Social Security is a federal program in the U.S. that provides retirement benefits to qualified individuals. It also provides disability income to qualified individuals, spouses, children, and survivors. The final benefit depends on how much you have earned over your lifetime at jobs for which you paid Social Security taxes, and the age at which you begin collecting Social Security.

How is Social Security Funded?

Workers pay into the program from their paychecks; employers also pay a match into the program. As an employee, you pay 6.2% of your check into Social Security, and your employer matches that 6.2%.

Self-employed individuals pay the full 12.4% when they file their federal taxes. Earnings over $176,100 are not taxed toward Social Security, nor is other income such as pensions or investments.

Types of Benefits

The main types of Social Security benefits are:

• Retirement benefits – for persons aged 62 or older who have earned at least 40 credits*
• Disability benefits – for workers not able to work due to a physical or mental disability that is expected to last at least 12 months, even if you have not earned 40 credits
• Survivors benefits – for family members of deceased workers who qualified for Social Security.

*What is a Credit?

Workers can earn up to four credits each year. You may work all year to earn four credits, or you might earn enough for all four credits in less time. In 2025, you earn one Social Security credit for every $1,810 in covered earnings each year. You  must earn $7,240 (which is 4 x 1810) to get the maximum credits for the year.

Cost-of-living adjustments (COLAs)

Modest increases based on the third quarter Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) can be granted. The largest COLA in the past 25 years was 8.7% in 2023; some years it is 0%; most of the years since 2000 have been in the 2% plus or minus range.

What about spouses (and ex-spouses)?

Spouses can claim benefits on either their own earnings records, or their spouse’s records. A divorced spouse who is not currently married can receive benefits based on an ex-spouse’s earnings record if that marriage lasted at least ten years. A spouse or former spouse claiming against your own earnings will not affect your own benefits.

A spouse may receive the larger of the two: your own earnings benefit, or half your spouse’s full retirement benefit (even if the spouse took a reduced amount by collecting before retirement age).

Continuing to work

If you are under full retirement age, for every two dollars you earn above $23,400 (in 2025), there is a temporary benefit reduction of one dollar from your Social Security benefits. To check the earnings test, use this calculator: https://www.ssa.gov/OACT/COLA/RTeffect.html  If you are full retirement age, you can continue to work without a reduction in benefits.

Will Social Security still be there for me?

The official word is yes, however, reports show that without some structural changes, the fund may be depleted in 2033 and able to pay only partial benefits. The last time Social Security faced a reserve deficit was 1983, and bipartisan legislation did make changes to shore it up.

To see an estimate of what you may qualify for and when, create an account at www.ssa.gov

Approximately 30% of new beneficiaries claim benefits at age 62. 32% claim benefits after age 62 but before full retirement age, and just 10% claim benefits at age 70. Viewing your own account will help inform which choice is right for you.

Social Security is an essential part of any retirement plan, but not to be relied upon for 100% of retirement expenses. It is based on workers paying into the system through withholding during employment, or tax season for self-employed workers. The best start is knowing your numbers.

 

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