What Is Social Security and How Does it Work?

FT Contributor
Several Social Security cards laying on top of each other.

The Social Security Act was signed into law in 1935 as a social insurance program designed to be a useful source of retirement income for workers 65 or older. It was created to ensure workers who retired, their dependents, and other eligible citizens in need had a source of income after they stopped working or if they couldn’t work. Beneficiaries must meet specific eligibility requirements to begin receiving Social Security benefits.

Administered by the Social Security Administration (SSA) through the federal government, the Social Security program has changed over the years. However, it still focuses on distributing funds to eligible retirees, persons who are disabled, survivors of workers who have passed away, and dependents of beneficiaries. Social Security is an important program because it provides financial assistance to those in need, as long as they’re eligible to receive these benefits.

Table of Contents

What Is Social Security For?

There are different ways eligible beneficiaries can receive Social Security benefits.


Eligible workers who retire are awarded Social Security benefits in the form of monthly payments. These payments can be used to supplement the retirement income saved by the retiree throughout their career. To be eligible for Social Security benefits, a retiree must be at least 62 years old and have worked for at least 10 years while paying into the system. The salary amount taken from a worker’s paycheck and distributed to Social Security is calculated based on earnings.

Social Security retirement benefits may also be used to help spouses, ex-spouses, and children of retired workers. Spouses of retirees can claim benefits on their own or through their spouse’s earnings. A divorced spouse who didn’t remarry may collect Social Security benefits from a retired ex-spouse if they were married for at least 10 years. A young dependent can also claim benefits from a retiree until they turn 16.


If you can’t work due to a mental or physical disability, it can derail your retirement plan. When the disability is expected to last at least one year or result in death, you may be eligible to begin receiving Social Security disability benefits, even if you haven’t reached retirement age.

To qualify for these benefits, you must meet the administration’s definition of disabled and have worked a specific amount of time before you became disabled. The minimum amount of work time is dependent upon your age and disability. Family members, including dependents and spouses, may also be eligible to receive these benefits if they meet the qualifications.

Benefits for Spouses and Domestic Partners

Spouses and children of deceased workers who paid into the system may be eligible to receive Social Security benefits. The benefits available are based on the deceased worker’s earnings; the surviving spouse must be at least 60 years of age and not remarried.

The deceased worker’s children may be eligible for benefits if they’re under 18. In some cases, stepchildren, adopted children, or dependent parents of the deceased worker may also be eligible to receive Social Security benefits.

Supplemental Security Income

Social Security benefits are meant to provide only about 40% of your retirement income. If you haven’t saved enough for retirement and the benefits you receive simply aren’t enough to live on, you may qualify for Supplemental Security Income (SSI). This program provides additional funds for those with little to no income, including persons who are:

  • Disabled.
  • Blind.
  • Over 65.

To receive SSI benefits, you must meet the income and asset qualifications set by the SSA.

How Much Social Security Will I Receive?

When you feel financially stable enough to retire and you’re eligible for Social Security benefits, the amount you receive is determined by your age and contributions to the system. The amount you’re required to contribute to Social Security is based on your wages, so you’ll need to estimate your potential earnings when attempting to calculate how much you might receive in benefits each month. For 2020, the maximum amount of taxable earnings is $137,700.

If you’re filing for Social Security as a retiree, you can receive a maximum monthly benefit of $2,265 if you’re filing for benefits at 62. If you file at age 66, your maximum benefit is $3,011. If you wait to claim Social Security benefits until you’re 70 or older, you’re eligible for a higher Social Security maximum benefit of $3,790. Social Security benefits can’t be garnished and are guaranteed. 

How Does Social Security Work?

When you work for an eligible employer, a portion of your paycheck goes to the Social Security program. The amount of Social Security taxes you’re required to contribute is directly related to the income you earn. As you continue working, you continue paying into the system throughout your career until you’re ready to retire and claim Social Security benefits.

Each year, the SSA sets a tax rate for all workers based on average salaries. For 2020, the Social Security tax rate is set at 6.2% for employers and employees. Therefore, if you earned the highest taxable income of $137,700, you would pay $8,537.40 in Social Security taxes and your employer would be responsible for the same. The 2020 self- employment tax rate is 12.4%. In 2018, the Social Security program collected $885.1 billion in payroll taxes.

Social Security Requirements

To qualify for Social Security retirement benefits, you must have paid into the program through Social Security taxes for at least 10 years. You must also be at least 62 years old, but you can choose to wait to claim benefits until later if you want a larger monthly benefit amount.

How to Apply for Social Security

You should apply for benefits about four months before you want to start receiving payments. You can apply for Social Security online or visit your local Social Security office to apply in person.

You may be asked to provide:

  • Your Social Security number.
  • Your birth certificate.
  • W-2 forms or tax returns.
  • Your spouse and/or children’s Social Security numbers and birth certificates.
  • Proof of U.S. citizenship, if applicable.
  • Your bank information for direct deposit.

Social Security benefits are designed to guarantee you will receive retirement income. However, it’s important to understand these benefits and plan for other sources of income when you reach retirement age.

Image Source:

Keep Learning


Want a FREE Credit Evaluation from Credit Saint?

A $19.95 Value, FREE!

This site is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as This compensation may impact how and where links appear on this site.  This site does not include all financial companies or all available financial offers. Learn more in our Earnings Disclaimer.
Get a FREE Credit Evaluation from Credit Saint Today!