Social Security is an important part of America's social safety net and provides financial assistance for millions of retired and disabled individuals and their families (that’s right- it’s not *actually* just older people who benefit from this program). You may not think this affects you, but you’ll soon find (if you haven’t already) that you’re likely one of the funders of Social Security- and it’s always good to know something about what you’re paying for, right? You’ll likely also receive it down the road, so you should know what it means for you and your retirement planning. Let’s get into it!

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What Is Social Security?

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Social Security is a federal program that offers retirement, disability, and life insurance benefits to eligible individuals and their families. Funded through payroll taxes collected from workers (like you!) and employers alike, about 1 in 5 U.S. residents (or about 66 million people!) receive Social Security benefits.

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Who Is Eligible for Social Security Benefits?

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Workers qualify for Social Security benefits based on their earnings history and contributions made over time, and others may even become eligible based on family circumstances, such as spouses and children who depend on them for support. For retirement benefits, an individual needs to be at least 62 and have worked and paid Social Security taxes for 10 years or more. It’s important to note that Social Security benefits are progressive, meaning that while higher earners will receive a larger monthly payment amount of social security benefits, those with lower earnings will receive a higher percentage of their earnings (about 50% of their income compared to higher earners who will only receive about 30%). Unlike some private pensions, social security is adjusted with inflation, meaning that it increases as the cost of living increases; the Cost-of-Living Adjustment (COLA) helps ensure this. Did you know that most American workers contribute to Social Security through payroll taxes, and almost all older eligible adults receive benefits (about 97%!)? This universal coverage ensures that people at all income levels have access to retirement, disability, and survivor benefits.

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Social Security is especially important for people of color. Racial disparities in education, healthcare, and housing lead to a significant wealth gap between retirees of color and their white counterparts. Black and Latino workers are statistically less likely to receive private pensions and are more likely to become disabled, increasing their dependence on Social Security. Women tend to benefit more than men when it comes to Social Security; they live longer and are also paid less on average. Due to childcare needs and limited support for maternity leave in the public sector, women are more likely to take time out of the workforce, which also impacts their lifetime earnings. Due to these factors, women generally get a higher percentage of benefits and are able to take advantage of the cost of living adjustments for longer periods of time as they live longer than men (70% of beneficiaries over 90 are women!)

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Types of Benefits

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Social Security's most well-known component, retirement benefits, is probably what you think of when someone says Social Security (if you think about it at all, which you probably don’t). For many Americans, Social Security provides a significant portion of their retirement income. It serves as a safety net, making sure that retirees have a steady stream of income to support themselves after leaving the workforce. Eligible individuals can begin receiving partial retirement benefits as early as age 62; full retirement ages vary depending on when one was born. This is the biggest piece of the Social Security puzzle, but remember that it goes further than just retirement and provides benefits to those unable to work due to a severe and long-term disability. In order to be eligible for those benefits, individuals must meet specific medical criteria and have worked and paid into Social Security systems throughout their working lives. Similarly, survivor benefits provide financial support to eligible family members following the death of a worker, providing necessary financial security to dependants after the loss of a loved one.

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Social Security Numbers

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Each U.S. citizen and eligible resident receives their own Social Security number as their identifier for Social Security benefits and other government programs. It is vitally important to protect this number- others can use it to commit identity theft or fraud. Never give this number out unless you know it’s a trusted program or person.

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Benefit Calculation

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Your Social Security benefits will depend on your lifetime earnings adjusted for inflation. The more you earn, the higher your benefits will be- but only up to a certain amount. As of March 2024, the average Social Security payment was $1,774.83. Curious about how much your benefits might be once you retire? Take a look at the benefits calculator (you’ll have to do some guessing on your future earnings, but it’ll give you an idea of what retirement support might look like!) Keep in mind that other supports like Medicare premiums can be taken out of social security benefits, reducing the amount. The short story is that you shouldn’t plan to solely depend on Social Security payments to keep you afloat in retirement- they’re not huge checks. The US falls well below the average public pension benefits when compared to other developed countries. 

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Future Sustainability

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Social Security faces challenges due to its aging population and shifting demographics. Younger generations are having fewer children and living longer, meaning there are fewer workers who are paying for the benefits to a larger number of beneficiaries (if you ever hear a Boomer complaining about “kids today!” remind them of who’s funding that Social Security check). Because of this, policymakers are considering different proposals to make sure Social Security won’t run out of funds, such as raising the retirement age or increasing payroll taxes. Social Security provides an essential safety net, but supplementing it with other retirement savings and planning is key for a secure financial future- especially with its sustainability in question. Saving early can help build wealth that reduces reliance on Social Security benefits in retirement. 

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Social Security plays an important role in providing financial security to millions of Americans throughout retirement, disability, and survivor support. For high school students planning for the future, understanding its key facts and benefits are an essential (if slightly boring) tool in making well-informed financial decisions. By becoming familiar with its key concepts you can take steps toward building a solid financial foundation where Social Security is a retirement bonus, not a necessity.