Social Security: What It Is, How It Works

Social Security is a federal program that pays retirement, disability and survivors' benefits to qualifying people.
Dalia Ramirez
Cara Smith
By Cara Smith and  Dalia Ramirez 
Edited by Tina Orem

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What is Social Security?

Social Security is an American federal insurance program that provides monthly income to qualifying recipients. Most Social Security benefits go to retired workers and their dependents, but Social Security also pays disability and survivors’ benefits. Social Security is funded primarily by payroll taxes from employees and employers.

The Social Security program, also known as the Old-Age, Survivors and Disability Insurance (OASDI) program, was established during the Great Depression. Its purpose is to provide financial security for aging workers, the disabled and children. In 2023, almost 67 million Americans received a monthly Social Security benefit, according to the Social Security Administration Social Security Fact Sheet. Accessed May 5, 2023.

Social Security quick facts

How does Social Security work?

The Social Security program is run by the Social Security Administration (SSA). The benefits that retirees and other beneficiaries receive are largely funded by payroll tax contributions from people currently in the workforce, so it’s important that the ratio of workers to beneficiaries stays high enough to provide full benefits.

Most employees and employers each pay a 6.2% payroll tax on employee earnings up to a certain limit. This limit, called the wage base, usually changes each year. In 2023, the Social Security wage base is $160,200 Maximum Taxable Earnings. Accessed May 5, 2023.

This means that, for example, an employee making $161,000 per year in pre-tax income in 2023 pays the 6.2% Social Security tax on all but $800 of earnings; the employee’s employer also pays a 6.2% tax on those wages. Self-employed workers pay the fully combined 12.4% Social Security payroll tax themselves If You Are Self-Employed. Accessed May 5, 2023.

When workers retire or become disabled, they may become eligible to receive monthly income from Social Security. In some cases, a worker’s children or spouse may also become eligible for benefits.

On average, Social Security retirement benefits replace roughly 40% of a worker’s pre-retirement salary Social Security in retirement. Accessed May 5, 2023.

How Social Security retirement benefits are calculated

In general, two factors determine the size of your Social Security retirement benefit:

  1. How old you are when you begin receiving Social Security benefits.

  2. How much you earned and contributed to Social Security during your 35 highest-earning years.

Because the calculations rely on a person's highest 35 years of earnings, workers with higher salaries will likely receive higher Social Security retirement benefits than workers with low earnings or years spent out of the workforce. However, additional benefits such as spousal benefits may help compensate.

Estimate your Social Security retirement benefits

Your actual benefit may be lower or higher than estimate made with this calculator, because it does not take into account your actual earnings history.

We assume you have earnings every year until you begin receiving Social Security benefits. If you had several years of noncovered employment or your earnings changed significantly from year to year, this calculator will overestimate or underestimate your benefit.

Desired age to begin Social Security

You will qualify for benefits at age 62.

When can I collect Social Security?

You can claim Social Security as early as age 62 (Medicare, on the other hand, is available at age 65). But the longer you remain in the workforce, the larger your monthly Social Security retirement benefit may be.

  • If you retire before reaching full retirement age, the Social Security Administration permanently reduces your benefit.

  • If you wait until your full retirement age to start collecting Social Security retirement benefits, you can receive 100% of your monthly retirement benefit.

  • If you wait until after full retirement age to start collecting benefits, the Social Security Administration increases your benefit by up to 8% for every year you wait (up to age 70).

Here’s a breakdown of how your benefits are reduced if you retire before your full retirement age:

Full retirement age for Social Security

Year you were born

Full retirement age

If you start receiving benefits at 62, your retirement benefit is reduced by...

1943 through 1954




66 and 2 months.



66 and 4 months.



66 and 6 months.



66 and 8 months.



66 and 10 months.


1960 and later



Your Social Security benefits continue increasing until you turn 70. After you turn 70, the increase in Social Security benefits ceases, even if you wish to delay retirement further.

People receiving survivors' benefits on behalf of a deceased spouse can qualify for retirement benefits as early as age 60, or 50 if they have a disability


What is the maximum Social Security benefit?

Here are the highest monthly Social Security benefits an individual retiring in 2022 can receive, based on when they retire and start collecting benefits


62 years old

65 years old

67 years old

70 years old

$2,572 per month.

$3,279 per month.

$3,808 per month.

$4,555 per month.

To qualify for the maximum Social Security retirement benefit, you'd have to earn the maximum taxable wage per year ($160,200 in 2023) for at least 35 years.

Are Social Security benefits taxable?

Yes, Social Security retirement and disability benefits are taxable. Income taxes on Social Security benefits are based on your “combined income,” which includes:

Most Social Security recipients earn more than the minimum threshold and wind up paying taxes on their benefits. In fact, roughly 56% of beneficiary families are expected to pay income taxes on their benefits over the 35-year period between 2015 and 2050, according to a Social Security projection

. No beneficiary is taxed on more than 85% of their benefits.

Here’s how it breaks down if you file your federal income taxes as an individual:

If your combined income is:

Then you owe tax on:

Up to $25,000.

None of your benefit.

$25,000 to $34,000.

Up to 50% of your benefit.

Over $34,000.

Up to 85% of your benefit.

And here's how it breaks down if you jointly file your federal income taxes:

If your combined income is:

Then you owe tax on:

Up to $32,000.

None of your benefit.

$32,000 to $44,000.

Up to 50% of your benefit.

Over $44,000.

Up to 85% of your benefit.

How does the cost-of-living adjustment work?

Each year, benefit recipients receive a cost-of-living adjustment, or COLA. The amount of any increase is driven by the Consumer Price Index, which means that the original benefit amount will generally grow in step with inflation over time. The increase goes into effect with the benefit paid at the end of every December.

The COLA in 2022 was 8.7%, the biggest increase since 1981.


COLA (for following year)





















Types of Social Security benefits and how long they last

  • Retirement benefits: Social Security retirement benefits are paid to workers who paid Social Security taxes. Benefits don't expire; once you start receiving Social Security payments, you can receive them for the rest of your life. 

  • Survivors benefits: When a worker dies, eligible survivors can receive a Social Security survivor benefit. Survivors include spouses over 60 (50 if disabled or any age if caring for the deceased’s children under 16) or children under 18 (19 if students). In general, survivors’ benefits will be paid out monthly for the rest of the surviving spouse’s life, though there are some restrictions for divorced spouses.

  • Disability benefits: Workers with a qualifying medical condition can be eligible for Social Security Disability Insurance. There isn't an expiration date on disability benefits. Payments will continue as long as the qualifying health condition remains, and Social Security will check in regularly to ensure your health condition is still affecting your ability to work.

  • Dependent benefits: Children receiving Social Security benefits on behalf of a retired, disabled or deceased parent continue to receive payments until they turn 18. If the child is a student, they'll typically continue receiving benefits until they graduate high school or two months after turning 19.

Frequently asked questions

According to the SSA, most U.S. citizens can still receive Social Security benefits if they’re living or even visiting outside of the country. Some countries even have transfer agreements that can give you U.S. benefits if you worked in a different country for part of your career.

You can apply for Social Security on There are separate applications for retirement, spousal, disability and survivor benefits. Make sure you time your application to receive the highest benefit possible.

Medicare and Social Security are both government safety net programs. They aren’t the same, but they are linked. Many people become eligible for both programs at around the same time.

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