist the millions of retired or elderly Americans who had lost everything in the Great Depression. It was also designed to help children, widows and disabled persons who might otherwise become destitute.

Today, the SSA, an independent agency of the federal government, still oversees those social insurance programs in the form of retirement, survivor and disability benefits. According to the SSA's 2015 Annual Report, around 166 million American workers paid Social Security taxes and 59 million people received benefits from the program at the end of 2014.

1. Social Security Retirement Benefits

For many Americans, the words “Social Security” mean retirement. And in fact, the retirement program of the SSA is the largest wing of the organization. Out of the 59 million Americans receiving monthly Social Security benefits, 42 million are retired or their dependents. Don’t count on Social Security to provide a comfortable retirement on its own, however, as the program only replaces about 40% of a retired worker’s income.

How Does Social Security Work?

While employed, you pay a 6.2% Social Security tax on earnings up to the 2016 maximum of $118,500, and your employer pays a matching 6.2%. If you are self-employed, you are responsible for the entire 12.4% tax yourself. The money is not held in a personal account like a bank account – the money you pay into Social Security today goes to provide monthly benefits for current retirees and other Social Security recipients.

How Do You Qualify?

To qualify for Social Security retirement benefits, you generally need to have worked for at least ten years. The SSA assigns “credits” to your paid taxes – as of 2016, you earn one credit for every $1,260 in earnings, with a maximum of four credits earned each year. Most people will need 40 credits before they can claim Social Security retirement benefits. You can get an estimate of how much your monthly retirement payments will be by entering basic information into the SSA Retirement Estimator.

When Can You Collect Social Security?

Many people still think of age 65 as the time to retire, but the SSA has a different viewpoint. To collect full benefits, you cannot apply for Social Security until you are:

  • 66 if born between 1943-1954
  • 66 and 2 months if born in 1955
  • 66 and 4 months if born in 1956
  • 66 and 6 months if born in 1957
  • 66 and 8 months if born in 1958
  • 66 and 10 months if born in 1959
  • 67 if born in 1960 or later

If you delay retirement beyond these limits (up to age 70), you will receive increased Social Security benefits – depending on your year of birth, from 5.5% to 8.0% annually. You can also choose to start collecting Social Security benefits early, at age 62, but your benefits will be reduced accordingly – generally around 25% annually.

What About Increased Cost of Living?

You’ve probably noticed the price of just about everything goes up each year, and so has the SSA – but not always. Since 1975, there has been an automatic annual cost-of-living (COLA) adjustment in Social Security benefits for every year but 2016, based on the change in CPI. That increase has ranged from a low of 0% in 2010 (as there was no increase in CPI) to a high of 14.3% in 1980. In 2016, not only was there no COLA; the maximum monthly security benefit dropped from $2,663/month to $2,639 due to an increase in the national average wage index (see Social Security Changes for 2016).

What About Your Spouse and Children?

Your spouse may also receive Social Security benefits once you retire, even if he or she never worked outside the home. If your spouse is at least 62 years old, he or she can apply for benefits at a reduced rate. By waiting until full retirement age, however, your spouse can receive up to half the amount of your monthly benefits. Payments received by your spouse do not lower your own payments.

Your ex-spouse can also collect Social Security based on your earnings. To qualify, ex-spouses must meet the following conditions: The marriage lasted at least ten years, it has been two years or more since the divorce, they have not remarried, and they are at least 62 years old and do not qualify for higher Social Security benefits based on their own employment history.

If you reach retirement age and have children who are below age 18 – or are 19 and still enrolled in elementary or secondary school, or are older than 18 but severely disabled – those children may also qualify to receive benefits based on your monthly entitlement. Your children can receive monthly payments up to half of what you are entitled to, and these payments will not decrease your own Social Security benefits.

The limit for benefits received by your spouse and children varies, but is normally between 150% and 180% of your full retirement benefits.

2. Survivor Benefits – Including Parents

Even after you die, Social Security can continue to pay benefits to your spouse and children – and even to your parents if you were supporting them. For your family to receive survivor benefits, you’ll need to have earned at least six Social Security credits – you need 40 credits to qualify for retirement benefits – in the three years before your death. Along with a one-time lump-sum payment of $255, your surviving spouse and children may qualify for 75% to 100% each of your Social Security payments, up to a maximum of 150% to 180% of your benefit rate. Eligibility for survivor benefits includes:

  • Surviving spouse is at least 60 or older
  • Surviving spouse is 50 or older and disabled
  • Surviving spouse is caring for your child who is younger than 16 or disabled
  • Children who are younger than 18
  • Children younger than 19 and enrolled in elementary or secondary school
  • Children over 18 who are severely disabled
  • Your surviving parents if they were dependent on you for at least half of their support

3. Disability Benefits

The definition of “disabled” held by the SSA is quite strict. You only qualify for Social Security disability benefits if you are severely disabled with a condition that entirely prevents your working – and is expected to last a year or longer or result in your death.

You must also have earned enough credits to receive payments. If you are at least age 62, you will need to have earned the full 40 credits to qualify for disability payments. Younger applicants require fewer credits, down to a minimum of six credits for those younger than 24. You also need to have been working at the time the disability began. Your spouse and children may qualify for benefits as well, potentially receiving up to half of the amount you are entitled to each month.

If approved, your disability benefits will begin six months after the date your disability began. Payments are based on your lifetime earnings. For more, see What are the maximum Social Security disability benefits?

The Bottom Line

You will probably receive Social Security benefits at some point during your lifetime – most likely at retirement, but possibly earlier if you receive disability or survivor benefits. Social Security payments will not be enough to support a comfortable retirement in most cases, but can be an important part of your complete retirement plan.

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