Social Security & Medicare
Chapter scope
The U.S. government provides social programs that create a financial safety net for vulnerable and retired Americans.
Two of the most prominent programs are:
- Social Security
- Medicare
🔑 Numbers, ages & limits
| Item | Number | Notes |
|---|---|---|
| Americans receiving Social Security | ~71 million (as of early 2026) | |
| Social Security tax rate — employer | 6.2% | |
| Social Security tax rate — employee | 6.2% | Both parties pay |
| Social Security tax rate — self-employed | 12.4% | |
| Quarters to qualify for full Social Security retirement benefits | 40 quarters (10 years) | |
| Earliest age to claim Social Security | 62 | The earlier benefits begin, the lower the monthly payment |
| Full retirement age (born after 1960) | 67 | Receives 100% of allocated benefit |
| Age where delaying stops increasing benefits | 70 | Delaying to age 70 results in 124% of the benefit; no incentive to delay beyond |
| Estimated average monthly Social Security payment (2025) | ~$1,976 ($23,712 annually) | |
| Federal poverty income threshold (2026) | $15,960 or lower annually | Reference point given in the text |
| Ex-spouse claim — marriage length | At least 10 years | |
| Ex-spouse claim — claimant age | At least 62 | And must remain unmarried |
| Portion of Social Security benefits taxable | 50% or 85% | Lower incomes pay taxes on 50%; higher incomes on 85% |
| Medicare primary-insurance age | 65 or older | |
| Medicare free hospital coverage requirement | 40 quarters (10 years) of payroll | |
| Employer size allowing delayed Medicare enrollment | 20 or more employees | If still employed and the employer offers private health insurance |
Both Social Security and Medicare use the same 40 quarters / 10 years work requirement — Social Security for full retirement benefits, Medicare for free hospital coverage.
Definitions
| Term | Definition | Example |
|---|---|---|
| Transfer payment | > “Payment made that involves no direct benefit to the payee” | “Working Americans pay Social Security taxes, which are paid out to other disabled and retired Americans.” |
Social Security
- Social Security provides financial assistance to approximately 71 million Americans (as of early 2026).
Who the program supports
| Beneficiary group |
|---|
| Retirees |
| Disabled persons |
| Survivors of deceased workers |
| Dependents of Social Security beneficiaries |
Funding
- Social Security is primarily funded through specialized taxation, a type of transfer payment.
- Employers and employees both pay Social Security taxes.
| Payer | Rate |
|---|---|
| Employer | 6.2% |
| Employee | 6.2% |
| Self-employed individuals | 12.4% |
- These taxes are collected and redistributed to program beneficiaries.
- 🔑 A person must generally work for 40 quarters (10 years) to qualify for full Social Security retirement benefits.
Baseline income, not full replacement
- Payments made to retirees are meant to provide a baseline income, but they often don’t cover every retirement expense.
- 📌 As stated by the Social Security Administration:
Social Security was never meant to be the only source of income for people when they retire. Social Security replaces a percentage of a worker’s pre-retirement income based on your lifetime earnings. The amount of your average wages that Social Security retirement benefits replaces depends on your earnings and when you choose to start benefits.
- This is why many retirees also rely on savings and other retirement vehicles. Using qualified workplace plans, individual retirement accounts (IRAs), and annuities can help older Americans live more comfortably in retirement.
Claiming ages
| Age | Result |
|---|---|
| 62 | 🔑 Earliest age Social Security retirement benefits can be claimed. The earlier benefits begin, the lower the monthly payment |
| 67 | 🔑 “Full” retirement age for retirees born after 1960 — receives 100% of their allocated Social Security benefit |
| 70 | 🔑 Delaying benefits until age 70 results in 124% of the Social Security benefit. ⚠️ “Once age 70 is reached, there is no incentive to delay benefits further” |
- Benefits can be delayed beyond full retirement age to receive a higher payment.
- 📌 Footnote: “This example is true for Americans born in 1960 or later. Regardless, the specifics are not important test points.”
What determines the amount received
The amount a retiree receives depends on:
- How long they worked
- Their earnings during their working years
- When Social Security payments begin
Context figures
| Figure | Amount |
|---|---|
| Estimated average monthly payment (2025) | ~$1,976 |
| Same, annualized | $23,712 |
| Federal poverty line (2026) | Annual income of $15,960 or lower |
- 📌 “This reinforces that Social Security is designed to be a baseline income in retirement.”
Benefits to connected persons
- Social Security can also pay benefits to people connected to the worker.
- A surviving spouse can sometimes claim benefits after their partner dies. This can be especially important when the surviving spouse had little or no earnings history (for example, a homemaker).
- In certain circumstances, children, parents, and ex-spouses may also be able to claim benefits based on a deceased person’s record.
Ex-spouse claims
- ⚠️ Ex-spouses can sometimes claim Social Security benefits based on a former partner’s work record even if the former partner is still alive.
- Example: Partner 1 and Partner 2 were married for a long time. Partner 1 worked full-time, while Partner 2 remained unemployed. If they divorce, Partner 2 could potentially claim part of Partner 1’s Social Security benefits if all of the following apply:
| Condition |
|---|
| 🔑 The marriage lasted at least 10 years |
| The ex-spouse claiming the benefit remains unmarried |
| The ex-spouse claiming the benefit is at least age 62 |
- ⚠️ “Even if an ex-spouse claims benefits, it does not reduce the benefits received by the other ex-spouse.” Continuing the example, if Partner 2 claims benefits based on Partner 1’s record, Partner 1’s personal Social Security benefits are not affected.
Taxation of benefits
- Social Security benefits are taxable as ordinary income.
- Many Americans owe tax on their benefits, although only a portion is taxable.
- People who report Social Security as their only retirement income generally aren’t subject to tax.
- In general, the lower a person’s income, the less likely they are to owe taxes on Social Security benefits.
| Income level | Portion of benefits taxed |
|---|---|
| Lower incomes | 50% |
| Higher incomes | 85% |
- ⚠️ Footnote: “Americans who pay taxes on Social Security benefits are only taxed on 50% or 85% of their benefits.”
Medicare
- Medicare is government-mandated healthcare coverage offered to disabled persons and senior citizens.
- 🔑 Most Americans age 65 or older use Medicare as their primary health insurance.
- Like private insurance, Medicare covers many healthcare costs, but the covered person is still responsible for deductibles, co-insurance, and other out-of-pocket expenses.
- ⚠️ Footnote: “Older Americans who remain employed at organizations with 20 or more employees that offer private health insurance may delay enrolling in Medicare.”
Parts and costs
| Coverage | Cost |
|---|---|
| Hospital services part | 🔑 Free if the covered person worked 40 quarters (10 years). If a person does not meet the 10-year work qualification, they may pay monthly premiums to gain access |
| Non-hospital services (doctor’s visits, outpatient procedures) | Require monthly premiums |
| Prescription drugs | Require monthly premiums |
Funding
- Like Social Security, Medicare is funded by payroll (employment) taxes.
- Footnote: “Besides payroll taxes, Medicare is funded by premiums paid by covered persons, taxation of Social Security benefits, and other federal revenues.”
IRMAA
- As with many government benefits, individuals with higher incomes are required to contribute more.
- Medicare recipients with annual incomes over certain thresholds are subject to the income-related monthly adjustment amount, better known as IRMAA.
- Under IRMAA, higher-income recipients pay higher insurance premiums.
Sidenote — Medicaid
| Program | Who it serves |
|---|---|
| Medicare | Disabled persons and senior citizens (age 65+) |
| Medicaid | Americans reporting low incomes |
- ⚠️ “Medicaid is another government-sponsored healthcare program, except it is provided to Americans reporting low incomes. Don’t confuse this program with Medicare!”
Key points
Social Security
- Provides retirement payments to:
- Retirees (age 62 or older)
- Disabled persons
- Survivors of deceased workers
- Dependents of Social Security beneficiaries
- Qualify for payments with 40 quarters (10 years) of payroll
- Payments taxable as ordinary income
- Only a portion may be taxed
Important Social Security ages
| Age | Meaning |
|---|---|
| 62 | First time SS can be claimed |
| 67 | “Full retirement” benefits attained |
| 70 | Last age where benefits increase due to delay |
Social Security payments to ex-spouses
- Marriage lasted at least 10 years
- The ex-spouse claiming the benefit:
- Remains unmarried
- Is at least age 62
Medicare
- Government-mandated healthcare program for:
- Retirees (age 65 or older)
- Disabled persons
- Qualify for free hospital coverage with 40 quarters (10 years) of payroll
- Other benefits subject to co-payments and deductibles
Income-related monthly adjustment amount (IRMAA)
- Requires Medicare recipients with higher incomes to pay bigger premiums
Sources
Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.
| # | Source | Publisher |
|---|---|---|
| 1 | 457(b) governmental deferred compensation plans | IRS |
| 2 | Federal employee defined-contribution plan | Thrift Savings Plan |
| 3 | Pub 915 — taxation of Social Security benefits | IRS |
| 4 | COLA table — 2026 IRA $7,500 / catch-up $1,100 / deferrals $24,500 / DC limit $72,000 | IRS |
| 5 | Achievable Series 65 — chapter 2.6.5 | Achievable (course text) |
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