Social security: how it works and why it matters

Kumiko Ehrmantraut
Kumiko Ehrmantraut

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Social Security benefits can help older Americans replace part of their work wages.  Learn more about Social Security, how it works, and how to apply for benefits online.

When it comes to the topic of Social Security, are you feeling a bit confused? If so, you are not alone. Research has shown that most people overestimate their Social Security payments by more than $ 300.

It’s difficult to accurately plan for retirement if you don’t understand how Social Security works and how much you can expect to receive. In this blog post, I’ll go over the basics you need to know.

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What is Social Security?

Social Security was established as a safety net for older Americans. Before the Social Security Act of 1935, the care of the elderly fell to the families and communities in which they lived.

Social Security is a type of insurance: it helps replace your earned income if you retire, are disabled, or die and leave a family behind. That is why the official name is the Old Age, Survivors and Disability Insurance Program (OASDI).

Unlike pensions, which are pre-financed, Social Security operates on a pay-as-you-go system. All employed workers contribute to the system, knowing that they will receive the benefits in the future when they retire.

It is financed as a payroll tax and employees pay 6.2% from your salary toward Social Security benefits. Today, 61 million Americans they depend on Social Security benefits, and an additional 169 million workers enter the system.

How does it work?

Anyone can apply for Social Security, but to qualify, you will need to meet certain guidelines. If you wait until your full retirement age, you will receive all your retirement benefits. Your full retirement age will be between 65 and 67, depending on the year you were born.

However, beneficiaries can begin collecting Social Security payments at age 62. But if you start collecting your benefits earlier, your monthly payments will be lower.

You can use the Retirement Age Calculator to help you determine your full retirement age. For instance, this graphic illustrates what you can expect to receive if you were born between 1943 and 1955. In this example, the person’s full retirement age is 66.

Age you started receiving benefits Percentage of benefits received
62 75%
63 80%
64 86.7%
Sixty-five 93.3%
66 100%

When should I start collecting benefits?

Many people are divided on the age at which people should begin collecting Social Security benefits. The advantage of waiting until full retirement age is that you will collect 100% of your Social Security benefits.

But there is no guarantee that you will reach your full retirement age, and you would have to live a long time to make up the difference in payments if you wait. Ultimately, each person must decide for themselves when they are ready to begin receiving benefits.

The main types of social security benefits

There are four ways you can receive Social Security benefits, depending on your unique situation. These benefits are retirement, disability, survivors, and supplemental.


When you think of Social Security, retirement benefits are probably the first thing that comes to mind. If you are at least 62 years old or older and have worked for 10 years or more, you are eligible for retirement benefits.

The amount you receive is determined by your pre-retirement salary and how early you start collecting benefits. According to AARP, the average Social Security payment it’s $ 1,543 per month. In 2021, the most you can receive is $ 3,148 per month.

Retirement benefits are helpful for surviving into your later years, but they won’t be enough to live on for most people. Ideally, you should also have other sources of income.

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If you are unable to work due to a disability and have limited resources, you may qualify for disability benefits. Like retirement benefits, disability is only available to adults who have worked for at least 10 years or more.

And you must have a medical condition that lasts at least a year or that could be fatal. Before applying, you may want to review the Disability Checklist for Adults to make sure you meet the requirements and have all the necessary information.


Survivor benefits are available to widowed spouses and dependents of eligible workers. This benefit is designed to protect families with young children. If you’ve worked and paid Social Security for most of your adult life, but died before you could get benefits, your spouse or dependents could access those benefits instead.

The level of help you or your family receives depends on a variety of factors. The Social Security Administration will consider the worker’s age at death, the survivor’s age, and how they relate to the deceased person.

Supplementary fact

And finally, fringe benefits are available to people who cannot earn enough income on their own. For example, if you are an adult with a disability or have a child with a disability, you may qualify for supplemental benefits.

Supplemental benefits are designed to meet your basic needs, such as helping pay for housing, food, and clothing. The amount you receive depends on your monthly income and your current living situation.

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How do I apply for benefits?

You can apply for benefits at Social security website. Depending on the type of benefits you need, you can find the correct application and apply online.

If you are unable to apply online, you can contact the Social Security office at 1-800-772-1213. You also can check the status of your application or repeal a recent decision online.

The bottom line

Social Security benefits exist to act as a safety net for older Americans. The amount you receive will depend on your age and your pre-retirement salary. For more information, be sure to visit the Social Security website.

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