How Social Security Works

Social Security is a safety net established for the elderly and disabled Americans in 1935 under the Social Security Act. The program is funded from contributions by American workers with the security of having benefits when working is no longer an option. The benefits that the retired or disabled workers initially receive are based on their personal earning history.

How Social Security Works

There are 3 things that are important to understand about social security

  • How to become eligible – you need 40 credits or about 10 years of work.
  • How to calculate the amount of money that you will receive – your benefit is based on your earnings. If you are a low income earner, you will receive a much higher percentage of your income than a higher wage earner.
  • When you can start drawing on the money – The full retirement age varies (see figure below). If you have a retirement age of 66 then you would be able to start drawing on your social security with a 25% penalty at age 62. In addition, if you choose to delay collecting each year, up to age 70, your benefits are increased by 8%.
If you were born in … Your full retirement age is …
1937 or earlier 65
1938 65 and 2 months
1939 65 and 4 months
1940 65 and 6 months
1941 65 and 8 months
1942 65 and 10 months
1943-1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 or later 67



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