What Social Security Actually Is (And Why It's Better Than You Think)
What Social Security Actually Is (And Why It’s Better Than You Think)
There’s a retirement asset hiding in plain sight that most people either ignore completely or assume is going away. Both are mistakes.
I’m talking about Social Security.
If you’ve been told it “won’t be there” when you retire, or you’ve just never bothered to think about it, or you’ve left it out of your retirement planning entirely—this post is for you. Because Social Security isn’t just some government program that might or might not exist in 20 years. It’s a specific financial product that you literally cannot buy anywhere else. And once you understand what it actually is, you’ll want to pay a lot more attention to it.
Social Security is an annuity. That’s the first thing to understand.
An annuity is a financial product that pays you a guaranteed income stream for life. Insurance companies sell them. You give them a lump sum, they send you a check every month until you die.
But Social Security isn’t just any annuity. It’s a lifetime, inflation-adjusted annuity backed by the U.S. government.
Let me break down why that matters:
Lifetime payments. It keeps paying as long as you live—whether that’s 10 years or 40 years after you start collecting. You cannot outlive it.
Inflation-indexed. Every year, benefits adjust for cost of living. The 2026 increase is 2.8%. A private annuity? Fixed. What $2,000 buys today, it still pays in 2045—but everything costs more.
Government-backed. The U.S. government stands behind it. No insurance company risk. No worrying whether the company that sold you the annuity will still be solvent in 30 years.
Here’s the thing: you cannot buy this product. Walk into any insurance company and ask for a lifetime annuity that adjusts for inflation every year and is backed by the federal government. They’ll tell you it doesn’t exist. Because it doesn’t—except through Social Security.
The closest private equivalent is either a fixed annuity (which doesn’t adjust for inflation, so it loses purchasing power every year) or a variable annuity (which isn’t guaranteed). Social Security is both guaranteed AND inflation-adjusted.
For context, here’s what we’re talking about in today’s dollars. The average retired worker benefit in 2026 is about $2,071 per month—roughly $25,000 a year. The maximum benefit at full retirement age is $4,152 per month. If you wait until 70, the maximum is $5,251 per month—over $63,000 a year.
That’s real money. And for most people, Social Security will be their single largest retirement asset.
So why do so many people ignore it?
Two reasons: fear and bad advice.
The fear: Many people don’t even want to think about Social Security because they’re afraid it’s all going to go away. Why pay attention to something that won’t exist when you need it?
The bad advice: The financial planning industrial complex often pretends Social Security doesn’t exist. Why? Because if you think you have to fund your entire retirement yourself, you’ll panic and save more money—money you put in their care. More assets under management means more fees. It’s not a conspiracy; it’s just incentives.
Here’s the reality: Social Security is almost certainly not going away.
Yes, the combined trust funds are projected to be depleted around 2034. But “trust fund depletion” doesn’t mean Social Security stops—it means the reserve runs out. Even without the trust fund, ongoing payroll taxes would still cover approximately 81-83% of scheduled benefits. That’s a funding gap, not a collapse.
And Congress has fixed this before. In 1983, Social Security faced a similar crisis—the trust fund literally ran out of money in November 1982. Congress passed bipartisan reforms that kept the program solvent for 40+ years. The solutions are known: raise the payroll tax rate slightly, raise the cap on taxable wages, adjust benefits modestly, or some combination. With over 70 million Americans currently receiving benefits, both parties have strong incentives to act.
My read: one way or another, the government is going to figure out how to get it done. It might be a slightly lower benefit than you’re anticipating, but it’s going to be there in a very familiar form.
Now let’s talk about how you earn Social Security benefits—because this matters, especially if you’re self-employed.
You earn “credits” by working and paying Social Security taxes. You can earn a maximum of 4 credits per year, and you need 40 credits (roughly 10 years of work) to qualify for retirement benefits.
In 2026, you earn one credit for every $1,890 in covered earnings, up to a maximum of 4 credits at $7,560. That’s not a high bar—but you do have to clear it.
This is critical for the self-employed. If you have self-employment income, you pay both the employee and employer portions of the payroll tax—12.4% for Social Security plus 2.9% for Medicare. It’s a real cost.
But here’s the trap I’ve seen people fall into: some self-employed folks work hard to minimize their self-employment income to near zero for tax purposes. Great for reducing your current tax bill. Terrible for Social Security, because if you report zero self-employment income, you earn zero credits.
Think carefully before you eliminate all your SE income. You might be saving a few hundred dollars in taxes today while giving up tens of thousands in lifetime Social Security benefits.
What counts as covered earnings? W-2 wages and net self-employment income. What doesn’t count? Investment income, rental income, pensions. Those don’t earn you credits.
Now that you understand what Social Security actually is, here’s how to think about it in your own retirement planning.
When people talk about “their number”—how much they need to retire—they often leave out Social Security entirely. That’s a mistake.
If you’re trying to figure out how much you need saved, you need to know three things: how much you’ll spend annually in retirement, how much Social Security will cover, and the gap your savings need to fill.
Say you need $60,000 a year in retirement. Your projected Social Security benefit at 67 is $24,000 a year. That means your savings only need to generate $36,000 a year—not $60,000. That’s a completely different savings target.
If you’re working with a financial planner and they’re ignoring Social Security, push back. Ask them to run two scenarios: one where Social Security exists at current levels, and one where it’s reduced by 20%. See both pictures. Don’t plan as if it’s zero—that’s not realistic, and it might cause you to over-save while under-living.
Your action item is simple: set up your account at ssa.gov.
Go to ssa.gov/myaccount and create an account if you don’t have one. If you already have one, log in.
Here’s what you’ll find: your projected benefits at different claiming ages (62, 67, 70), your complete earnings history (make sure it’s correct!), how many credits you’ve earned, and estimates based on your actual work history.
Most people don’t even know this website exists. It’s actually quite good. And you should check it at least once a year.
If you’re self-employed, definitely check it annually to verify your income is being reported correctly. After any major income change, check that it’s reflected. Look for gaps—are all your work years showing? Is the income accurate?
This takes 15 minutes. Do it today.
So where does this leave you?
Social Security is a valuable asset—arguably the most valuable retirement asset most people have. It’s a lifetime, inflation-adjusted income stream that you cannot replicate in the private market. It’s almost certainly going to be there when you need it. And you should absolutely include it in your retirement planning.
If you’re self-employed, make sure you’re earning credits. If you’re working with a financial planner, make sure they’re including it in your projections. And if you’ve never logged into ssa.gov, do it today.
The next big question is: when should you actually start taking it? The timing decision—62 vs. 67 vs. 70—is where most people make their biggest mistake. We’ll dig into that next.