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. After the program was launched, it was expanded 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 SSA's 2020 fact sheet, around 178 million American workers will pay Social Security taxes in 2020, and roughly 65 million people will receive benefits from the program.

There are a number of misconceptions about the Social Security system, so let’s look at how these three forms of benefits actually work.

Key Takeaways

  • The Social Security Administration oversees social insurance programs that provide retirement, survivor, and disability benefits to Americans.
  • To qualify for retirement benefits, a worker must pay into Social Security, earning 40 credits over a minimum of 10 years, and cannot make a claim before age 62.
  • Spouses and children may also be able to claim Social Security benefits based on a worker’s earnings history.
  • Eligible surviving spouses and children may each qualify for 75%–100% of the deceased’s Social Security payments, up to a maximum of 150%–180% of the deceased’s benefit rate.
  • Only workers who meet the SSA’s strict definition of disability and have earned enough credits are eligible for disability benefits.

Social Security Retirement Benefits

For many Americans, the words “Social Security” are synonymous with retirement, and the retirement program of the SSA is the largest wing of the organization. Retirees and their dependents account for 73.2% of total Social Security benefits paid.

How Does Social Security Work?

While employed, you pay a 6.2% Social Security tax on earnings up to a maximum amount ($137,700 in 2020 and $142,800 in 2021), 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, such as a bank account. Rather, 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 10 years. The SSA assigns “credits” to your paid taxes—for 2021, you earn one credit for every $1,470 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 age to retire, but that has changed. To collect full benefits, you cannot apply for Social Security until you are:

  • 65, if born in 1937 or earlier
  • 65 and 2 months, if born in 1938
  • 65 and 4 months, if born in 1939
  • 65 and 6 months, if born in 1940
  • 65 and 8 months, if born in 1941
  • 65 and 10 months, if born in 1942
  • 66, if born between 1943 and 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, up to 32% more. You can also choose to start collecting Social Security benefits as early as age 62, but your benefits will be reduced.

What About Cost-of-Living Increases?

You’ve probably noticed that the price of just about everything goes up each year. Since 1975, there has been an automatic annual cost-of-living (COLA) adjustment in Social Security benefits every year. That increase has ranged from 0% (in years when there was no increase in the CPI-W) to a high of 14.3% in 1980. For 2020, the COLA is 1.6% and for 2021 it's 1.3%, with the average monthly benefit increasing to $1,543 in 2021.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to calculate annual cost-of-living adjustments, or COLAs, for Social Security benefits.

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 must have lasted at least 10 years
  • Two or more years must have passed since the divorce
  • They must not have remarried
  • They must be at least 62 years old and must 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 19 and still enrolled in elementary or secondary school, or 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 the amount to which you are entitled, 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.


Three Ways to Get Social Security Benefits

Social Security Survivor Benefits

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 in the three years before your death. Along with a one-time lump-sum payment of $255, your surviving spouse and children may each qualify for 71.5% to 100% of your Social Security payments, up to a maximum of 150% to 180% of your benefit rate. Eligibility for survivor benefits requires that:

  • 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

Social Security 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.

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. In most cases, Social Security payments will likely not be enough to support a comfortable retirement, but they can be an important part of your complete retirement plan.