Social Security Explained

Social Security is a federal program that pays retirement, disability and survivors benefits to qualifying people.

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Social Security is a federal program that pays benefits to qualifying residents. Most people know Social Security provides retirement benefits, but the program also pays out the following benefits based on your lifetime earnings:

  • Disability

  • Survivors

  • Dependency

Established during the Great Depression (1929-1939), the program was designed to provide financial security for aging workers. It's funded by regular contributions made by taxpayers throughout their working years to a shared Social Security fund.

What is Social Security?

Social Security is a program run by the Social Security Administration. It pays financial benefits to retirees and their families, as well as to children and families of deceased workers. It also pays benefits to people with disabilities who may have limited opportunities to earn money.

Social Security benefits are paid for through taxes. Most employees and employers pay a 6.2% tax on their earnings, up to $147,000 per year, which funds the Social Security program.

For example, if an employee makes $148,000 per year in pre-tax income, they wouldn’t be charged the 6.2% tax on the last $1,000 of their earnings.

Self-employed workers pay 12.4% in Social Security taxes.

How much Social Security will I get?

Of course, it’s impossible to know your exact benefit amount until you’ve reached retirement age. But on average, most people can expect their Social Security benefits to replace roughly 40% of their pre-retirement salary.

Your benefits will depend on how much you contribute to Social Security throughout your lifetime, as well as how much money you earn throughout your working years. The Social Security Administration has several calculators that offer a clear picture of potential benefits you may receive.

» Find out about the estimated amount of social security you'll get

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

$2,364 per month.

$2,993 per month.

$3,568 per month.

$4,194 per month.

To qualify for the maximum Social Security retirement benefit, you'd have to earn $147,000 annually — the maximum taxable income for Social Security — for at least 35 years. That's because your Social Security benefits are calculated by using your highest 35 years of earnings.

How is Social Security calculated?

Social Security benefits are determined by two factors:

  • How old you are when you retire.

  • Your best 35 years of earnings before inflation.

Because the program uses the highest 35 years of earnings throughout your career, workers with higher salaries will likely receive higher Social Security benefits. Workers with low earnings or years spent out of the workforce will receive lower benefits.

» MORE: Our free retirement calculator will help you figure out how much you need to save

Are Social Security benefits taxable?

Yes, your Social Security retirement and disability benefits may be subject to taxation.

How much depends on whether your “combined income” — which includes your benefits but also wages, interest, dividends and other sorts of taxable income — exceeds certain thresholds in a given year (see tables below). And the majority of beneficiaries earn more than that 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.

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

Annual gross income between $25,000 and $34,000

Annual gross income greater than $34,000

Up to 50% of your benefits are taxable.

Up to 85% of your benefits are taxable.

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

Combined, gross annual income between $32,000 and $44,000

Combined, gross annual income greater than $44,000

Up to 50% of your benefits are taxable.

Up to 85% of your benefits are taxable.

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

When can I collect Social Security?

Workers who were born after 1960 qualify for Social Security benefits at age 62. However, the longer you remain in the workforce, the better your Social Security benefits will be. This is because the Social Security Administration considers 67 to be the "full retirement age" for those born after 1960, and those claiming their benefits before they turn 67 will qualify for reduced benefits.

This can equate to a sizable difference in benefits. For example, according to the Social Security Administration, somebody who would qualify for a $1,000 monthly retirement benefit at age 67 would only qualify for a $700 monthly retirement benefit if they retired at age 62.

Once you turn 67, though, you may still want to consider when you retire. Once you reach 67, 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.

» Ready to start retirement planning? Use this guide to get started

How long do Social Security benefits last?

Social Security retirement benefits don't expire; once you start receiving Social Security payments, you'll continue to receive them for the rest of your life.

There isn't an expiration date on disability benefits, either. 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.

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. These benefits will be paid out for the rest of the surviving spouse’s life, though there are some restrictions for divorced spouses.

Children receiving Social Security benefits on behalf of a retired or deceased parent, or a parent with a disability, will 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.

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