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Social Security: An in-depth guide to understanding the program.

in Managing Money & Credit, Planning for Retirement
Social Security

Social Security plays a crucial role in promoting financial stability and security for millions of Americans, making it an essential component of the social safety net. It’s a welcome benefit to many, including retirees, disabled individuals, and those who have lost a spouse or parent. This government program provides financial assistance to 66 million people (in the form of monthly checks) so they can afford their basic necessities and be rescued from poverty.

April is National Social Security Awareness Month

How Did the U.S. Social Security Program Start?

In the days of the Great Depression, Americans were spreading out across the land (putting many miles between them and their families) and medical advancements were being achieved (allowing people to live longer).

While increases in expansion and health were occurring, there was a growing crisis among the elderly population – many found themselves unemployed and in poverty.

As part of the New Deal, President Roosevelt signed the Social Security Act into law in 1935, providing retirement benefits to eligible workers based on their earnings history. The original age of eligibility was 65.

The benefits were funded through payroll taxes, originally set at 1% (matched by employers). In 1939, the program expanded to include benefits for widows and children, and in 1960, it further expanded to include provisions for disabled workers.

Other interesting facts regarding Social Security’s history include:

Why Is Social Security Important?

The program has faced political challenges from its conception. Some have argued that the program is unstable and have wanted the benefits to be slashed or the entire program privatized. Supporters of the program have stated that it’s an essential provision and have called for it to be protected and expanded.

Either way, the program offers the following benefits for recipients:

It protects the elderly, disabled, and families.

Social Security benefits are sometimes the only source of income for elderly individuals, and without them, many would be forced to live in poverty. Additionally, benefits are available for individuals who have become disabled and can no longer work, as well as for surviving family members who have lost their family’s primary wage earner.

Consider the following noteworthy statistics regarding Social Security beneficiaries:

It considers inflation.

As you may have gathered, payments have substantially increased due to the increased cost of living adjustments (COLA). Benefits are based on a version of the Consumer Price Index and typically increase a small percentage. In 2023, however, the COLA was a whopping 8.7%!

It supplements retirement income.

While it can prove challenging to live completely off of Social Security benefits, it does provide supplemental income to wage-earners in their retirement, thereby increasing the financial wellness of its recipients.

What Are the Key Retirement Ages?

Below are key milestone ages to pay attention to when planning your retirement:

  • Age 59 ½: You can begin withdrawing from your traditional IRA, SEP, or Simple IRA (while still working) without the additional 10% penalty
  • Age 62 (Early Retirement Age with Minimum Benefit): The earliest you can request your Social Security benefits, however, the payment will be smaller and if you continue to work while receiving the benefits, a portion (or all) of your payments could be withheld. (More on this below)
  • Age 65: Initial enrollment period for Medicare benefits. You can sign up for these benefits 3 months before your 65th birthday and up to 3 months after you turn 65.
  • Age 67 (Full Retirement Age with Full Benefit): You can receive full Social Security benefits if born in 1960 or later. Use this retirement calculator if you were born before 1960 to determine your full retirement age.
  • Age 70 (Delayed Retirement Age) with Maximum Benefit: You’re eligible for the maximum amount of Social Security benefits if you’ve delayed taking them thus far. Waiting beyond age 70 does not increase benefits.
  • Age 72: You’re required to start taking retirement distributions from your 401(k)s and traditional IRAs. If you are still working, you can delay the 401(k) distributions until you retire.

How Can I Qualify for Social Security?

Social Security benefits are dependent on multiple factors, including:

Your earnings history

To qualify for Social Security benefits, you must earn 40 credits over your lifetime. You can earn 1 Social Security and Medicare credit for every $1,640 you earn. You can earn up to 4 credits per year. To get 4 credits for the year, you must earn at least $6,560 in a year.

In summary, the minimum you would need to earn to qualify for benefits is $6,560 per year for 10 years. But of course, there are multiple ways to earn the 40 credits over your lifetime.

You will most likely earn more than the 40 required minimum credits in your working lifetime. Your benefit payout is based on your average earnings over your entire work history (while adjusting for inflation); it is not based on how many credits you earn.


If you become disabled before retirement age, you and your family could quality for Social Security disability benefits. You must have a medical condition (that is expected to last for at least 12 months or result in death) that prevents you from working. You must also have paid social security taxes for a certain amount of time.

Check out the Social Security Administration’s five questions to determine if you qualify for these special benefits.


If you have a spouse (who you were married to for at least nine months) or parent who paid Social Security taxes for a certain period, you may qualify for survivor benefits if they pass away.


Unmarried, divorced individuals who are at least age 62 may be eligible to receive Social Security benefits based on their ex-spouse’s working record. The marriage must have lasted for at least 10 years and the divorce must be at least 2 years old. Individuals in this category who qualify for their own benefits will receive the higher of the two payments, but not both.


There are special considerations for those who have chosen to care for their households (in lieu of a paycheck).

A married individual with no earnings history can receive up to half of their spouse’s Social Security benefits (known as the spousal benefit). If the individual does have some work history, they can choose to take the greater of the two benefits (your own or your spouse’s). Your spouse must be taking their benefits for you to receive your spousal benefits.

How Much Will I Qualify for?

Your exact payment is determined by numerous factors, such as how much you’ve earned over your entire life, the COLA increases, and the age you decide to start taking your benefits.

As of 2023, the absolute maximum benefit payment someone could earn if they began taking their benefits at 62 is $2,572, and if they waited until age 70, $4,555.

There are special provisions for low-income workers. The special minimum Social Security benefits calculation, created in 1972, looks at years of work, rather than earnings. Low-income workers who have worked for at least 11 years can qualify, with benefit ranges from $45.50 to $950.80 (depending on how many years they have worked.

Can I Still Work and Receive Social Security Benefits?

Yes; however, there are special rules and considerations. If you are younger than the full retirement age (age 67 for those born in 1960 and younger), your Social Security benefits will be temporarily reduced while you still work. Once you reach full retirement age, they will revert to full benefits.

To calculate your reduced benefits based on your age, use the Social Security Administration’s retirement earnings test calculator.

What Are the Tax Implications of Receiving Social Security?

At its conception, Social Security benefits were exempt from taxation. However, over the years, laws have been created to make these benefits taxable under some conditions, namely your level of income. In addition to Social Security benefits, other income may include wages, dividends, interest, and other taxable income.

  • For single individuals who file a federal tax return with an income between $25,000 and $34,000, 50% of their Social Security benefits may be subject to income tax. For single individuals earning over $34,000, up to 85% may be subject to income tax.
  • For joint filers, the threshold is $32,000 to $44,000 for 50%, and over $44,000 is 85%.
  • You can choose to make quarterly estimated tax payments to the IRS or have federal taxes withheld from your Social Security benefits.

In addition to federal taxes, some states require Americans to pay state income taxes on their Social Security benefits. For the 2022 tax year, these states included: Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

Where Can I Go for Information on My Social Security Account?

Curious if you’ve earned enough credits to qualify or how much your payment might be at the various retirement ages? Create a my Social Security account – a free online resource where you can:

  • Request a replacement Social Security card
  • Check the status of an application
  • Estimate future benefits
  • Manage current benefits

Though a popular and useful tool, many Americans have never checked their online statements. The Social Security Administration used to send out annual earnings statements in the mail but stopped in 2017. Instead, wage-earners can now check their earnings and plan for their retirement using their my Social Security account.

Partner with Lafayette Federal for Your Retirement Planning

Social Security benefits are just one part of a robust financial plan. To survive (and thrive) in your golden years, you need a strong financial plan to ensure your savings can support you when you need it.

Being financially prepared for retirement involves saving regularly (and early), setting realistic goals, and investing wisely to maximize your returns. You may even have the incredible goal of retiring early or giving back to your community!

At Lafayette Federal , we love educating our members on topics that put them on the financial road to success. We know what it means to work hard, navigate financial markets, and plan for the future. We provide tools and resources to help our members thrive at all stages of life, including retirement planning and much more!

Not a Lafayette Federal member yet? You can become a member by completing an online membership application.

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