How Social Security Works

An Overview Of Social Security

The Social Security program is based on contributions that working Americans pay into the system. While employed, your contributions are made through FICA (Federal Insurance Contributions Act) taxes that are withheld from your paychecks.

To be eligible for Social Security Retirement Benefits, you must accumulate work credits. Your earnings determine the number of Social Security credits you receive each year with a maximum of four credits per year. If you were born in 1929 or after, you need a total of 40 credits (10 years of work). These credits remain on your record even if you change jobs or stop working for a while. When you retire, your monthly benefit is based on your highest 35 years of earnings.

Keep in mind, Social Security was never intended to be the only source of income for retirees. It is estimated that Social Security replaces about 40 percent of an average worker’s income after retiring. In fact most financial advisors say you’ll need 70 percent or more of your pre-retirement earnings to live comfortably after you retire.