By Caitlin White / May 13, 2015

Social Security: Understanding the Basics


Social Security is an important—yet often confusing—concept for people approaching retirement. However, Social Security could be a critical component of your retirement income strategy. If you have questions about how it works, you are far from alone! It’s important to have a basic understanding of Social Security in order to maximize this benefit.

What is Social Security?

Social Security is a program of social insurance and benefits established by the federal government in the aftermath of the Great Depression in 1935. The Great Depression left countless senior citizens in poverty. As a response to this problem, Social Security was created to supply the aging with a guaranteed source of income.

How does Social Security work?

Nearly every worker has payroll taxes withheld from their paycheck, and the amount collected is placed into the Social Security Trust Fund. Once you decide to retire, you can begin receiving payments out of this fund. The amount of your monthly payment is determined by several factors, including your age and your adjusted average salary from your highest-paid 35 years in the workforce.

When can I start collecting Social Security?

The minimum age for collecting Social Security is 62. However, there are earning limits once you begin collecting. In 2015, for every dollar you make over $15,720, the Social Security Administration deducts $1 from your benefits payment for every $2 you earn. The “full retirement age” for people born between 1943 and 1954 is 66. See your full retirement age at

How can I maximize my Social Security benefit?

Although you are able to collect Social Security once you turn 62, your monthly payments and your total payment over all the years you live in retirement will be greater if you postpone collecting. However, there is not a one-size-fits-all solution. If you are healthy or can afford to wait, it may make sense to postpone filing. The longer you wait to file, the larger your monthly payments will be.

What is the future of Social Security?

Concerns about Social Security running out may be exaggerated, but its future is unclear. Trustees managing the Social Security Trust Fund anticipate that the fund will run out of reserves by 2033.1 Should that occur, Social Security benefits are expected to be paid at 77%.

Why it’s important to plan ahead.

Having a secure and comfortable retirement takes planning, even if you have many more years or decades in the workforce. Social Security will only be part of your retirement income strategy—you may have a pension plan that will provide you with a guaranteed source of income as well. But for many people today, an employer-sponsored retirement plan, such as a 401(k) or 403(b), will be the most important source of income in retirement. If your employer offers such a plan and you are an eligible participant, start saving today. Even a small amount can make a tremendous difference over time.

Ready to file for Social Security?

Visit or call 800-772-1213 to locate your local Social Security office. Reminder: You must be at least 61 years and 9 months old to apply—benefits may begin as early as age 62.

Looking for more help to determine your options?

If you are within two to five years of retirement, call a Transamerica retirement counselor at 866-300-0028.

Read more articles about retirement.

1“Dan Caplinger, “Three Social Security Myths Debunked,” USA Today, October 26, 2014.