Social Security is a major government program that provides a safety net to millions of Americans. However, many don’t understand exactly how Social Security works. The program differs from other government programs in that benefits received are based on how much money they contribute to the system. Those contributions usually come from taxes.

Originally created in 1935, the U.S. Social Security program is designed to help those in need by granting the following benefits:

• Disability insurance
• Survivors’ insurance
• Old-age insurance

Social Security recipients receive benefits under the Old Age, Survivors and Disability Insurance Program, also known as OASDI. This program sends out benefits each month to retired and disabled workers who paid into the system. Additionally, the dependents and survivors of insured workers can receive monthly benefits.

Where do these benefits come from? Employees who work for companies have to contribute payroll taxes under the Federal Insurance Contributions Act, and self-employed individuals pay through the Self-Employed Contributions Act.

Retirement Benefits

To receive the maximum Social Security benefits, workers must reach what is called full retirement age. This age varies depending on when the worker was born. For instance, people born before 1938 were able to receive full benefits starting on their 65th birthday. Those born after 1959 have to wait until they reach 67 years old.

These requirements don’t mean that people can’t receive some assistance earlier. Anyone can apply for retirement Social Security when they reach the age of 62, but they’ll also have to settle for reduced monthly benefit amounts. The same applies to those who seek a spouse’s benefits early.

According to the Social Security Administration, people who retire early or late generally get the same total amount of extra income over the course of their entire lifetimes. For instance, people who delay applying for benefits until after they’ve reached their full retirement age may be able to receive additional credits.

Disability Income

Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) both provide benefits to people with disabilities. SSI benefits take the form of cash payments designed to help people who are blind, elderly or disabled without sufficient income by offsetting the cost of their essentials (food, clothing and shelter). The program also determines and pays benefits according to people’s financial need. SSDI pays benefits to anyone who worked long enough to meet the normal Social Security requirements.

Both SSDI and SSI come with medical requirements. Applicants need to prove that they’re disabled and that their disabilities adhere to the rules set forth by the Social Security Administration.

Medicare and Medicaid

These programs both help people deal with health care expenses. However, they do so in different ways.

Medicaid is operated jointly by states and the federal government. Available to all needy people, the program is administered according to the rules of each state. Medicaid may include benefits that Medicare leaves out, such as the costs of personal or nursing home caregiving, but it won’t pay for anything that Medicare already covers.

Medicare is for elderly citizens over the age of 65 who lack the income to pay for their high medical expenses. This entitlement program is funded by Social Security taxes, so workers and their spouses are eligible. Some young individuals who have disabilities or permanent kidney failure are also eligible.

Since these programs differ, people can receive benefits from both. However, they will need to apply for each separately and satisfy distinct requirements for each. Those who qualify for Medicare and Medicaid are known as dual eligibles.

Medicare covers many different expenses, such as hospital visits, prescription drugs, medical equipment, hospice care and nursing home stays. Depending on their needs, recipients can also combine benefits with qualified private insurance. Those seeking benefits under Medicare Part A, for instance, don’t pay monthly premiums if they paid the appropriate taxes. However, they might still choose to add plans specifically for medicines and other expenses that their Medicare doesn’t cover. Supplemental insurance policies designed to provide complete coverage, or Medigap plans, have to follow state rules concerning minimum coverage and benefits. Since not all plans are the same, beneficiaries may find it best to shop around.

Death and Survivorship Benefits

Survivors benefits are designed to help people deal with the expenses that they incur when their family members die. These benefits may include one-time payments to surviving spouses and eligible children who lived with Social Security wage earners. Survivors insurance can also provide monthly benefits to relatives such as:

• Certain children, stepchildren, grandchildren, adopted children and step-grandchildren
• Widowers and widows above the age of 50
• Unmarried children under the age of 18 or above the age of 18 with certain disabilities
• Some divorced spouses
• Certain dependent parents

The Legal Side of Social Security Benefits

Social Security benefits aren’t guaranteed. People who apply can have their requests denied based on grounds such as their failure to provide proof of disability or the right health history information. Although lawsuit settlements don’t directly impact people’s eligibility for non-need-based benefits, such payouts can impact their overall tax liability. Therefore, they might end up owing taxes on the benefits they receive.

Social Security plays a critical role in helping Americans maintain their standards of living and health. Therefore, it’s important to understand how Social Security works. The complexity of these programs may mean that certain payment-seekers and their family members could benefit from talking to legal advisers about applying and dealing with denials.