How Does Social Security Work? A Step by Step Guide

Do you have questions like “how does Social Security work?” Good news: we’ve got answers. Here’s Janney’s step-by-step Social Security guide.
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Most Americans only think about Social Security when it comes out of their paycheck. If you’re a senior, it may be an important part of your retirement income, but the fact is, most people don’t really understand what’s happening to their money or why they’re getting what they get. 

So how does Social Security work?


The truth is, it’s a little complicated, and employers and employees alike can benefit from having a basic understanding of the system. Here’s our step-by-step guide to the inner workings of Social Security.

Social Security 101

Before we get started, what is Social Security, anyway? We use our SSN all the time, but many Americans don’t really know what it’s for. 


Social Security refers to the United States’ Old-Age, Survivors, and Disability Insurance program (OASDI). That program is administered by a federal agency called the Social Security Administration (SSA).


In the public eye, Social Security is closely associated with retirement benefits, but that isn’t the only type of support handled through the program. The SSA also distributes survivor benefits and income for disabled workers and. As of early 2023, over 70 million Americans received help through the SSA.

How Social Security Works

At its heart, Social Security is simply another type of insurance as well as a national pension plan. We pay taxes to fund it, and the government distributes benefits. Here’s a step-by-step breakdown of the Social Security system:

  1. While they are actively working, employees pay into Social Security (via payroll withholding, in most cases). Social Security taxes for self-employed people are handled along with their federal tax returns.
  2. The money set aside by workers goes towards two Social Security trust funds. These funds are known as the Old-Age and Survivors Insurance Trust Fund (which stores savings for retirees) and the Disability Insurance Trust Fund (which handles savings for disability beneficiaries).
  3. A six-member board of trustees controls both of the aforementioned SSA trust funds. The first four board members are the Commissioner of Social Security and the secretaries of Health and Human Services, the Treasury, and the Department of Labor. The other two members are public representatives the president appoints and the Senate confirms.
  4. If they have paid into Social Security for at least ten years, workers can start taking advantage of early retirement benefits when they reach the age of 62. They’ll get even better monthly benefits by waiting until their “full retirement age” (either 66 or 67, depending on the time of year they were born). Waiting until 70 to collect retirement benefits can give workers yet another increase, but there’s no incentive to wait longer.

Understanding Social Security Benefits

Now that you understand the system, how do you take advantage of the benefits you might be eligible for? Each of the three branches works a little differently. 

Retirement Benefits

As we touched on earlier, retirement benefit distribution is what the SSA is most widely known for. People other than the retiree in question can sometimes receive retirement-related benefits. For example, a retiree’s spouse can claim benefits based on their spouse’s earnings record or their own. (Even if they’re divorced, they can claim benefits based on their ex-spouse’s earning record if they were married for at least a decade and are not currently wed). Meanwhile, children of a retiree can receive benefits up until the age of 18.


Applying for retirement benefits through Social Security is easy—just visit the SSA’s official website to get started. To be eligible, you’ll need to be at least 62 and have paid into Social Security for a minimum 10 years. Along with that, you’ll be asked to provide personal information such as your recent employment history, bank account info, and (of course) your Social Security number.

Disability Benefits

Along with retirement benefits, the SSA distributes disability benefits to people unable to work due to physical and mental disabilities that are expected to last longer than a year or result in death. Qualification for these benefits depends on various earnings tests. Some family members of workers with disabilities may be eligible for disability benefits, too.


Just like retirement benefit applications, you can apply for Social Security disability benefits online. Before applying, make sure you fit the eligibility requirements described above. You’ll also want to collect some medical information, including phone numbers for your doctors and hospitals, a list of medications you take, and details about any workers’ comp benefits you receive.

Survivor Benefits

The final Social Security benefit you should know about is survivor benefits, which are issued to the children, widows, and widowers of eligible workers. Surviving spouses who are 60 or older (or at least 50 with a disability) and have not remarried can collect these benefits. The same goes for children who are under the age of 18, or who have a disability.

If you meet the eligibility requirements for survivor benefits, you can apply for them online. Along with the usual information requests, you’ll be asked to provide info about your spouse’s birthday and Social Security number, where you got married, and the date of your marriage and/or divorce.

Get the Social Security Support You Need

Whether you’re a small business owner in charge of offering retirement benefits to your employees or a sole proprietor trying to figure out when you can retire, building a plan for your financial future is crucial. Of course, understanding the basics of Social Security is a big part of retirement planning. If you’ve been asking “how does Social Security work?,” we hope this article has given you a solid starting point.

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