Social Security

Social Security provides a form of income if you are retired or cannot work due to a disability. Social Security was first started in the 1930s under the Roosevelt administration and, since then, it has become an important part of how Americans support themselves financially in retirement or if they are unable to work.

Understanding Social Security is essential for retirement planning, as these benefits represent a significant income source for most American retirees. The program encompasses retirement benefits, disability insurance, supplemental income for those with limited resources, and survivor benefits for family members of deceased workers. Benefit amounts depend on earnings history, claiming age, and individual circumstances.

This guide explores how Social Security works, the different types of benefits available, tax implications, and factors that affect benefit amounts. Whether approaching retirement age or planning decades ahead, these educational concepts provide a foundation for informed discussions with financial advisors and retirement planning professionals.

Key Takeaways

• Social Security provides retirement income based on your earnings history over up to 35 years of work, with benefits calculated using a formula that accounts for lifetime earnings
• The four main types of Social Security are retirement benefits, Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), and survivor benefits
• Social Security taxes are 6.2% for employees and employers each (12.4% total), with self-employed individuals paying the full 12.4% on earnings up to $176,100 in 2025
• Retirement benefits can begin at age 62 but claiming before full retirement age results in permanently reduced monthly payments
• Full retirement age ranges from 66 to 67 depending on birth year, with those born in 1960 or later reaching full retirement age at 67
• Delaying benefits increases payments by approximately 8% per year beyond full retirement age until age 70, resulting in up to 24% higher benefits for those with a full retirement age of 67
• Benefits increase annually through cost-of-living adjustments (COLA) to help maintain purchasing power against inflation, with a 2.5% increase applied for 2025
• Working while receiving benefits may temporarily reduce payments if you claim before full retirement age and earn above certain limits ($23,400 in 2025)
• Up to 85% of Social Security benefits may be taxable depending on your combined income and filing status
• Individuals can create a my Social Security account at SSA.gov to view earnings records, estimate future benefits, and manage benefit payments online
• The SSA Trustees' 2025 report projects that combined trust fund reserves would be depleted in 2034 under current law, with continuing revenues covering approximately 81% of scheduled benefits unless Congress acts, making this a material consideration for long-term planning

Updated November 2025: This article reports 2025 Social Security parameters throughout. The SSA announced 2026 adjustments on October 24, 2025: the 2026 COLA will be 2.8%, the taxable wage base will increase to $184,500, and annual earnings test limits will be $24,480 (under full retirement age all year) and $65,160 (year of reaching full retirement age, for months before full retirement age). Update retirement projections accordingly for 2026 modeling.

Different Types of Social Security

There are four main types of Social Security:

1. Retirement Benefits

You must earn 40 Social Security credits to qualify for retirement benefits (most people earn 40 credits after about 10 years of work). Once you meet the credits requirement, you can claim retirement benefits beginning at age 62.

2. Social Security Disability Insurance (SSDI)

If you have an eligible disability that stops or limits your ability to work for a period of a year or more, or if you are blind, you may be eligible for Social Security Disability Insurance (SSDI) payments to support you while you're unable to work. As well as your medical needs, eligibility is based on your age and work history.

3. Supplemental Security Income (SSI)

People with a disability and little or no other income may be eligible for Supplemental Security Income (SSI) in addition to SSDI. Eligibility is based on your income, living situation, assets, and other resources.

4. Survivor Benefits

Survivor Benefits provide monthly payments for spouses and other survivors of a family member who has died, assuming that individual paid Social Security taxes before their death. You could be eligible if the deceased was your spouse, divorced spouse, child, or parent.

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How Much Are Social Security Taxes?

Both employees and employers pay Social Security taxes. The rate is 6.2% for employees and employers, or 12.4% for self-employed people to account for both the employer and the employee contribution. That's on all income up to $176,100 in 2025, so the most you can pay as an individual is $10,918.20 (or double that amount, $21,836.40, if you're self-employed). The same limit applies to your employer, so the most they can pay is $10,918.20. The limit changes each year.

For example, assuming you're not self-employed, if you earn $50,000 per year you and your employer would pay $3,100 each in Social Security taxes.

How Much Are Social Security Payments in Retirement?

For Retirement Benefits, you can start withdrawing from age 62 and your payments are calculated based on factors including:

• What you've paid in for up to 35 years of your life
• When you retire (early retirement will reduce your payments)
• How living standards and wages have changed during your lifetime

The Social Security Administration (SSA) takes these factors and calculates how much you paid during your highest-earning years up to a maximum of 35 years. Then, they divide that amount by the number of months in those years and then adjust that figure based on how your earnings compare to the national average. This gives the SSA your Average Indexed Monthly Earnings (AIME).

Finally, the SSA uses "bend points" to calculate your Primary Insurance Amount (PIA), which determines your benefit at full retirement age. The formula is progressive: it replaces 90% of the first portion of your AIME, 32% of the middle portion, and 15% of any amount above the second bend point. This means higher lifetime earners receive larger dollar benefits, but Social Security replaces a smaller percentage of their pre-retirement earnings compared to lower earners. The program is intentionally structured to provide proportionally greater income replacement for workers with lower lifetime earnings.