Social Security

What Are Social Security Benefits?

What Are Social Security Benefits?

Social Security benefits are payments made by the Social Security Administration (SSA) to qualifying retirees and other qualifying individuals.

Michael Schultheiss

Published August 13th, 2020

Updated December 16th, 2020

Table of Contents

Key Takeaways

  • Social Security benefits are payments made by the Social Security Administration (SSA) to individuals enrolled in one or more of several social insurance and welfare programs.
  • By far the largest number of people who are collecting Social Security benefits are doing so as retirees, and retirement benefits are the most significant type of Social Security benefit.
  • There are several other types of Social Security benefits, including programs for widowed spouses, dependent minors, and certain disabled individuals.

Social Security benefits are payments made by the Social Security Administration (SSA) to qualifying retirees and other qualifying individuals. Social Security is a government program designed to provide partial income in retirement to retirees, and to provide sources of income for other specific categories of persons who may be in need: surviving spouses of a deceased qualifying ex-spouse, children of beneficiaries, and certain disabled persons.

The original Social Security Act was signed into law by President Franklin Delano Roosevelt in 1935. The current form of the law has been amended, and now includes several different social insurance and social welfare programs.

Social Security can be an important part of your retirement income, but it’s not a good idea to rely on it exclusively. Talk to a Certified Financial Planner® to see what your retirement options are, and when you should consider taking your Social Security benefits.

How Social Security Benefits Work

Social Security benefits, or SSA income, are funded by payroll taxes under the Federal Insurance Contributions Act (FICA) tax, or the Self Employed Contributions Act (SECA) for those who are self-employed.

The taxes are collected by the Internal Revenue Service (IRS), and the money is given to the Social Security Trust Fund. The Trust Fund in turn is made up of two funds: the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund.

You will qualify for Social Security benefits as you pay into the program. As you do so, you will earn “credits” for inflation-adjusted earnings: $1,470 of quarterly earned income equates to one credit, for 2021. You can earn up to four credits a year. After accumulating 40 credits, you will be covered for full insurance, that is to say full Social Security benefits.

Types of Social Security Benefits

There are several different types of Social Security benefits, and they are paid out to beneficiaries for quite different reasons. It’s important to be clear about what type of Social Security benefits you may be eligible for, and to know what the criteria are for qualifying.


Retirement benefits are the main type of Social Security benefits. About 71% of all Social Security beneficiaries are receiving their benefits as retirees. This is the primary purpose of Social Security: to provide a source of retirement income for retirees who have paid into the system during their working lives.

You can begin collecting your Social Security retirement benefits at age 62. However, doing so will mean that your benefits will be permanently lower than if you wait until your full retirement age, and if you wait longer you can earn additional delayed retirement credits for every additional month you wait until you reach the age of 70.

Throughout your career, the Social Security Administration (SSA) will keep track of your earnings. When you retire, they will use your 35 top-earning years to determine what your average monthly indexed earnings (AIME) are. Once they have this figure, they apply a formula to arrive at your primary insurance amount (PIA), the amount you can expect to collect in Social Security benefits every month once you reach full retirement age.


People who have become totally disabled and thus removed from the workforce can qualify for Social Security disability insurance (SSDI) benefits. Qualifying for these benefits requires a person to have a certain amount of work history depending on their age, provide that they can no longer work in their previous occupation, are unable to adjust to new work, and will not be able to work again for at least a year because of their disability.

Survivor Benefits

In the event of the death of a spouse, the surviving spouse has the legal right to receive 100% of whatever Social Security benefit is higher, their own or their deceased spouse’s. If the surviving spouse is not yet at full retirement age, they qualify for a prorated amount beginning at age 60. At full retirement age, they then become eligible for their spouse’s full benefit amount or their own – again, whichever of the two is higher.

Supplemental Benefits

If you’re wondering “what does SSI mean?,” the answer is that Supplemental Security Income (SSI) is a type of Social Security benefit provided for people who are blind, disabled, or 65 years old and over, and who also have limited incomes and resources.

If you’ve searched for “SSI medical abbreviation,” it’d be more accurate to describe SSI as an abbreviation that is medically significant: it describes people with certain disability or age status and who have little income or resources.

SSI was created to provide a source of economic security for people who are either severely disabled or at full retirement age, and who have little in the way of income or resources. Qualifying for SSI can be a challenging process, and many people who do qualify have their initial claims denied.

However, if you or a loved one apply for SSI and are denied, you have a legal right to appeal the denial. You also have the right to have a representative assist you when you are seeking SSI benefits.

How and When Social Security Benefits are Taxed

In the event that your individual income exceeds $25,000, or if you are filing jointly with a spouse and your income is more than $32,000, you will need to pay taxes on your Social Security benefits.

The percentage of your benefits subject to taxation will depend on your income level. However, no one is required to pay taxes on more than 85% of their Social Security benefits, meaning that at least 15% - and for most people, more – of your Social Security benefits will not be subject to any taxation.

In most cases, disability benefits are tax-free. Also, if you have a child who receives dependent or survivor benefits, these will not count toward your own income for tax purposes.

Bottom Line

Social Security is a key source of income for many retirees, surviving spouses, and disabled persons. Social Security retirement benefits can be an important source of retirement income, but the age at which you start taking them will be a highly personalized decision that will have an impact on the amount of your benefits, along with other factors pertaining to your vision of retirement.

It’s a good idea to talk to a Certified Financial Planner® to see what your options are, when you should consider taking Social Security benefits, and what types of benefits you may qualify for.

Social Security





Social Security in 2021



Applying for Social Security

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Michael Schultheiss

Michael Schultheiss is a freelance copywriter of long-form content and other marketing communications (B2B and B2C) in the financial services and FinTech niches. In copywriting, he looks for hungry crowds. Other interests include health, fitness, and reading and writing fiction.

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