Social Security is a federal insurance program funded by payroll taxes

Social Security works like this: you and your employer each pay 6.2% of your wages into the system during your working years. Self-employed people pay 12.4%. That money goes into a trust fund, and the government uses it to pay benefits to people who are retired, disabled, or whose family members have died. You earn credits toward your own future benefits by working and paying these taxes — most people need 40 credits (roughly 10 years of work) to receive retirement benefits later.

The program is not a savings account where your specific tax dollars sit waiting for you. Instead, current workers' taxes pay current retirees' benefits. When you retire, future workers' taxes will pay your benefits. This is called a "pay-as-you-go" system, and it has worked this way since 1935.

The amount you receive depends on three things: how much you earned during your working years, how many years you worked, and what age you start taking benefits. The Social Security Administration (SSA) keeps a record of your earnings history and uses it to calculate your benefit amount.

Key Takeaways

  • You and your employer each pay 6.2% of your wages into Social Security through payroll taxes, and you need about 40 credits (roughly 10 years of work) to receive retirement benefits.
  • Social Security is a pay-as-you-go system where current workers' taxes pay current retirees' benefits, not a personal savings account.
  • Your benefit amount is based on your lifetime earnings record, how many years you worked, and the age at which you start taking benefits.
  • You can start taking retirement benefits as early as age 62, but waiting until age 70 results in a significantly higher monthly payment.
  • Social Security also pays benefits to disabled workers and to family members of workers who have died, not just to retirees.

How your earnings record determines your benefit amount

The SSA looks at your 35 highest-earning years to calculate your primary insurance amount — the benefit you would receive if you started at your full retirement age. If you worked fewer than 35 years, the SSA counts zero for the missing years, which lowers your average. This is why working longer can increase your benefit: it replaces a zero with an actual earning year.

You can view your earnings record by creating an account on ssa.gov and accessing your Social Security Statement. This statement shows what the SSA has on file for each year you worked, and it gives you an estimate of what you might receive at different ages. Check it every few years to make sure the earnings are correct — if your employer reported your wages wrong, you can ask the SSA to fix it, but you generally have only three years, three months, and 15 days to do so.

If you had a year with very low earnings or no earnings (because you were in school, caring for children, or out of work), that year still counts in the 35-year average and pulls your benefit down. Some people who took time out of the workforce to raise children may be able to exclude certain years, but this is rare and has strict rules.

When you can start benefits and how age affects your payment

You can start taking retirement benefits as early as age 62, but the earlier you start, the smaller your monthly check will be. If you were born in 1943 or later, your full retirement age is between 66 and 67 — this is the age at which you receive 100% of your calculated benefit. If you start at 62, you receive roughly 70% of that amount. If you wait until 70, you receive roughly 124% of that amount.

The difference between starting at 62 and waiting until 70 can be substantial. For example, if your full retirement age benefit is $1,500 per month, starting at 62 might give you about $1,050 per month, but waiting until 70 might give you about $1,860 per month. Over a lifetime, the total amount you receive depends on how long you live — people who live into their mid-80s or beyond often come out ahead by waiting.

You do not have to start benefits at any particular age. Some people work past their full retirement age and delay benefits to get a higher payment. Others need the money sooner and start at 62. There is no single "right" age — it depends on your health, your savings, and your family history of longevity.

How Social Security handles your work history and credits

You earn one Social Security credit for each quarter of the year in which you earn at least a certain amount of money (the minimum amount changes each year). In 2024, you earn one credit for each $1,705 you earn, and you can earn a maximum of four credits per year. Most people need 40 credits total to receive retirement benefits, which typically takes about 10 years of work.

If you have not worked long enough to earn 40 credits, you cannot receive retirement benefits on your own record. However, you may be able to receive benefits based on a spouse's or ex-spouse's work record, even if you have not worked much yourself. The rules for this are complex and depend on your age, marital status, and your spouse's benefit amount.

If you worked in another country, some of those years may count toward your Social Security credits if that country has a totalization agreement with the United States. The SSA website lists which countries have these agreements. This matters if you moved to the U.S. later in life or worked abroad for part of your career.

Disability and survivor benefits under Social Security

Social Security is not only for retirees. If you become unable to work due to a medical condition that is expected to last at least 12 months or result in death, you may receive Social Security Disability Insurance (SSDI). You do not have to be retirement age — you can receive SSDI at any age if you meet the medical criteria and have earned enough credits.

When a worker dies, their family members may receive survivor benefits. A widow or widower can receive benefits at age 60 (or age 50 if disabled), a surviving spouse caring for a child under 16 can receive benefits at any age, and unmarried children under 19 (or up to 23 if in school full-time) can receive benefits. The total amount paid to a family is capped at roughly 150% to 180% of what the worker would have received, depending on family size.

To receive SSDI or survivor benefits, you must have earned enough credits. The number of credits required depends on your age when you become disabled or when you die. Younger workers need fewer credits than older workers, because the system assumes they have had less time to work.

How the SSA calculates your benefit and what affects the amount

The SSA uses a formula that includes your average indexed monthly earnings (AIME). This is your average earnings over your 35 highest-earning years, adjusted for wage growth in the economy. The formula then applies a bend point calculation, which means your benefit replaces a higher percentage of your lower earnings and a lower percentage of your higher earnings. This is why Social Security replaces a larger share of income for lower-wage workers than for higher-wage workers.

Several things can reduce your Social Security benefit. If you work while receiving benefits before your full retirement age, the SSA withholds $1 in benefits for every $2 you earn above a certain limit (the limit changes each year). In the year you reach full retirement age, the withholding is $1 for every $3 you earn above a higher limit, but only for earnings before the month you reach full retirement age. Once you reach full retirement age, you can earn as much as you want with no reduction.

If you receive a government pension from work where you did not pay Social Security taxes (such as some federal, state, or local government jobs), your Social Security benefit may be reduced under rules called the Government Pension Offset and the Windfall Elimination Provision. These rules are complex and explore only to certain people, but they can significantly lower your benefit if you are affected.

How to track your Social Security record and plan ahead

You can create a my Social Security account at ssa.gov to view your earnings record, see your benefit estimates, and manage your account online. You will need to verify your identity, which the SSA does through a third-party service. Once you have an account, you can check your record anytime and see how your benefit estimate changes as you earn more.

If you do not have internet access or prefer to speak with someone, you can call the SSA at 1-800-772-1213 (TTY 1-800-325-0778) to request a paper Social Security Statement or to ask questions about your record. Wait times can be long, especially early in the week and early in the month, so calling mid-week or mid-month may be faster.

Planning ahead matters because your choices about when to start benefits, whether to keep working, and how to coordinate with a spouse's benefits can add up to tens of thousands of dollars over your lifetime. Some people find it helpful to use the SSA's benefit calculator or to speak with a financial advisor who understands Social Security rules before making a decision.

Frequently Asked Questions

Can I change my mind after I start taking Social Security?

If you have been receiving benefits for fewer than 12 months, you can withdraw your process and repay what you received, which resets your record as if you never started. After 12 months, you cannot withdraw, but you can suspend your benefits at your full retirement age or later, which pauses your payments and allows your benefit to grow. Once you suspend, you can restart at a higher amount later.

What happens to my Social Security if I move out of the United States?

You can receive Social Security benefits while living in most countries. However, if you live in certain countries (Cuba, North Korea, Iran, Syria, and a few others), you cannot receive benefits while there. If you move back to the U.S., your benefits resume. Some countries have totalization agreements that count work done there toward your U.S. Social Security benefit.

How much of my Social Security benefit is taxed?

Whether your benefits are taxed depends on your combined income (adjusted gross income plus non-taxable interest plus half your Social Security benefits). If your combined income is below certain thresholds, your benefits are not taxed. Above those thresholds, up to 50% or 85% of your benefits may be subject to federal income tax. State taxes vary — some states do not tax Social Security at all.

Can I receive Social Security if I never worked?

You cannot receive retirement benefits on your own record if you have not earned 40 credits. However, you may receive spousal benefits (up to 50% of your spouse's full retirement age benefit) or survivor benefits if your spouse or ex-spouse worked and paid into Social Security. You must be at least 62 for spousal retirement benefits, or any age if caring for a child under 16.

Does Social Security run out of money?

The Social Security trust fund is projected to be depleted around 2034, after which incoming payroll taxes will cover roughly 80% of scheduled benefits. This does not mean the program ends — it means that without changes to law, benefits would be reduced across the board unless Congress acts. Congress has changed Social Security rules many times since 1935 and may do so again.