How Social Security Works

When it comes to understanding Social Security, most of us could use a refresher course. There’s so much confusion that 70% of the people who took a short quiz last year about Social Security basics failed it. Social Security is too complex to cover in a single blog post – the current program law is more than 2,500 pages long – but we can definitely review the basics of how Social Security works.

The bottom line is that employees, employers, and self-employed people pay a certain amount of money as Social Security tax. That money goes to fund current programs for people getting benefits now, unlike a 401(k) or IRA where you save money in your own name for retirement.

Who gets Social Security benefits

Most people think of retirement benefits, but Social Security also pays benefits to disabled working-age adults, dependents of working adults who have died, and children with disabilities, among others.

What happens when you retire

You should apply for retirement benefits three months before you’d like to start receiving them. Exactly when that should be depends on your plans and how much of a monthly payment you want to receive.

Workers become eligible for reduced early-retirement benefits at age 62, but the monthly benefit is larger for adults who delay getting benefits until full retirement age or later. Full retirement age is 66 or 67, depending on your year of birth. It’s the age when you can claim the full amount of your Social Security benefits.

If you apply earlier your monthly benefits will never be as much as if you wait until retirement age. Want even more benefits? Put off collecting Social Security until age 70. You can calculate the extra money you’ll get each month with this chart.

Can you still work while getting Social Security benefits?

Yes, you can. The Social Security Administration says that if you work and take benefits before your full retirement age, your Social Security benefit will be reduced if you earn more than $15,720 (as of 2016). The year you reach full retirement age, your benefits are reduced if you’re still working and earn more than $41,880. After you reach full retirement age, though, “you can keep working, and we won’t reduce your Social Security benefit, no matter how much you earn.”

What about taxes and other programs?

You might have to pay taxes on your Social Security benefits, depending on how much income you have from other sources. Whatever age you start taking Social Security benefits, you should still apply for Medicare three months before you turn 65 to avoid paying more for coverage later.

The 2016 edition of Social Security: Understanding the Benefits has the details on these situations, retirement-age guidance, and information about using the My Social Security online benefits portal.

What happens to my Social Security benefit after my death?

If the person receiving social security has passed away and they have a surviving spouse and children under the age of 18, the spouse and children may be entitled to Social Security survivors benefits. A surviving spouse may be eligible for these benefits as early as age 60. The benefit amount would be the same as the deceased spouse’s retirement benefits; however there may be some adjustments depending if the benefit is claimed before the surviving spouse has reached retirement age. For instance, if a surviving spouse claims the benefit at age 60 when the age of retirement is actually 66, the benefit amount may be reduced. This survivors benefit may be collected as long as the surviving spouse is alive.

Track your Social Security credits and benefits online

The easiest way to keep track of how many credits you’ve earned toward retirement benefits, your benefits status, and other Social Security and Medicare information is to create a secure My Social Security account online. You can get online statements, request benefit verification letters, request a replacement Social Security card, and manage your direct deposit account information. The site also has more detailed information about how Social Security works and where to get help.

Casey Kelly-Barton

Casey Kelly-Barton is an Austin-based freelance writer whose childhood was made awesome by her grandmothers, great-grandmother, great-aunts and -uncles, and their friends.