What is Social Security?
Social Security is a federal program that provides financial support when you retire, become disabled, or lose a loved one. It’s designed to help replace a portion of your income when you can’t or don’t work, giving you a steady source of money during key moments in life.
How it Started
Social Security has been around for a long time. It was signed into law in 1935 during the Great Depression, a time when millions of Americans were struggling to make ends meet. The idea was simple. The government would help ensure that older Americans, who had worked hard all their lives, wouldn’t have to rely entirely on family or charity once they couldn’t work anymore. Over time, the program expanded to include benefits for people with disabilities and survivors of deceased workers.
How Social Security Works
While you’re working, you pay into the system through payroll taxes. You might see a line on your paycheck that says “FICA” or “Social Security,” which represents the money you contribute. Your employer contributes too. Think of it as a shared fund where everyone pitches in, and then later, you can draw from it when you retire or if you need support due to disability.
Social Security benefits aren't the same for everyone. It depends on how much you've earned over your working life and at what age you start claiming benefits.
Who Gets Social Security?
Social Security isn’t just for retirees. If you’re unable to work due to a disability, you may qualify for Social Security Disability Insurance (SSDI). The SSA has strict rules for who qualifies, but in essence, it’s designed to replace a portion of your income when you can’t earn a paycheck.
Survivors of deceased workers can also receive benefits. For example, a widow or widower, children, or dependent parents may be eligible to receive Social Security payments to help make ends meet. In this way, Social Security functions as a form of financial protection for families, not just individuals.
How Much Will You Get?
Your Social Security check is calculated using your lifetime earnings, with a focus on your highest-earning years. The SSA looks at your 35 highest-earning years, adjusts them for inflation, and applies a formula to determine your “primary insurance amount” (PIA), which is the amount you would get if you start collecting at full retirement age.
The important takeaway here is that Social Security isn’t meant to replace all your income in retirement. On average, it replaces about 40% of pre-retirement income. That means most people will still need savings from a 401(k), IRA, or other investments to maintain their lifestyle.
When Can You Start Getting Benefits?
You can technically start receiving Social Security as early as age 62. There is a catch. If you start early, your monthly benefit will be lower. If you wait until your “full retirement age” (which is usually between 66 and 67, depending on when you were born), you’ll get the full amount and if you’re able to hold off until age 70, your benefit will grow even more thanks to delayed retirement credits.
This is where the personal side of Social Security comes into play. It’s not just about numbers. It’s about your lifestyle, your health, and your retirement goals. Some people need the income earlier, while others can wait to maximize their monthly check. There’s no one-size-fits-all answer, which is why it pays to plan ahead.
Be Retirement Confident.
Roll over all your old 401(k)s into a PensionBee Individual Retirement Account (IRA). It takes just a few minutes to sign up.
Get startedSocial Security Isn’t Just Numbers
One thing that can get lost in all the formulas and rules is that Social Security is about peace of mind. It’s money you don’t have to actively manage, and it’s guaranteed by the government (for now). It’s like a financial backbone for your retirement, a stable source of income that doesn’t fluctuate with the stock market.
Even with other retirement savings, the assurance of a guaranteed monthly income can significantly reduce financial planning stress. Furthermore, Social Security benefits for disability or survivors can provide a vital lifeline during difficult times.
Build on Social Security with a Clear Savings Plan
Social Security can be a reliable source for your retirement, but it’s only one piece of the puzzle. The bigger question is whether you’ll have enough saved on top of it to enjoy the retirement you want. That’s where PensionBee comes in. We make it simple to rollover your old 401(k)s and IRAs into one account, giving you a clear view of your savings. Many rollovers happen automatically, but if yours requires extra attention, our personal rollover managers, called BeeKeepers, are ready to guide you every step of the way. With expert management and diversified portfolios powered by ETFs like SPY and MDY from State Street Investment Management, one of the world’s largest asset managers.
Frequently Asked Questions (FAQs)
1. Will Social Security still be there when I retire?
The program faces long-term funding challenges, but it’s unlikely to disappear. Experts suggest that even if changes are made, benefits will probably still exist, though they might be reduced if reforms aren’t implemented.
2. How do I apply?
You can apply online at the SSA website, over the phone, or in person at your local Social Security office. It’s generally recommended to apply three months before you want benefits to start.
3. Can I work while receiving Social Security?
Yes, but there are limits if you haven’t reached full retirement age. If you earn above a certain threshold, your benefits may be temporarily reduced. After you reach full retirement age, there’s no limit on earnings.
4. What’s my full retirement age (FRA)?
Your FRA depends on the year you were born. For example, if you were born in 1960 or later, your FRA is 67. You can start benefits as early as 62, but they’ll be reduced, or you can delay up to age 70 for a higher monthly payment.
5. How is my benefit amount calculated?
Social Security looks at your highest 35 years of earnings (adjusted for inflation). If you worked fewer than 35 years, zeros are included, which lowers your average and your benefit.
6. Can my spouse receive benefits based on my record?
Yes. A spouse can receive up to 50% of your benefit at full retirement age, even if they never worked or had a lower earning history. Widows and widowers may also qualify for survivor benefits.
7. Are Social Security benefits taxable?
They can be. If your combined income (adjusted gross income + nontaxable interest + half your Social Security) exceeds certain thresholds, you may have to pay federal income tax on part of your benefit.
8. What’s the difference between Social Security retirement and disability benefits?
Retirement benefits start as early as age 62, while disability benefits are available before retirement age if you meet medical and work requirements. At full retirement age, disability benefits automatically convert to retirement benefits.
Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.
