What Is Social Security?

It’s an earned benefit, not a handout

Individuals qualify for Social Security by working and paying into the system through a dedicated tax on wages. It’s often mistakenly characterized as an “entitlement” program, but Social Security really works more like an insurance policy: You contribute to a pool of money from which you and family members draw payments when you or they become eligible.

That’s reflected in Social Security’s official name — Old Age, Survivors and Disability Insurance, often abbreviated on your pay stub as OASDI.

The Congressional Research Service estimates that 94 percent of U.S. workers contribute to the Social Security system through the 12.4 percent payroll tax. If you have a wage-paying job, you and your employer split the tax (called FICA, for Federal Insurance Contributions Act), each paying 6.2 percent. If you’re self-employed, you pay both shares.

The amount of income that is subject to the tax is adjusted annually, based on national wage trends. In 2026, you’ll pay the tax on work earnings up to $184,500.

It's a pay-as-you-go system

Social Security is not a personal retirement plan like a 401(k) or an individual retirement account (IRA). Your tax contributions don’t go into an account bearing your name or accrue interest that you get when you retire.

Rather, the taxes paid by today’s workers support monthly payments to today’s Social Security recipients. When you retire, or if you suffer a disability, your payments will be covered by current workers in turn.

If the system collects more in taxes than it pays out in a given year, the surplus goes into Social Security’s trust funds, helping to cover future revenue shortfalls. The trust funds do earn interest collectively — they are invested in special Treasury bonds, guaranteed by the federal government, that pay market-rate interest. That interest goes into the pool that pays out benefits.

It’s not meant to replace your work income

Social Security replaces about 40 percent of recipients’ working income, on average. (The proportion is higher for people with low-income work histories and lower for those who had higher earnings.)

Financial planners say you’ll need 70 to 80 percent of your preretirement income to maintain your lifestyle in retirement. Thus, it’s important to think of Social Security as a component of your financial plan for retirement, not the whole plan. It provides a foundation that’s ideally paired with other assets and income, such as savings, pensions, annuities, or freelance or part-time work.

This is what most retirees do. Federal Reserve survey data shows that:

• 56 percent of retired Americans have a pension or retirement savings plan such as an IRA, 401(k) or 403(b).
• 50 percent collect interest, dividends or rental income.
• 32 percent have income from a job or self-employment.
• 5 percent receive government payments from sources other than Social Security, such as Supplemental Security Income (SSI), public-assistance programs or unemployment benefits.

Still, Social Security is the primary means of support for many older adults, and often the only means, underscoring the importance of keeping it strong and secure. Among Americans ages 65 and older, 12 percent of men and 15 percent of women rely on it for 90 percent or more of their income, according to the Social Security Administration (SSA).

“We can never insure 100 percent of the population against 100 percent of the hazards and vicissitudes of life,” Roosevelt said upon signing the Social Security Act in 1935, “but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.”

It’s a big operation

Day-to-day management of the system falls to the Social Security Administration, a federal agency that traces its roots to the Social Security Board created when FDR signed the Social Security Act.

Headquartered just outside Baltimore, the SSA has about 49,700 employees, according to federal workforce data, and operates more than 1,200 local offices nationwide. If you call the national Social Security helpline at 800-772-1213 for answers or assistance, you’re calling the SSA. If you have a My Social Security account, it’s maintained by the SSA.

The agency’s scope is huge and perhaps best conveyed in numbers. Its responsibilities include:

• Collecting and maintaining earnings records for nearly 237 million “insured” workers paying Social Security taxes.
• Generating and assigning Social Security numbers (of which there are more than 300 million in active use).
• Determining eligibility for retirement, family and survivor benefits and Social Security Disability Insurance (SSDI) and paying nearly $137 billion a month (as of March 2026) to eligible recipients.
• Processing 500,000 to 800,000 new claims a month for retirement benefits, survivor benefits and Medicare (for which the SSA handles initial enrollment).
• Calculating (and recalculating) payment amounts under formulas set by Congress and adjusted annually for changes in wages and consumer prices.
• Administering SSI, a distinct benefit serving more than 7.3 million people with very low incomes and limited financial assets who are 65 or older, blind or have a disability.

Years of AARP polling show that Americans across the political spectrum agree on Social Security’s importance, Dr. Myechia Minter-Jordan, AARP’s CEO, said at a September 2025 town hall celebrating the system.

“The numbers confirm what we already know: Americans still consider Social Security one of America’s most important initiatives,” she said. “In fact, 85 percent of people 50-plus say that it is essential. Not helpful — essential.” ​ ​

The key takeaways were created with the assistance of generative AI. An AARP editor reviewed and refined the content for accuracy and clarity.