Social Security
Social Security is a federal insurance program that provides retirement, disability, and survivor benefits to eligible workers and their families, funded through payroll taxes and representing the single largest source of retirement income for most Americans.
Social Security, formally the Old-Age, Survivors, and Disability Insurance (OASDI) program, was established by the Social Security Act of 1935 and has been the bedrock of American retirement security for nearly a century. Nearly all workers in the United States pay Social Security taxes (6.2% of wages up to the wage base, matched by employers) and earn credits toward benefits. In 2025, workers earn one credit for each $1,810 of covered earnings, up to four credits per year; 40 lifetime credits (roughly 10 years of work) are required to qualify for retirement benefits.
The amount of your Social Security retirement benefit is based on your average indexed monthly earnings (AIME) over your 35 highest-earning years, adjusted for wage inflation. A progressive formula — the primary insurance amount (PIA) formula — replaces a higher percentage of income for lower earners. In 2025, the formula replaces 90% of the first $1,226 of AIME, 32% of AIME between $1,226 and $7,391, and 15% of AIME above $7,391 (these 'bend points' adjust annually).
Full retirement age (FRA) is 67 for anyone born in 1960 or later. Benefits can be claimed as early as age 62, but are permanently reduced by up to 30% compared to the FRA benefit. Delaying beyond FRA earns delayed retirement credits of 8% per year (two-thirds of 1% per month) up to age 70, producing a benefit up to 24% higher than the FRA amount. The decision of when to claim is among the most consequential financial decisions a retiree makes, affecting decades of retirement income.
Social Security benefits are partially taxable for higher-income retirees. Up to 50% of benefits may be taxable if 'combined income' (adjusted gross income plus non-taxable interest plus half of Social Security) exceeds $25,000 for single filers or $32,000 for married filing jointly; up to 85% is taxable above $34,000 (single) or $44,000 (married). These thresholds have not been indexed for inflation since 1983, drawing a growing share of beneficiaries into taxation. Coordinating Social Security claiming strategy with Roth conversions and other retirement income sources is a sophisticated but high-value element of retirement planning.