What Is Social Security? Retirement, Survivor and Disability Benefits

By Markets & Investing DeskUpdated Nov 10, 2026

Definition

Social Security is the federal Old-Age, Survivors, and Disability Insurance program, funded by payroll taxes, that pays monthly benefits to retired and disabled workers and their families.

Key takeaways

Social Security pays monthly benefits to retired and disabled workers and to eligible family members and survivors, based on the worker's record of covered earnings.
Retirement eligibility generally requires 40 work credits, about 10 years of work.
Benefits can start at 62 at a permanent reduction. Waiting past full retirement age adds 8% a year until 70.
The retirement trust fund's reserves are projected to be depleted in 2032, after which taxes would cover about 78% of scheduled benefits unless Congress acts.
Supplemental Security Income (SSI) and Medicare are separate programs.

Social Security is the federal social insurance program in the United States formally called Old-Age, Survivors, and Disability Insurance (OASDI). Workers and employers pay payroll taxes into it. In return, workers earn the right to monthly benefits when they retire, if they become disabled, or, for their families, when they die. The Social Security Administration (SSA), a federal agency, runs the program.

The program is an earned-benefit system, not a savings account. Your benefit is calculated from your lifetime earnings history using a formula set by law. It is not the balance of money you personally paid in.

Payroll taxes and self-employment tax

Most workers pay Social Security tax through withholding from each paycheck. Under the Federal Insurance Contributions Act (FICA), employees pay 6.2% of wages toward Social Security and employers pay a matching 6.2%. Self-employed people pay both halves, 12.4%, through self-employment tax when they file their tax return. The tax applies only up to an annual wage cap, the taxable maximum, which is adjusted each year. Medicare has its own separate payroll tax (1.45% each from employee and employer), and that tax has no wage cap.

The taxable maximum works in both directions. Earnings above the cap are not taxed for Social Security, and they also do not count toward your benefit. That is one reason the maximum possible benefit has a ceiling.

Work credits

Eligibility is measured in credits. You earn one credit for each set amount of covered earnings in a year, and that amount rises annually. No matter how much you earn, you can collect at most four credits per year. Credits only establish whether you qualify. Once you qualify, the size of your check depends on your earnings, not on how many extra credits you have accumulated.

The trust funds

Payroll tax revenue goes into two accounts at the Treasury:

The Old-Age and Survivors Insurance (OASI) Trust Fund pays retirement and survivor benefits.
The Disability Insurance (DI) Trust Fund pays disability benefits.

The program largely operates on a pay-as-you-go basis: today’s workers fund today’s beneficiaries. When revenue exceeds benefit payments, the surplus stays in the trust funds and is held in special-issue U.S. Treasury securities that earn interest. When payments exceed revenue, the funds draw down those reserves.

Retirement benefits

Who qualifies

A worker with 40 credits is “fully insured” for retirement benefits. Spouses can collect based on their own record or on their partner’s, whichever is higher. A divorced spouse who is currently unmarried can claim on an ex-spouse’s record if the marriage lasted at least 10 years. Children of a retired worker can receive benefits until age 18, or longer if they are full-time students in secondary school or became disabled before age 22.

Full retirement age and claiming age

Full retirement age (FRA) is the age at which you receive 100% of your basic benefit, known as your primary insurance amount (PIA). It depends on your birth year. FRA is 66 and 2 months for people born in 1955, rises in two-month steps, and reaches 67 for anyone born in 1960 or later.

You can start benefits at any point from age 62 through age 70, and the timing changes your monthly amount for life:

Before FRA: the benefit is reduced by 5/9 of 1% for each of the first 36 months before FRA, and by 5/12 of 1% for each additional month. With an FRA of 67, claiming at exactly 62 (60 months early) leaves 70% of the PIA.
At FRA: 100% of the PIA.
After FRA: delayed retirement credits add 8% per year (2/3 of 1% per month) until age 70. With an FRA of 66, waiting until 70 produces 132% of the PIA. With an FRA of 67, it produces 124%. There is no further increase after 70.

Spousal benefits work differently. A spouse can receive up to 50% of the worker’s PIA if claimed at the spouse’s own FRA. Delayed retirement credits do not raise spousal benefits.

How the benefit is calculated

The formula has three steps.

Index your earnings. The SSA adjusts each year of past covered earnings for growth in national average wages. This puts a salary from decades ago on a comparable footing with recent pay.
Compute average indexed monthly earnings (AIME). The SSA takes your 35 highest indexed years, adds them, and divides by 420 (the number of months in 35 years). If you worked fewer than 35 years, the missing years count as zero, which pulls the average down.
Apply the PIA formula. The PIA equals 90% of AIME up to a first threshold, plus 32% of AIME between the first and second thresholds, plus 15% of AIME above the second. These thresholds, called bend points, are set by year of eligibility and change annually.

The bend-point structure makes the formula progressive. Lower earners get back a larger share of their average earnings than higher earners do, although higher earners still receive larger checks in dollar terms.

After you start collecting, benefits receive annual cost-of-living adjustments (COLAs) tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), so each year’s increase follows measured price changes.

The law also includes a special minimum benefit, first enacted in 1972, for people who worked many years at low wages. It requires at least 11 years of qualifying coverage, and the amount grows with each additional year up to 30 years. The SSA pays whichever is higher: this special minimum or the regular formula benefit.

Working while collecting, and taxes

If you claim before FRA and keep working, the retirement earnings test can withhold part of your benefit when your earnings exceed an annual limit. The withheld months are not lost. At FRA, the SSA recalculates your benefit to credit them back. Once you reach FRA, the earnings test no longer applies.

Benefits can also be subject to federal income tax. Depending on your “combined income,” which counts half of your benefits plus your other income and tax-exempt interest, up to 85% of your benefits may be taxable.

Hypothetical example. The bend points, AIME, and dollar results below are invented to show the mechanics. They are not current SSA figures.

Assume a worker born in 1962 (FRA 67) has an AIME of $5,000. Assume bend points of $1,000 and $6,000.

90% of the first $1,000 = $900
32% of the next $4,000 (from $1,000 to $5,000) = $1,280
15% of AIME above $6,000 = $0 (this worker’s AIME is below the second bend point)

PIA = $900 + $1,280 = $2,180 per month at age 67.

Claiming age then changes the monthly payment, before any COLAs:

Claiming age	Share of PIA	Monthly benefit
62	70%	$1,526.00
67 (FRA)	100%	$2,180.00
70	124%	$2,703.20

The age-70 check is about 77% larger than the age-62 check, but the early claimer collects for eight extra years. Which choice pays more over a lifetime depends on how long the person lives, on whether a spouse will later rely on this record for survivor benefits, and on what other income the household has.

Disability benefits (SSDI)

Social Security Disability Insurance pays workers who cannot work because of a physical or mental impairment that is expected to last at least 12 months or result in death. “Cannot work” means the person is unable to engage in substantial gainful activity. Partial or short-term disability does not qualify.

Applicants must pass two earnings tests. The first is a recent-work test, which looks at how much was earned in the years just before the disability began. The second is a duration-of-work test, which looks at total credits. Younger workers need fewer credits because they have had less time to earn them. Benefits generally begin after a five-month waiting period. After 24 months of SSDI entitlement, the beneficiary becomes eligible for Medicare. When an SSDI recipient reaches FRA, the disability benefit automatically converts to a retirement benefit of the same amount.

A disabled worker’s spouse and children may also qualify for benefits on the worker’s record, subject to a family maximum that caps total payments on one record.

Survivor benefits

When an insured worker dies, family members may receive monthly benefits based on that worker’s earnings record:

Surviving spouses aged 60 or older, or 50 or older if disabled
Surviving spouses of any age caring for the deceased worker’s child who is under 16 or disabled
Unmarried children under 18, or older if still in secondary school or disabled before 22. Stepchildren, grandchildren, step-grandchildren, and adopted children can qualify in some circumstances.
Dependent parents aged 62 or older who received at least half of their support from the deceased worker
Divorced spouses who meet the marriage-length and age rules

A surviving spouse who waits until their own FRA can receive up to 100% of the deceased worker’s benefit. A reduced benefit is available from 60. Some survivors also qualify for a one-time lump-sum death payment of $255.

The survivor rules connect back to the claiming decision. In a married couple, the higher earner’s monthly benefit typically becomes the survivor’s benefit. A delayed claim by that spouse can therefore raise the household’s income after the first death as well as during the worker’s own lifetime.

Social Security pays an income for as long as you live, adjusts it for inflation, and protects your family against disability and death. These features are hard to buy privately. Because the claiming age changes that income permanently, it is one of the largest single decisions in retirement income planning.

The program was never designed to replace all pre-retirement income, and its progressive formula replaces a smaller share of earnings for higher earners. Workplace plans, IRAs, and personal savings fill the gap. Federal employees, for example, pair Social Security with the Thrift Savings Plan. People pursuing early retirement under the FIRE approach should note that benefits cannot start before 62 and that years with no earnings count as zeros in the 35-year average.

Financing shortfall. The population is aging, and the number of workers paying in per beneficiary has fallen. In their 2026 report, the trustees projected that OASI reserves would be depleted in 2032. Ongoing tax revenue would then cover about 78% of scheduled benefits. Depletion would not end payments, because taxes would keep coming in. It would trigger a cut to what incoming revenue can pay, unless Congress acts. The options debated include raising payroll taxes or the taxable maximum, reducing benefits, and raising the retirement age.

Benefits depend on the record. Years of unreported earnings, jobs not covered by Social Security, or fewer than 35 years of work all lower the AIME. An error on your earnings record lowers your benefit until it is corrected.

No ownership or inheritance. You cannot withdraw your contributions or leave a balance to heirs. Benefits after death flow only to eligible survivors under the program’s rules.

Supplemental Security Income (SSI) is a needs-based program for people who are aged 65 or older, blind, or disabled and who have limited income and resources. It is funded from general tax revenue, not payroll taxes, and it does not require work credits. The SSA administers both programs, and a person can receive SSI and Social Security at the same time. SSI is not a retirement benefit you earn by working.

Medicare is federal health insurance for people 65 and older and for certain disabled people, including SSDI recipients after 24 months. It is financed partly by its own payroll tax. Social Security pays cash. Medicare pays for health care.

Pensions and 401(k)s are employer or individual plans. In a defined contribution plan, your benefit depends on your account balance and investment returns. Social Security’s benefit depends on a statutory formula applied to your indexed earnings.

FAQs

How do I find out what my benefit will be?

A personal my Social Security account on the SSA's website shows benefit estimates at different claiming ages and the earnings reported for each year, so you can spot missing or incorrect years before you claim.

Do non-citizens or people living abroad get Social Security?

Lawfully working non-citizens pay into the system and can earn benefits. Whether payments continue while you live outside the U.S. depends on your citizenship, the country you live in, and any agreements the U.S. has with that country.

The Bottom Line

Social Security matters to nearly every US worker because it pays lifetime, inflation-adjusted income plus disability and survivor protection that is hard to buy privately. The claiming age sets the monthly check permanently, and for married couples a delayed claim by the higher earner can also raise the survivor's income. The program replaces only part of pre-retirement pay and faces projected reserve depletion in 2032, so workplace plans, IRAs, and personal savings still fill the gap.