A close look at Social Security

Social Security is a critical source of income for many Americans in retirement; however, it is likely not going to cover all of your expenses in retirement. It’s a good idea to have other sources of retirement savings to make sure you have enough to live on.

Understanding Social Security

Social Security was created to be a mandatory, government-administered retirement and disability insurance fund for all Americans. Prior to its founding, retirees and the disabled relied exclusively on their own savings or the assistance of their families, exposing less-fortunate Americans to financial hardship. Social Security is funded through a tax on income that allocates money into the budget of the Social Security Administration, where it is then immediately paid out to citizens currently eligible for Social Security benefits. When the money produced by these taxes exceeds the amount needed to pay beneficiaries, the remainder goes into the “Social Security Trust Fund,” where it is invested to provide a fallback for years when revenues are not as high.

Social Security benefits

The most common type of benefit received from Social Security is the retirement benefit. Individuals qualify for retirement benefits by earning “credits.” People generally accrue enough credits to qualify after working full-time for 10 years; however, you are only eligible to receive the benefits after you turn 62.

The amount you receive depends on when you choose to start receiving benefits; payments will be higher the longer you wait. Most Americans begin taking their benefits as soon as they turn 62. In fact, only 1.4% of men and 2.5% of women wait until they turn 70 to start taking benefits[1]. If a married person passes, their spouse is eligible to receive their benefits in addition to their own, referred to as “survivor’s benefits.” People who are at least 18 years of age, have earned the required credits (around $52,000 in previous earned income), and have a physical ailment that is included on Social Security’s list of disabilities are eligible for Social Security disability benefits until they are able to return to work[2]. Social Security payments can be received through a direct deposit to your bank account, or via a check sent to your home.

The future of Social Security

In theory, the Social Security program can fund itself indefinitely because the working generation is constantly producing enough money to support retirees and the disabled. However, as the retired population continues to grow exponentially relative to the size of the workforce, serious doubts about the program’s sustainability have emerged. While there are competing opinions on the extent of this problem, there is a consensus that future Social Security payments will not be enough to support coming generations of retirees unless there is significant reform.

Because retirement can be a vulnerable financial situation, it’s best to not take chances in this regard. That’s why investing in your retirement future is so important. Social Security can be a helpful contribution to your retirement income, but it may not be enough to sustain your desired quality of life. Make sure when developing a plan for your retirement that you view Social Security as an additional benefit and not a requirement.


[1] https://www.fool.com/retirement/general/2015/02/22/the-average-american-takes-social-security-at-this.aspx
[2] https://www.ssa.gov/planners/disability/dqualify.html
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