9 Facts About Social Security

Most everyone in America has heard of Social Security. We know it’s a social program for retirement and we know it’s important—but many of us don’t know the specifics. From taxes to retirement age to benefit types, here are nine facts about Social Security.

1. Workers have benefitted since 1935

Social Security as we know it today was first established in 1935, in order to confront high rates of economic need following the Crash of ’29. Since then, the federal government has continued to administer the Social Security program in order to provide financial support during retirement and in times of disability.

2. Social Security is funded by payroll taxes

Social Security pays a wage to workers when they can no longer work. But who pays for Social Security? The program is funded by payroll taxes, which are paid by both employees and employers. Currently, the payroll tax rate is 6.2% for employees and 6.2% for employers, while those who are self-employed pay 12.4%.

3. Nearly everyone is eligible

An estimated 97% of older adults either receive Social Security or will receive it. People are eligible to receive Social Security when they have reached retirement age (more on that later) and earned 40 work credits. Workers can earn up to four work credits per year, based on annual yearly earnings. You can access your earning history online to see how many credits you’ve already got.

4. There are five benefit types

Besides reaching retirement age, other events that can trigger eligibility include disability, caring for a child while being unable to work, or being the spouse of a beneficiary. The five types of Social Security benefits are: retirement, disability, spouses/dependent children, surviving spouses/dependent children, and Medicare.

5. You can claim retirement benefits at 62…

People receiving Social Security retirement benefits can begin claiming their funds at age 62. However, 62 is not full retirement age. You can see your full retirement age at SSA.gov, which for most people is between 66 and 67. But, keep in mind that age eligibility for disability benefits may be much younger.

6. …but delaying retirement increases your benefits

Claiming retirement benefits early results in reduced monthly payments, while waiting until your full retirement age increases benefits. The Social Security Administration has a useful chart online spelling out what payments you can expect, depending on when you begin taking benefits. Be sure to also check out this article from Harvard FCU: When Is the Right Time to Take Retirement?

7. Some people pay taxes on their benefits

Around 40% of people who receive Social Security pay taxes on their benefits. This happens when a beneficiary also has substantial income outside of Social Security—from wages, self-employment, interest on investments and so on. Beneficiaries can also request to have taxes automatically withheld, to avoid a large bill at the end of the year.

8. Lawmakers must act to preserve the future of Social Security

The Social Security Board of Trustees projects that by 2035, trust fund reserves will be exhausted and the system will only be able to pay out 76% of scheduled benefits. Lawmakers have proposed various measures to fix the issue, including higher taxes on the wealthy or raising the retirement age for young workers. So far, however, no permanent solution has been agreed upon.

9. Social Security is an ongoing journey

Applying for Social Security is only the first step. It’s important to regularly review your Social Security statements and keep up-to-date with benefit information, to ensure you’re receiving everything you’re entitled to. If you experience a life change, such as divorce or moving to a new address, inform the Social Security Administration. Some beneficiaries also consult a financial advisor, to understand more about how to manage budgeting, expenses and Social Security after retirement.