How Does Social Security Work? 12 Common Questions Answered


You probably know that saving and investing are essential to retirement planning. But just as important to the equation: Social Security planning.

It’s impossible to overstate the importance of Social Security to retirees. The truth is, Americans aren’t saving or investing enough for a secure retirement. Without Social Security, approximately 4 out of 10 people age 65 and older would have incomes below the poverty line . That same group relies on Social Security for about one-third of their income on average.

But there’s a lot of confusion surrounding Social Security.

If you’re approaching retirement, you’re probably doing the math: Should you claim your benefits the second you turn 62, or wait as long as possible?

And if you’re in your 20s or 30s, you may worry whether Social Security will spend its way out of existence long before you get a cent.

Here’s a guide to how Social Security works — and why no matter how old you are, you don’t have to worry about whether it will be around for you.

How Does Social Security Work? 12 Questions Answered

Social Security isn’t just a retirement program. It also provides for people who are disabled, the survivors of workers who have died, and the dependents of recipients.

However, because retirees are by far the largest group of people to receive benefits, we’re focusing on Social Security retirement benefits in this article.

1. How Are Social Security Benefits Calculated?

Your Social Security benefits depend on three primary factors: your work history, your 35 highest-earning years and your age when you start receiving benefits. Cost of living adjustments, or COLAs, are another factor, but their impact is relatively minimal.

Your work history: You earn one Social Security credit for every $1,510 you earn in 2022, but you can’t earn more than four credits a year. As long as you earn $6,040 in 2022, you’ll receive the maximum of four credits for the year. Once you’ve earned 40…


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