Benefits and Your Income. Benefits for Spouses. Benefits for Dependents, Survivors, After Divoce. Immigrants, Non-Citizens, Americans Abroad. Smart Benefits Strategies. Table of Contents Expand. What Is Social Security? When Am I Eligible? How Is Eligibility Determined? How Much Will I Get? What's the Spousal Benefit? Do I Owe Taxes on Benefits? How Do I Apply for Benefits? How Does the System Work? Is Social Security in Trouble? Key Takeaways Social Security income is a popular and important public pension system in the U.
Americans become eligible for full Social Security benefits at age 62, but benefit amounts depend on how early you elect to start. The age at which full retirement benefits are paid is 67 for people born in or after, and 66 for those born from to For those born from to , the age increases annually by two months.
Spouses are eligible for benefits even if they never worked for pay. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
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Social Security benefits are payments made to qualified retirees and disabled people, and to their spouses, children, and survivors. Benefits amounts were calculated on the assumption that most workers will stop working full time and will claim retirement benefits when they reach age Now that people are generally living longer, Social Security's rules about what is considered full retirement age have changed.
Age 65 is still considered full retirement age for anyone born before But full retirement age gradually increases from age 65 to 67 for people born in or later. For anyone born after , the full retirement age is The system does provide for early retirement at age 62, but also offers higher benefits for people who wait to make their claims after reaching full retirement age. You may qualify for more than one type of Social Security benefit at a time, but you can collect just one. For example, you might be eligible for both retirement and disability, or you might be entitled to benefits based on your own retirement as well as on that of your retired spouse.
You can collect whichever one of these benefits is higher, but not both. You are eligible for dependents benefits if both you and your former spouse have reached age 62, your marriage lasted at least ten years, and you have been divorced for at least two years. This two-year waiting period does not apply if your former spouse was already collecting retirement benefits before the divorce. You can collect benefits as soon as your former spouse is eligible for retirement benefits.
He or she does not actually have to be collecting those benefits for you to collect your dependents benefits. If you are collecting dependents benefits on your former spouse's work record and then marry someone else, you lose your right to those benefits.
You may, however, be eligible to collect dependents benefits based on your new spouse's work record. If you divorce again, you can return to collecting benefits on your first spouse's record, or on your second spouse's record if you were married for at least ten years the second time around.
The amount of benefits to which you are entitled under any Social Security program is not related to financial need except for SSI -- Supplemental Security Income , but is based on the income you have earned through years of working, through jobs and self-employment. Social Security keeps a record of these earnings over your working lifetime and pays benefits based on the average amount earned. Your Social Security retirement benefits will vary depending on whether you claim them before or after your full retirement age , depending on the year you were born.
The longer you wait to start receiving payments, the higher your benefit amount will be. However, it's not always better to wait until your full retirement age to claim your Social Security benefits.
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The attorney listings on this site are paid attorney advertising. In some states, the information on this website may be considered a lawyer referral service. More ambitious privatization plans would divert half or more of the present Social Security payroll tax into private retirement accounts and slash Social Security payments available to young workers for example, those under age forty-five.
These plans would require borrowing or new federal taxes to pay for existing Social Security liabilities. The diversion of payroll taxes would starve the Social Security system of revenue, forcing the program to run huge deficits. To cover these deficits Congress would be forced to raise taxes or borrow funds. The need for extra taxes or borrowing would eventually shrink as pensioners collecting Social Security were replaced by pensioners who received benefits from the new private accounts, but this process would not be complete for several decades.
In the interim, the federal government would need to impose extra taxes temporarily replacing most of the lost Social Security taxes or sell a large amount of additional public debt. Any discussion of reform should begin by recognizing that the current retirement system is already a mixture of public and private plans. The public plan is universal but skewed toward protecting low-wage workers. Private or employer-sponsored plans cover about half the full-time work force, but they tend to leave part-time and lower-wage workers uncovered.
Advocates of privatization see a number of advantages in increasing the size of the private system and shrinking the size of the public one. For some proponents of privatization, ideological concerns are paramount. They are fundamentally opposed to public provision of retirement benefits. More common are people who see important economic advantages in privatizing Social Security.
They believe workers will receive larger pensions and the economy will grow faster under a private rather than a public retirement system. Finally, some advocates of privatization believe the United States is more likely to take needed steps to prepare for a rising aged population if the retirement system is reformed to include a bigger private role. A few critics of Social Security, who are particularly distrustful of public intervention, believe it is an unwarranted intrusion on personal freedom to require workers to contribute a fixed percentage of their pay to a retirement plan.
Libertarians who hold this view oppose all mandatory saving schemes for retirement, whether or not the retirement funds are placed in private accounts. Most advocates of privatization acknowledge that it makes sense to compel workers to save for old age, disability, and early death. In the absence of mandatory saving, many workers would save too little and could become destitute and be forced to rely on public aid when they stop working.
Most privatization advocates believe that decisions about the investment of retirement saving are best left up to workers and their employers. Nearly all advocates of privatization try to appeal to these interests.
They argue that pension contributions would be more affordable or benefits more generous if the nation moved toward a private retirement system. Stated crassly, most workers could expect a better deal under a private system than they can obtain under Social Security. This argument is based on a straightforward calculation. If workers invested Estimates are displayed for workers born in a variety of years who earn steady wages at three different earnings levels.
The low-wage worker is assumed to earn roughly the minimum wage; the average-wage worker earns the average covered earnings under Social Security; and the high-wage worker earns about two-thirds of the maximum taxable wage.
The Actuary then computed the interest rate that would be required so that the discounted value of real tax payments would be exactly equal to the discounted value of real benefit payments. Two facts about Social Security stand out in figure 2. Low-wage workers get a better deal than high-wage workers, and workers born before get a much better deal than workers born later.
Even more striking than the disparity between low-wage and high-wage workers is the difference in returns enjoyed by people born before and after The high return enjoyed by workers born before helps explain the current popularity of Social Security, especially among older voters. In particular, workers born around enjoyed two pieces of good fortune. When they entered the work force in the early s, the combined employer-employee tax rate was just 2 percent.
More recently, the tax rate has been raised to cover much more generous pensions to a far larger number of retirees. Workers born in , for example, faced a combined contribution rate of People born in were also fortunate in enjoying rapid wage growth throughout most of their careers.
Real annual earnings climbed 2 percent a year between and , rising about percent over four decades. Rapid growth in real wages produces a good rate of return in a pay-as-you-go pension system. Unfortunately, real wage growth slowed dramatically in the mids. The economy-wide average wage did not grow at all in the twenty years from to Slow wage growth will be reflected in slow growth in pensions and a lower rate of return on Social Security contributions for future generations of retirees.
In fact, because taxes will have to be hiked or benefits cut to keep Social Security solvent, workers born after will probably receive lower returns than those shown in figure 2. Many advocates of privatization believe that full or partial privatization will boost U. The low rate of capital accumulation contributes to the slow growth of national income and wages. If saving could be increased, income growth would accelerate, making it easier for the nation to afford the extra burden of supporting a large retired population in the next century.
Unlike the present Social Security system, which is largely financed on a pay-as-you-go basis, a private retirement system would involve huge accumulations of assets in individual retirement accounts. Because workers would be setting aside a percentage of their pay in private accounts for their own retirement instead of sending in contributions that are immediately spent on pension payments, the introduction of a privatized system could lead to a jump in saving.
In theory, national saving can be raised within the existing Social Security system, even if there is no move toward privatization. This could occur if Congress raised the present contribution rate or reduced benefits, increasing the annual surplus of the program. The Social Security trust funds would accumulate larger reserves than are anticipated under current law.
Instead of accumulating assets in tens of millions of individual retirement accounts, as in a private system, the saving would take place in a single public fund.
Advocates of privatization doubt, however, that the funds accumulated within a public fund would actually be saved. They fear Congress would use the funds to finance growing deficits in other government accounts, such as Medicare.
In the absence of larger Social Security surpluses, the Congress would be forced to deal with the deficit in other programs, either by curtailing spending or by increasing taxes. A larger surplus in Social Security makes it easier for Congress to avoid this unpleasant choice. Privatization advocates therefore think it is safer for the accumulation to take place in tens of millions of privately owned accounts, outside the reach of a revenue-hungry Congress. Privatization also offers a politically acceptable method of managing the accumulation of huge reserves and corporate stocks.
In a system where the accumulation takes place in a single public system, legislators and public officials would be responsible for allocating the funds among investment alternatives and across individual companies.
Their investment decisions might be guided by political rather than economic considerations, reducing the yield of the investments, diverting investments into unproductive uses, or intruding on the business decisions of company managers. In a private system of individual accounts, decisionmaking authority over the accumulation would rest on the shoulders of millions of workers. Through their choices among investment alternatives and specific investment funds, workers and private fund managers rather than public officials would exercise ultimate authority over the allocation of investments.
A private retirement system, with its broad dispersion of asset ownership, also has an advantage over a public retirement fund when it comes to accumulating corporate stocks. The U. If retirement asset accumulation took place within a single public fund and if the public fund owned shares in thousands of companies, Congress or public trustees would have to decide how these shares should be voted.
Voting decisions might be determined by political rather than economic criteria, possibly reducing the efficiency and profitability of American business. Some advocates of privatization also maintain that voters would be more willing to accept an increase in their combined contribution to the retirement system if percent or more than percent of their extra contribution took the form of deposits into individually owned and managed investment accounts.
While voters would reject a hike in the payroll tax, they will tolerate — and may actually welcome — compulsory saving in individually owned accounts. This argument for privatization is essentially pragmatic. Because the work force is growing older, it is important to raise national saving. Voters and Congress are more likely to take the steps needed to increase saving if workers have direct ownership of their extra contributions to the retirement system.
This fear is exaggerated but not completely unfounded. In order to pay promised Social Security benefits, the future contribution rate must be increased. Future voters might balk at paying higher taxes, and benefits would then have to be cut. The expected revenues of Social Security will fall short of expected benefit payouts by 14 percent over the next seventy-five years, a shortfall that is equivalent to 2.
By benefit payments would need to be cut nearly one-quarter to keep the program solvent under the present payroll tax. This does not mean Social Security pensions must eventually be eliminated, as some young workers fear, but it does mean their taxes must be increased or their benefits cut if the system is to be preserved. The two main economic arguments in favor of privatization are that it would increase real returns on pension contributions and boost national saving.
Both arguments are valid, for some forms of privatization, assuming the public system to be dismantled is financed on a pay-as-you-go basis. There is no reason, however, that public retirement benefits must be supported with pay-as-you-go financing.
The important distinction is between advance funding and pay-as-you-go financing, not between public and private management of investment funds.
Millions of employees of state and local governments have advance-funded pensions, and their pension funds are publicly managed. Advance funding, combined with a more aggressive investment strategy, can offer a higher return to current and future contributors.
The larger accumulation in pension funds, whether they are publicly or privately managed, can boost national saving.
If the reserve were invested in the same mix of assets that would be selected by workers, it would earn an identical rate of return. The net return would actually be somewhat higher, because the expense of maintaining a single public fund is considerably smaller than the cost of administering tens of millions of private accounts, many of which would be extremely small. For Social Security to accumulate the same kinds of assets that workers would place in private retirement accounts, a change in Social Security investment strategy is needed.
By law, Trust Fund reserves are invested in U. Treasury debt where they earn the rate of return on publicly held U. Workers seeking a high return on their retirement savings invest in other types of assets in addition to government securities. Based on the experiences of workers who invest in k pension plans, the Advisory Council estimates that 55 percent of the retirement savings of workers under age forty would be invested in equities.
One of the three plans outlined by the Advisory Council proposed investing up to 40 percent of Trust Fund reserves in corporate stock, increasing the expected rate of return on reserves by about 1. The Social Security Actuary has calculated the rate of return that workers can anticipate under the current system and under alternative systems proposed by the Advisory Council. These calculations are helpful in understanding the potential gains from privatization and how they are achieved.
Figure 3 shows the expected rate of return of an average-wage worker under two alternatives. One alternative assumes workers will continue to receive Social Security benefits under the present benefit formula but that taxes will eventually be raised starting in to ensure that the OASDI Trust Funds are never depleted. This strategy keeps Social Security solvent, but it reduces the rate of return received by younger workers, because they must make larger contributions to obtain the same amount of benefits.
Figure 3 shows that the rate of return under this policy will decline continuously for workers born in successive generations. Average-wage workers born in will typically receive a return of just 1. The second alternative assumes that 5 percent of the present payroll tax is diverted into private retirement accounts; an extra 1. The Actuary assumes that almost half of the funds in private retirement accounts will be invested in stocks and that stocks will yield an annual real return of 9.
For workers born in , the rate of return under the partially privatized system is predicted to exceed the return under a solvent OASDI system by 2 percentage points.
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