Guide to Understanding Social Security

ByNathan Paulus
Edited byVictoria Copans

Updated: June 1, 2024

ByNathan Paulus
Edited byVictoria Copans

Updated: June 1, 2024

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Social Security is a federal program designed to ensure financial security for workers and their families. In 2022, approximately 71 million people received benefits from programs administered by the Social Security Administration (SSA). With various benefits available — each with unique eligibility requirements and characteristics — understanding how each type functions and how to qualify can help you maximize the benefits you receive.

What Is Social Security and How Does It Work?

Social Security is a federal program in the United States designed to provide financial support to individuals during retirement, in case of disability or to family members after the death of a wage earner. Established in 1935 as part of the New Deal, it was initially created to address the economic challenges faced by older Americans during the Great Depression and continues to support millions today.

How Social Security Works

Social Security operates as a key part of the U.S. social safety net, using a system of contributions and benefits. Here’s a detailed look at the process:

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    Funding

    Social Security is funded through payroll taxes specified by the Federal Insurance Contributions Act (FICA). Employers and employees contribute equally to these funds, each paying a 6.2% tax, totaling 12.4% of earnings up to a certain limit. Self-employed individuals contribute the full 12.4% through the Self-Employment Contributions Act (SECA). These funds are then distributed as benefits to eligible participants.

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    Trust Funds

    The funds collected are allocated into two trust funds overseen by a board of trustees — the Old-Age and Survivors Insurance Trust Fund (OASI) and the Disability Insurance Trust Fund (DI). These funds support current beneficiaries and ensure the ongoing financial health of the program.

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    Earning Credits

    Throughout your working life, you earn "credits" toward Social Security benefits based on income levels. You can earn up to four credits annually, with one credit in 2024 requiring $1,730 in covered earnings. The number of credits needed to receive retirement or disability benefits depends on your age and the type of benefit.

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    Types of Benefits

    Although the most recognized benefit is the retirement benefit, Social Security also provides disability benefits if you cannot work due to severe medical conditions and survivor benefits for your family if you’re deceased. Each benefit has specific eligibility criteria related to the number of Social Security credits required and other factors.

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    Determining Benefits

    Social Security benefits are determined by your average indexed monthly earnings (AIME), calculated from your 35 highest-earning years. This average is then applied to a formula to calculate the primary insurance amount (PIA), which forms the basis of the benefits you receive.

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    Adjustments and Increases

    Social Security benefits also include a cost-of-living adjustment (COLA) to offset inflation. In 2024, the COLA is 3.2%, ensuring benefits keep pace with the economy.

How Social Security Is Taxed

Social Security benefits may be subject to federal income taxes based on Internal Revenue Service (IRS) rules. These rules involve calculating your combined income, which consists of your adjusted gross income (AGI), tax-exempt interest income and half of your Social Security benefits. In 2024, these taxes apply to earnings up to $168,600. Here are the tax thresholds based on filing status and income:

1
Single Filers

If your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxed. If it exceeds $34,000, up to 85% of your benefits could be taxable.

2
Married Filing Jointly

For those with a combined income of $32,000 to $44,000, up to 50% of benefits may be taxed. Over $44,000, up to 85% may be taxable.

3
Married Filing Separately

Similar thresholds apply if you do not live with your spouse during the year. However, if you lived with your spouse at any point during the year and filed separately, you will likely pay taxes on your benefits.

Social Security Retirement Benefits

Social Security retirement benefits provide regular payments from the SSA to individuals who have reached the eligible retirement age. To qualify, you must have accumulated at least 40 credits through employment covered by Social Security taxes. These benefits are a fundamental source of income for many retirees but are not intended to replace all your income. We recommend exploring additional financial options to ensure sufficient funds for your monthly expenses as you age.

Who’s Eligible for Retirement Benefits?

Eligibility for Social Security retirement benefits hinges on a credit system and age requirements set by the SSA.

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    Eligibility Based on Your Earnings

    To be eligible for Social Security benefits based on your own earnings, you must be at least 62 years old and have worked and paid Social Security taxes for at least 10 years.

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    Eligibility Based on Your Spouse's Earnings

    If you meet the 10-year work requirement, you will receive benefits based on your own earnings. However, the Social Security Administration (SSA) will also determine if you can receive higher benefits based on your current or former spouse’s work.

    If you have not met the 10-year work requirement, eligibility will be assessed based on your spouse's work history. The rules vary depending on whether you are married, divorced or widowed. You'll need to provide details about your marital history, but if you are divorced, rest assured that you do not need to contact your ex-spouse, nor will they be notified of your application.

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    Eligibility for Your Children

    Social Security benefits may be available to your children if they are under 18 or still attending high school full-time at 18 to 19 years old. Children of any age who have disabilities may also be eligible for benefits.

How Much Can You Receive From Retirement Benefits?

In 2024, the average monthly Social Security retirement benefit is estimated at $1,907. Your income from work can influence your benefits, particularly if you begin receiving them before reaching your full retirement age of 67.

If you start receiving benefits at 62 (the earliest eligibility age) and continue to work, you can earn up to $22,320 ($1,860 per month) without affecting your benefits. Beyond this threshold, $1 is deducted from your benefits for every $2 earned above the limit.

How and When to Apply for Retirement Benefits

You can apply for Social Security retirement benefits online, by calling the SSA's national toll-free service at 1-800-772-1213 (TTY 1-800-325-0778) or by visiting your local Social Security office. If you reside outside the U.S. or its territories, contact the nearest U.S. Social Security office, U.S. Embassy or consulate. Always call ahead to schedule an appointment.

You can start the application process up to four months before you want your benefits to begin. For instance, if you plan to start receiving benefits at 62, you can apply when you are 61 years and eight months old. The timing of your application is crucial as it influences your monthly benefit amount. Typically, it takes about six weeks to process a retirement benefits application, although this timeframe can vary based on individual circumstances.

When applying, ensure you have all the necessary documents ready, including your birth certificate, proof of U.S. citizenship or legal residency, U.S. military service papers if applicable and your W-2 forms or self-employment tax returns.

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DELAY CLAIMING TO MAXIMIZE BENEFITS

You can significantly increase your Social Security benefits by delaying your claims. Starting your benefits at the earliest age of 62 will give you immediate income but reduce the total monthly amount you could receive. Each year you delay your benefits beyond your full retirement age (FRA) — up to age 70 — adds about 8% to your eventual monthly payments.

Claiming at FRA 66 gives you 100% of your primary insurance amount (PIA). If you wait until 67, you’ll receive 108% of your PIA. Delaying until 70 increases your monthly benefit to 132%. If you start at 62 in 2024, the maximum is $2,710 monthly. Waiting until 70 can raise that figure to $4,873 monthly.

Social Security Disability Benefits

Social Security offers disability benefits to provide income support for individuals who cannot work due to a significant medical condition expected to last at least one year or result in death. There are two main programs: Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI).

SSDI vs. SSI

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    SSDI

    SSDI is available to those who have worked and contributed enough Social Security taxes over a significant period. Spouses, ex-spouses and children of SSDI recipients might also be eligible for family benefits.

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    SSI

    SSI does not require a work history as it is a means-tested program. Eligibility for SSI depends on your current income and assets, targeting financial support to those in need without sufficient financial resources.

Who’s Eligible for Disability Benefits?

Eligibility for Social Security Disability benefits varies between the SSDI and SSI programs.

SSDI Eligibility

To qualify for SSDI, applicants must meet the following criteria:

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    Disability or Blindness

    You must have a disability that significantly impairs your ability to work for at least a year or is expected to result in death.

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    Earnings Limit

    If working, your earnings should not exceed the substantial gainful activity (SGA) limit. In 2024, this limit is $1,550 per month or $2,590 for those considered blind. Different rules apply to self-employed individuals.

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    Sufficient Work History

    Typically, you must have worked and contributed to Social Security for at least five of the last 10 years. Younger individuals, particularly those under 24, may qualify with less work history.

SSI Eligibility

SSI is aimed at individuals who may not qualify for SSDI due to insufficient work history but need financial assistance:

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    Income Limits

    Applicants generally must earn no more than $1,971 per month from work. This limit is higher for couples and when parents apply on behalf of their children, and it includes other income sources like pensions and unemployment benefits. If you have a disability, it also requires that monthly earnings from work be less than $1,550 in the month of applying.

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    Resource Limits

    Individuals should possess resources worth no more than $2,000 and couples $3,000. These limits are higher for parents applying for children.

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    Disability or Age

    Applicants under 65 must have a disability that severely limits daily activities or is expected to last at least a year or result in death. For those 65 or older, no disability is required to qualify for SSI.

How Much Can You Receive From Disability Benefits?

SSDI benefits are determined similarly to retirement benefits, based on your average earnings from jobs where you paid Social Security taxes. In 2024, you cannot qualify for SSDI if your earnings exceed the substantial gainful activity (SGA) limit, disqualifying you from receiving benefits. As of March 2024, the average monthly disability benefit was $1,714.

For SSI, the maximum monthly benefit amounts for 2024 are $943 for an individual and $1,415 for a couple. However, the actual payment you receive may be adjusted downward depending on:

  • Your income and the income of certain family members
  • Your living situation
  • Other personal factors that affect your financial needs

How and When to Apply for Disability Benefits

You can apply for disability benefits online. If you cannot complete the application online, you can call the SSA toll-free at 1-800-772-1213 between 8:00 a.m. and 7:00 p.m. to make an appointment. Those who are deaf or hard of hearing can contact the SSA via TTY at 1-800-325-0778 during the same hours.

Apply for disability benefits as soon as you become disabled. SSDI includes a five-month waiting period except for disability due to amyotrophic lateral sclerosis (ALS), meaning your benefits start in the sixth full month after your disability begins. For SSI, benefits are paid from the first full month after you file your claim or, if later, from the date you become eligible.

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LEVERAGE TRIAL WORK PERIOD

The Trial Work Period (TWP) allows SSDI recipients to return to work for at least nine months without losing their disability benefits. Here’s how it works:

  • Duration and Earnings: During the TWP, you can earn over $1,110 monthly (for 2024) without affecting your full disability payments. This period lasts 60 months, offering flexibility to start and stop work as your health permits.
  • Benefit Continuation: Throughout the TWP, you’ll continue to receive your full SSDI benefits, regardless of income level, provided you report your work activity and still have a disabling condition.
  • Extended Period of Eligibility (EPE): After completing the TWP, you enter a 36-month phase where you can still receive benefits in any month where your earnings do not exceed the substantial gainful activity (SGA) limits of $1,550 or $2,590 for individuals who are blind.

This provision is designed to encourage SSDI beneficiaries to attempt working again if their health allows, without the risk of immediately losing financial support.

Social Security Survivor Benefits

Social Security survivor benefits are monthly payments provided by Social Security to the family members of a deceased worker who accumulated sufficient Social Security credits throughout their career. These benefits are designed to partially replace the income lost due to the death of the family’s wage earner, helping to support the financial stability of the surviving family members.

Who’s Eligible for Survivor Benefits?

Survivor benefits extend to various family members of a deceased worker who earned the necessary Social Security credits during their lifetime. Eligibility for survivor benefits includes:

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    Widow(er)s

    Eligible if aged 60 or older, or 50 or older if disabled. Widow(er)s under these age thresholds caring for the deceased’s child under 16 years old or disabled also qualify.

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    Children

    Unmarried children qualify if they are under 18, or up to 19 if attending elementary or secondary school full-time. Children 18 or older with a disability that started before age 22 are also eligible.

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    Other Dependents

    Stepchildren, grandchildren, step-grandchildren and adopted children may qualify under specific conditions.

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    Dependent Parents

    Parents qualify if they are 62 or older, depended on the deceased for at least half of their income, and would not receive a higher Social Security benefit on their own.

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    Surviving Divorced Spouses

    Eligible under conditions similar to those for widow(er)s.

How Much Can You Receive From Survivor Benefits?

The amount received from Survivor Benefits varies based on the relationship to the deceased and the age at which benefits begin.

Survivor Benefits for Spouses

Widows or widowers at full retirement age are entitled to 100% of the deceased’s benefit. Those aged 60 to full retirement age receive between 71.5% and 99% of the benefit, while disabled widows or widowers aged 50 through 59 are eligible for 71.5%. A widow or widower of any age caring for a child under age 16 can receive 75%. Divorced spouses who qualify can receive the same benefit percentages as widows and widowers.

Survivor Benefits for Children and Other Dependents

Children who are unmarried and under 18 (or up to 19 if still attending primary or secondary school) or who are disabled and dependent receive 75% of the deceased’s benefit. Surviving dependent parents receive 82.5% of the benefit if one parent survives, and if both parents survive, each can receive 75%.

How and When to Apply for Survivor Benefits

To apply for survivor benefits, you should notify the Social Security Administration (SSA) immediately following a person's death. While you cannot report a death or apply for survivor benefits online, you can contact the SSA at 1-800-772-1213 (TTY 1-800-325-0778), which is available from 8:00 a.m. to 7:00 p.m., Monday through Friday. Alternatively, you can use the Social Security Office Locator on the SSA website to find your local SSA office. Often, the funeral home will handle reporting the death if you provide them with the deceased's Social Security number. If the funeral home does not do this, you may need to report it yourself using the provided contact information.

Before applying for benefits, visit the SSA website to gather all necessary documents. Having these documents ready can help streamline the application process and expedite the process of receiving benefits.

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TIPS FOR NAVIGATING THE BLACKOUT PERIOD

Survivor benefits have specific eligibility rules that can lead to periods without financial support, known as blackout periods. Widows or widowers do not qualify for their own survivor benefits until age 60. However, they can receive benefits earlier if they care for the deceased’s children under 16.

Children qualify for benefits until turning 18 or 19 if they are still in school. Once the youngest child turns 16, the caregiver's benefits stop, and if the children are 18 or older, they, too, lose eligibility. This gap until the surviving spouse turns 60 creates a blackout period during which no family member receives benefits. To mitigate financial hardship during the blackout period, you may choose to secure life insurance.

How to Appeal Social Security Denials

If your application for any Social Security benefits is denied, you have the right to challenge the decision. You generally have 60 days from receiving your denial notice to appeal at any stage. Act quickly to meet these deadlines. Maintain detailed records of all interactions with the SSA, including dates of submissions and any received communications. Consider hiring an attorney or a qualified representative specializing in Social Security claims. They can offer crucial guidance and represent you effectively during hearings.

Here's how to navigate the appeal process:

1
Reconsideration

You can request a reconsideration of your case online, by mail or by phone. This review is conducted by someone who was not involved in the initial decision and you can submit additional evidence.

2
Request a Hearing

If the reconsideration decision is still not in your favor, you can request a hearing. This will be held before an administrative law judge (ALJ) who was not involved in the previous decisions. The hearing typically takes place within 75 miles of your home, where you can present further evidence, bring witnesses and argue your case in person.

3
Review by the Appeals Council

Should you disagree with the decision of the ALJ, you can ask the Social Security Appeals Council to review your case. The Council may deny a review if they agree with the ALJ's decision. If they accept, they may either make a decision themselves or send it back to an ALJ for further evaluation.

4
Federal Court Review

The final step is to file a lawsuit in federal district court if the Appeals Council denies your request for review or you disagree with their decision.

Social Security FAQ

Here we answered some frequently asked questions related to the Social Security application process.

How can I get a replacement Social Security card?
How can I check my Social Security status?
What should I do if someone else has my Social Security number?

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Additional Resources

Here's a list of websites and other sources of authoritative information about Social Security benefits:

  • AARP: A nonprofit, nonpartisan organization dedicated to empowering individuals to make informed choices about aging. It offers resources on retirement, savings, Social Security and Medicare, aiming to improve the quality of life for older adults.
  • Benefits.gov: The official source for information on all U.S. government benefits, helping people easily find and determine eligibility for various federal assistance programs.
  • Centers for Medicare and Medicaid Services: Offers comprehensive information on Medicare and Medicaid services, including details on coverage, eligibility and enrollment procedures.
  • National Committee to Preserve Social Security and Medicare: Dedicated to protecting Social Security and Medicare, this organization advocates for policy reform and educates the public on issues affecting senior citizens and their benefits.

About Nathan Paulus


Nathan Paulus headshot

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.


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