Social Security is the foundation of most retirement plans, but it was never designed to be the whole plan. The program’s benefit formula was structured to replace roughly 40% of pre-retirement income for an average earner. That leaves about 60% to come from somewhere else.
For Americans with a traditional pension, it typically fills a large part of that gap. For everyone else, and that’s most people today, given the long decline of defined-benefit pensions, the other 60% has to be built from savings, investments, and increasingly, from retirement tools specifically designed to generate reliable income for life.
This guide covers how Social Security benefits actually work, how to decide when to claim, how to optimize survivor and spousal benefits, and how to think about the income gap that sits on top of the benefit itself.
What Is Social Security?
Social Security was created during the Great Depression to provide for the material needs of individuals and families, protect the aged and disabled from poverty, and help families and children who are struggling.
The U.S. Social Security Administration (SSA) estimates that more than 69 million Americans receive monthly Social Security benefits. This adds up to more than a trillion dollars annually. As of the end of 2025, around 90% of Americans aged 65 and older were receiving Social Security.
Key Facts About Social Security
- You must earn 40 work credits to qualify for Social Security retirement benefits (you can earn four per year)
- Your monthly benefit is determined based on the age when you claim benefits and average inflation-adjusted earnings during your highest 35-earning years.
- Full retirement age is based on birth year and is 67 for anyone born in 1960 or later
- Social Security trust funds may run short of cash by 2034. However, potential changes by Congress could secure funding for the future.
“Social Security is the foundation of a sustainable or successful retirement income,” Marguerita M. Cheng, CEO of Blue Ocean Global Wealth, said during an Annuity.org webinar. “There’s lifetime income, it’s inflation-adjusted.”
The 40/60 Reality: What Social Security Was Designed to Cover, and What It Wasn’t
When the Social Security Administration explains the program’s benefit formula, they don’t describe it in dollars. They describe it in replacement rates — the percentage of pre-retirement earnings that benefits are intended to replace. The agency’s own published guidance states that Social Security is designed to replace approximately 40% of pre-retirement income for an average earner.
That 40% figure hides important variation.
- Lower-earning workers receive a replacement rate closer to 50–55% (the benefit formula is progressive by design).
- Higher-earning workers, particularly those whose incomes exceed the annual Social Security wage cap, often receive replacement rates closer to 25–30%.
The 40% average applies to the middle of the distribution.
Most retirement planning guidance suggests a total replacement target of 70–85% of pre-retirement income to maintain the retiree’s standard of living. That’s because mortgages are often paid off, commuting costs drop, and tax rates generally fall. Still, the target sits well above what Social Security alone provides, regardless of earnings level.
What the math looks like at three income levels
| Pre-retirement income | SS replacement rate (approximate) | Expected SS benefit (annual) | Remaining gap to hit 75% replacement |
| $50,000 | ~45% | ~$22,500 | ~$15,000 |
| $80,000 | ~38% | ~$30,400 | ~$29,600 |
| $150,000 | ~28% | ~$42,000 | ~$70,500 |
For retirees who don’t have a defined-benefit pension, a growing majority, the gap in the far-right column is what has to be funded from savings, every year, for the rest of retirement.
A $30,000 annual gap that needs to last 25 to 30 years represents roughly $750,000 to $900,000 of cumulative income, without accounting for inflation. That’s the scale of what sits on top of Social Security.
Who Can Claim Social Security Retirement Benefits?
If you’re 62 years of age or older and have earned sufficient work credits, you can receive Social Security retirement benefits based on your earnings record.
Work credits are the building blocks that Social Security uses to determine if you’ve worked enough to be eligible for each type of benefit. In 2026, you earn one work credit for each $1,890 of earnings that you pay Social Security taxes on, up to the limit of four credits per year.
To be eligible for Social Security retirement benefits, you must earn 40 credits, so you must work and pay Social Security tax for a minimum of 10 years. Your family members who qualify for benefits on your work record don’t require work credits.
How Much Does Social Security Pay?
The amount you receive in Social Security benefits depends on your inflation-adjusted earnings during the highest 35 highest-earning years of your career, the age at which you start receiving benefits, and your work history, which can vary significantly from person to person.
You can begin receiving Social Security benefits when you turn 62 years old. But you’ll only receive your standard benefit if you wait until your full retirement age, which varies depending on when you were born.
Full Retirement Age
| BIRTH YEAR | SOCIAL SECURITY FULL RETIREMENT AGE |
| 1937 or earlier | 65 |
| 1938 | 65 and 2 months |
| 1939 | 65 and 4 months |
| 1940 | 65 and 6 months |
| 1941 | 65 and 8 months |
| 1942 | 65 and 10 months |
| 1943 to 1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or later | 67 |
You’ll draw even higher benefits if you put off your claim for Social Security retirement benefits until age 70. However, regardless of age, there is a maximum limit to how much you can draw each month.
Maximum Monthly Social Security Benefits by Age in 2026
| AGE | MAXIMUM MONTHLY BENEFIT |
| 62 | $2,969 |
| Full Retirement (67 for people born in 1960 or later) | $4,152 |
| 70 | $5,181 |
To get an accurate estimate of your benefits, you can create an account on the Social Security Administration’s website or contact your local SSA office.
Social Security COLAs and Inflation
Social Security relies on cost-of-living adjustments, or COLAs, to help benefits keep up with inflation. For example, the SSA raised Social Security benefits by 2.8% in 2026.
COLAs increase benefit payments as inflation rises, giving retired individuals more purchasing power. This helps safeguard them against the adverse effects of inflation on their fixed income.
“Having Social Security, which provides inflation-adjusted lifetime income, can be really helpful,” Cheng said.
Typically, COLAs are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W. But COLAs don’t always keep pace with inflation. This was especially true during the pandemic as inflation was surging. The 5.9% COLA in 2022 fell short of inflation since the beginning of the COVID-19 pandemic by an average of $1,054, according to a study from the Senior Citizens League.
While COLAs may not fully offset the impact of inflation, they still offer some financial stability to retirees.
When Should You Apply for Social Security
Claiming benefits earlier results in lower monthly checks, while claiming later results in higher monthly checks. That’s because the Social Security Administration wanted to equalize lifetime benefits for early and late claimers.
“When you start taking benefits at 62, and then you reach full retirement age, your benefit doesn’t just increase; you’re locking into the lower amount,” she said.
You’ll need to think about what makes the most sense for you when you decide on the right age to claim your benefits. “The decision about when to take Social Security is financial, but not just financial — there’s also personal circumstances,” Cheng said.
Your health, employment situation, whether you serve as a caregiver to your spouse, or any number of other personal factors, can impact when you choose to start taking Social Security benefits.
You can conduct a break-even analysis to decide what’s best. This involves comparing benefits at different claiming ages to see how long it would take to break even. For example, a $2,000 standard benefit at an FRA of 67 would become a $1,400 benefit if claimed at 62, but a $2,480 benefit if claimed at 70.
To conduct a break-even analysis:
- Determine the income you’d miss by waiting eight years to claim benefits ($1,400*12*8=$134,400)
- Divide this by the higher amount of monthly income you get from waiting ($2,480-$1,400 = $1,080 more per month).
- See how many months of higher payments it takes to make up for missed income ($134,400/$1,080)
In this case, it’s around 124.4 months. If you think you’ll live that long, a later claim is best.
How Do You Apply for Social Security Retirement Benefits?
You can apply for Social Security retirement benefits up to four months before you want to start receiving them.
But there are some things to consider before you start the process that may affect your retirement plans. These include determining the best time for your retirement and how long it will take to process your application.
- Gather Necessary Information
- Collect your Social Security number, birth certificate, and other relevant documents.
- Review Eligibility
- Check your eligibility for retirement benefits on the Social Security Administration (SSA) website.
- Decide on the Timing
- Determine the most suitable age to start receiving benefits: early, full retirement age, or delayed retirement. This affects how much you’ll receive each month.
- Apply Online, by Phone or In Person
- Apply for benefits online through the SSA website, call SSA at 1-800-772-1213 (TTY 1-800-325-0778), or visit a local Social Security office. Call the local office to make an appointment before you go in person.
- Complete the Application
- Fill out the retirement benefits application accurately. Include Supporting Documents (along with the application), such as your birth certificate or a marriage license.
- Await Decision
- The SSA will process your application and notify you of their decision and benefit amount, usually within six weeks.
- Start Receiving Benefits
- Once approved, you’ll start receiving your Social Security retirement benefits as scheduled.
8 Steps To Apply for Social Security
Building Your Own Private Pension on Top of Social Security
Deciding when to claim Social Security is only half of the equation. The question is what to do about the 60% that Social Security wasn’t designed to cover.
Three structural approaches dominate, and they’re worth evaluating against each other honestly:
- Systematic portfolio withdrawals. Many retirees follow a traditional “4% rule” approach. This involves holding a diversified portfolio, and withdrawing a fixed percentage each year adjusted for inflation (4% the first year, then adjusting for inflation). The advantages of this approach: It’s flexible, liquid, and leaves assets to heirs. The disadvantages: Income varies with markets, and a poor sequence of returns early in retirement can exhaust the portfolio before the retiree dies.
- Dividend income strategy. With this approach, you live on the dividend yield of a stock portfolio without drawing down principal. The advantages: It feels passive and preserves wealth. The disadvantages: Income isn’t guaranteed, and dividend cuts correlate with exactly the market stress periods when income stability matters most.
- Lifetime income annuitization. You can also convert a portion of savings into a lifetime income annuity — such as a SPIA, DIA, or income rider product — that pays guaranteed income for as long as the retiree (and/or spouse) lives. The advantages: Income is guaranteed. There’s no sequence risk, no market dependence, and no management required. The disadvantages: The annuitized portion is illiquid; payments depend on the issuer’s financial strength; and you give up potential upside.
The pragmatic answer for most retirees isn’t any single one of these approaches. It’s a blend: Annuitize enough to fill the essential-income gap that Social Security doesn’t cover (creating an income floor), and keep the rest invested for growth, liquidity, and legacy.
What Does It Cost To Fill the Gap?
Let’s take a look at a concrete example.
- At current SPIA rates, a 67-year-old male buyer can convert approximately $312,000 into $24,000 per year of guaranteed lifetime income.
- A 67-year-old female buyer needs approximately $327,000
- A joint-life contract covering two 67-year-old spouses needs approximately $370,000.. These figures assume standard life-only payout; adding a period-certain or COLA rider increases the premium required.
For a household with a $30,000 annual gap to fill (the middle case in the table above), the math works out to roughly $390,000 to $465,000 of savings being converted into lifetime guaranteed income — leaving the remainder of savings to keep compounding for growth and liquidity.
Social Security for Married Couples
Social Security benefits are a vital consideration for couples who are nearing retirement age and planning their finances.
If one partner earns less than the other, they may benefit from claiming spousal benefits instead of retirement benefits. These could add up to as much as 50% of the higher earner’s standard benefit.
However, the timing of claiming these benefits is crucial since claiming too early may result in long-term income reduction. Optimal strategies may involve:
- Both partners claiming benefits at full retirement age
- Utilizing a “split strategy,” where the higher-earning partner waits to claim Social Security for potentially higher benefits.
Delayed retirement credits can significantly increase benefits if both partners are in good health and willing to continue working.
Seeking guidance from a financial advisor can help navigate the complexities of Social Security and create a personalized strategy based on your individual circumstances and goals.
Social Security for Surviving Spouses
Survivor benefits are designed to maximize Social Security benefits for a widow or widower.
“You can’t collect more than one benefit at the same time, but you can receive a benefit based on your spouse’s working history,” Cheng said.
The amount of the benefit you receive will depend on your age and the amount of your and your spouse’s benefits. If one spouse dies, the surviving spouse is entitled to the larger benefit.
Cheng used her parents as an example. Her father is 14 years older than her mother, and their work histories mean that her father will receive a larger Social Security benefit. Regardless of which parent passes first, one source of income will go away.
“The smaller Social Security check will go away because the only way they can receive both checks is while they are alive on this earth,” she said.
If you have reached full retirement age, you can receive 100% of your late spouse’s benefit, but the amount will be lower if you claim it earlier. Additionally, you may be eligible for a one-time death benefit of $255.
There are exceptions for military duty-related deaths or if you are caring for young or disabled children.
You can’t apply for survivor benefits online or over the phone. You must apply in person at your local Social Security office. You will need to call ahead to make an appointment.
Will Social Security Run Out of Money?
The short answer: not in the way most people assume, and not on the schedule most people fear.
According to the 2025 Social Security Trustees Report, the combined trust funds that support retirement and disability benefits are projected to be depleted around 2034, depending on economic conditions.
If Congress takes no action before then, the program would not disappear. The Social Security tax that comes out of every paycheck continues to fund benefits. The trust funds are simply a buffer that covers the shortfall between incoming payroll taxes and outgoing benefits. When the buffer runs out, benefits would be payable at approximately 81% of promised levels based on payroll tax receipts alone.
That outcome is the worst-case scenario, and it’s still not the same as benefits disappearing.
In practice, Congress has addressed Social Security funding shortfalls before — most notably in 1983, when a bipartisan commission’s recommendations became law — and most political analysts expect Congressional action well before 2034.
The menu of options available to Congress is well-understood, with possible solutions including a combination of one or more of the following:
- Modest payroll tax increases
- Adjustments to the wage cap that currently exempts high earners from paying Social Security tax above $184,500 (as of 2026)
- Changes to benefit formulas
For retirees and near-retirees, the practical planning takeaway is that Social Security benefits are unlikely to disappear, but benefits at current promised levels are not guaranteed to continue without Congressional action.
A retirement plan that assumes 100% of promised benefits has a political-risk exposure. A plan that incorporates structural income sources outside Social Security — pensions, annuitized savings, other guaranteed income — reduces that exposure, regardless of how Congress ultimately addresses the trust fund shortfall.
Frequently Asked Questions
Social Security replaces about 40% of pre-retirement income. For most people, that’s not enough money to live on, and benefits should be supplemented by income from retirement accounts, a pension, annuities, or a combination of sources.
You can claim Social Security any time between the ages of 62 and 70. The best age to claim your benefits depends on many factors, including your health status, your other income sources, your chosen retirement age, and your goals for retirement. You should determine how long it will take you to break even for a delayed claim to make an informed choice.
Social Security’s trust fund is in danger of running short of funds around 2034. However, this does not mean the program will be out of money. There should be enough revenue coming from current workers to fund around 75% to 80% of promised benefits. Congress also has multiple potential ways to shore up Social Security and prevent benefit cuts.
Social Security generally replaces around 40% of pre-retirement income, although the benefits are progressive, so higher earners replace less of their income. Benefits are typically not enough to live on, and they should be supplemented with other income sources, as the recommended replacement rate is around 70% to 80% of pre-retirement earnings.
If you claim Social Security benefits early, you will shrink your standard benefit or primary insurance amount. Benefits are reduced for each month that you claim them prior to full retirement age. If your full retirement age is 67, your benefits will be reduced by 30% if you claim at 62.
Retirees received a 2.8% Cost of Living Adjustment in 2026 that resulted in an increase in their monthly benefits. This COLA is part of a planned change built into Social Security, and retirees receive increases in the majority of years when inflation shows prices are going up.
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