The Social Security benefit program is officially called OASDI – Old Age, Survivor, and Disability Insurance. As the name suggests, it consists of two parts – the disability income part, and the retirement income part.
Funding for Social Security
The program is funded by payroll taxes under the Federal Insurance Contributions Act (FICA). The combined FICA rate is 7.65% of your gross pay, matched by your employer. Technically, the Social Security portion is 6.2% and the Medicare portion is 1.45%, totaling 7.65%.
The Social Security wage base for 2026 is $184,500 (up from $176,100 in 2025). This means the 6.2% Social Security tax applies only to earnings up to $184,500 – once you cross that threshold, only the 1.45% Medicare tax continues with no wage cap. The maximum Social Security tax withheld from an employee’s pay in 2026 is $11,439, matched equally by the employer. There is an additional 0.9% Medicare surtax that applies to individual earnings above $200,000 ($250,000 for joint filers).
By law, any excess of revenue that Social Security receives must be loaned to the General Fund of the Treasury. There is no lockbox, per se. The question of Social Security’s long-term solvency is addressed in the third blog in this trilogy.
As with any Federal program, the rules surrounding OASDI are detailed and complex. The intention here is to provide a good, broad overview.
Coverage Requirements
In order to be covered, one must have 6 quarters of creditable coverage for disability income, and 40 quarters of coverage for retirement income. The definition of disability is very strict under Social Security: you must not be able to perform any gainful work. There is a 5-month waiting period before benefits are paid (retroactively to filing date), and the disability must have lasted for 12 months or be expected to do so. After 24 months on Social Security disability, one also qualifies for Medicare benefits, even if well short of age 65.
How the Benefit Is Calculated
The retirement benefit is based on the worker’s Primary Insurance Amount (PIA). This is a calculation of how much of your earnings will go toward calculating your benefit. There are three important ages to remember: 62, NRA (Normal Retirement Age), which is 67, and 70. Your full, or normal benefit, is paid at your NRA.
Years ago, NRA was age 65. Due to financial instability, Congress began phasing in a two-year rise in NRA. Those born in 1960 and later all have an NRA of 67. If you defer your retirement benefits until age 70, your benefit will increase by 8% per year over your NRA benefit. So three years of delay can increase a $2,000/month benefit to $2,519.42/month.
Should you defer your benefit until age 70? It depends upon your facts and circumstances. If there is no longevity in your family and you’ve perhaps had some health issues, consider getting it while you can enjoy it. On the other hand, if your parents are in their 90s and still sharp and enjoying life, consider delaying. Basically, Social Security reserves a pool of money for you. If they pay out a larger amount over a shorter period of time, statistically they are paying out the same amount of dollars. But if you live past the life expectancy tables, deferral is a good deal for you.
Retirement Before NRA
There is a reduced benefit available at age 62. The reduction in benefit can be calculated without too much difficulty as long as the worker’s PIA is known. Multiply the PIA by the number of months before age 65, divided by 180. For example, if your PIA is $2,000 and you want to retire 12 months before your NRA, the calculation is $2,000 × 12/180 = $133.33 reduction. Your monthly benefit would be $1,866.67 rather than the full $2,000.
There’s another important consideration involved in drawing Social Security before NRA: potential loss of benefits if you keep working. Once you’ve hit NRA, you can draw your full benefit and also earn all you want with no penalty. But before NRA, two rules apply:
- Under NRA all year (2026): The government deducts $1 from your benefit for each $2 you earn above $24,480. For example, if your benefit is $1,000/month and you earn $48,480, the government will withhold 100% of your Social Security check, because you’ve earned $24,000 above the threshold and they hold back half that amount ($12,000), which equals your entire annual benefit.
- In the year you reach NRA (2026): The government withholds $1 for every $3 you earn above $65,160 (for earnings in months before you reach NRA).
Once you’ve attained NRA age you can work and earn all you like without affecting your benefit.
Consider carefully the wisdom of early election of Social Security! Retirement can easily last 30 years or even longer, and a reduced benefit that may be sufficient now may come up far short in later years. A separate issue is that the benefit may be taxable under the provisional income formula – addressed in a companion blog post.
Who Can Claim Benefits?
The insured retiree, of course. The retiree’s spouse is also entitled to a benefit if over age 62, has a child in care who is under age 16, or has a disabled child in care of any age.
The surviving spouse of a deceased worker can collect that worker’s benefit at age 60. A divorced former spouse can collect benefits on the worker’s PIA if over age 62, the marriage lasted at least 10 years, the divorce was more than two years ago, and the former spouse has remained single.
Generally, the spouse will choose between his/her own Social Security payment or that of the spouse, whichever is higher.
There are also benefits for a surviving spouse caring for dependent children. And yes – there is a death benefit: $255.00. For some reason, Congress has never indexed this amount.
Will Social Security Be There When You Retire? (Updated Outlook)
Here is the current picture:
The 2025 Social Security Trustees Report projects the combined OASI and DI Trust Funds will be depleted in 2034 – one year earlier than the prior year’s estimate.
The OASI (retirement) Trust Fund alone is projected to be depleted in 2033. At that point, incoming payroll tax revenue would cover approximately 77% of scheduled benefits.
The Congressional Budget Office (CBO) projects an even earlier depletion date of 2032 for the OASI fund, citing the impact of the One Big Beautiful Bill Act (which reduced income tax rates on Social Security benefits, lowering revenue into the trust fund) and the Social Security Fairness Act (which increased benefit payments).
If no legislative action is taken and the trust fund is depleted, benefits could be cut automatically by roughly 19–28% across the board – affecting all current and future retirees regardless of age or income.
This is not a prediction that Social Security will “disappear.” As long as workers are paying payroll taxes, money will continue flowing in. The shortfall is real but addressable with policy action – which Congress has done before (most notably in 1983).
Bottom line: Social Security is a central pillar of retirement planning, but you should not rely on it as your sole source of retirement income. Building savings through tax-advantaged accounts (401(k), IRA, Roth) remains essential. Work with a financial planner to model how different claiming ages and possible benefit adjustments affect your retirement income. Read the blog posts Will Social Security be There When I Retire and Taxation of Social Security Benefits.
Quick Reference: Key 2026 Social Security Numbers
- FICA wage base (Social Security): $184,500 (up from $176,100 in 2025)
- Social Security tax rate: 6.2% employee + 6.2% employer = 12.4% total
- Medicare tax rate: 1.45% employee + 1.45% employer (no wage cap)
- Additional Medicare surtax: 0.9% on individual earnings above $200,000
- 2026 COLA for existing beneficiaries: 2.8%
- Full Retirement Age (born 1960 or later): Age 67
- Delayed retirement credit (age 67–70): 8% per year increase
- Earnings test – below NRA all year: $24,480 limit; $1 withheld per $2 over limit
- Earnings test – year you reach NRA: $65,160 limit; $1 withheld per $3 over limit (pre-NRA months only)
- Death benefit: $255 (unchanged for decades)
- Trust fund depletion (Trustees 2025): OASI: 2033; Combined: 2034 (CBO: 2032)
