Blog Post

The Basics of Social Security

Date Published: Mar 11, 2021

Senior male outside working on a tablet

Ah retirement…where you spend your days sleeping in, going on adventures, and where the worst part is that you never get a day off. It is also the time when this thing called Social Security really kicks in and you can start reaping the benefits of it. Social Security can seem confusing, though. If you have never heard of it, or just don’t know much about, it’s going to be okay! Simply continue reading this article that will run you through the basics of Social Security.

What is it?

So, in the year 1935 President Franklin D. Roosevelt signed the Social Security Act into law to supply certain workers in the U.S. with a form of retirement income, and eventually it was expanded to support the majority of the workforce. Fun fact: the first person to collect a Social Security check was a retired legal secretary from Vermont named Ida M. Fuller in the year 1940; the check was worth $22.54 (Connett, Investopedia).

Anyway, today Social Security, which is the term for the Old-Age, Survivors, and Disability Insurance (OASDI) program, is run by the Social Security Administration (SSA) and is America’s pension plan. It also serves as the financial lifeline that most people of retirement age use to support themselves in their older years. But get this, according to the nonpartisan Center on Budget and Policy Priorities, Social Security actually supplies roughly half of elderly Americans with around 50% of their income.

How it works

Social Security is essentially an insurance program, where employees put money into the program, usually through payroll where they work. An employee, can earn up to four credits a year. As a whole, Social Security works as a pay-as-you-go system, where the money that is paid by current workers is then put towards the benefits for current retirees.

So, basically it pools required contributions from workers into a pot, kind of like an ante in a game of poker. Those collected benefits are then paid out to those who are eligible for them, like the winner of a hand of poker. As of 2019, you will earn one credit for every $1,360 that you make and these credits will go towards your future Social Security eligibility. If you were born in 1929 or after you would need 40 credits, which is 10 years of full-time work, in order to utilize those Social Security benefits when you retire.

The amount you get from Social Security is based on your lifetime earnings. The overall formula is tricky, buy it averages the amount you made from your 35 highest-earning years. If you gather 40 credits you can use the Retirement Estimator at to get an estimate. The year you were born determines when you will be available for full retirement benefits; check out this neat chart below to learn when you are eligible:

Birth YearAge of Eligibility
1938 - 194265 and 2 months - 65 and 10 months
1943 - 195466
1955 and 196066 and 2 months - 66 and 10 months
1960 or later



Now you do have the option to stray from this chart and opt to receive early retirement Social Security at the ripe age of 62, but be wary, because your monthly benefits will be permanently reduced if you choose this route. Let’s say that you decide to take your retirement benefits at 62 when your full retirement age is 66. Your benefits will be reduced by 25%. Now, if you decide to put a hold on taking benefits past your retirement age, you will be rewarded with higher benefits up to the age of 70, which is when benefits max out.

Spouses can claim benefits, even if they have never held a paid job. The benefits they receive are based on their partner’s record and in order to qualify, the spouse with a work history must already be receiving benefits and the nonworking spouse is required to be at least 62 years old.

So there you have it, the basics of Social Security in a nut shell. Does your head hurt a bit? Retirement is a big and exciting chapter in your life and Social Security can play a big role in it, so having a grasp on Social Security will help you soar into your dog days like a rocket flying to the Moon. If you have any questions or want more info, feel free to get in touch with us!