What is Social Security?

Social Security is the commonly used term for the Old Age, Survivors, and Disability Insurance (OASDI) program. The program is administered by the Social Security Administration (SSA) and funded mostly through Federal Insurance Contributions Act (FICA) payroll taxes and Self-Employed Contributions Act (SECA) self-employment taxes.

Key Takeaways

• You will only be eligible for Social Security benefits if you have accrued a sufficient number of “credits.” You can earn up to four credits a year, The amount you need to earn for each credit is adjusted upwards to account for increases in average earnings.
• Once you are eligible for or are receiving Social Security benefits, you may also receive Medicare benefits. However, the scope of coverage, whether you will be required to make premium contributions, and the date your coverage will kick in can vary based on a number of factors, including your retirement age, and which of the three Social Security programs you are receiving benefits under.
• In order to ensure that your Social Security payments keep pace with inflation, each year the SSA calculates and applies cost-of-living adjustments (COLAs) to increase your payments correspondingly.  
• If you receive SSDI or retirement benefits, then your spouse, children, (and in some cases even your ex-spouse), may be eligible for monthly benefits as well, albeit at lower rates.

Social Security Disability Insurance (SSDI)

You may be entitled to SSDI benefits if you have a physical or mental medical condition that severely impairs your performance of certain basic functions such that it prevents you from working, and that is expected to last at least one year or result in death.

The number of credits required to receive SSDI benefits depends on your age, and how recently you earned those credits. If you are aged 31 or older you will need to have earned a total of 40 credits, 20 of which were earned in the 10 before becoming disabled, to receive SSDI benefits. At the lowest end of the range, if you are younger than 24, you will only need to have earned six credits in the three years before becoming disabled.

Retirement Benefits

Regardless of when you retire, the amount of your payments will be based on your lifetime earnings. If you were born after 1960 (when the current retirement first came into effect) then your full retirement age will be 67. The earliest you can retire is 62, and you can also defer your retirement to the maximum age of 70. For each year before or after age 67 you retire, your monthly payments will be increased or decreased, respectively.

Survivors Benefits

Survivors benefits are paid to widows, widowers, unmarried children who are under 18, and, under a limited set of circumstances, even parents and stepparents. Like SSDI, the maximum number of credits you need to accrue for your survivors to receive benefits is 40, and the minimum is six credits earned within the three years of your death.

Bottom Line

The Social Security program was established to ensure that you and your family will be provided for if you become disabled, retire, or pass on, and represent a return on taxes that were deducted from your wages or self-employment income throughout your lifetime. Thus you should take every effort to ensure that you and your loved ones receive every possible Social Security benefit they are entitled to.