What is Social Security?
Social Security is the term used for the Old-age, survivors and disability insurance (OASDI) program in the United States, administered by the Social Security Administration (SSA), a federal agency. While it is best known for retirement benefits, it is also: offers survivor benefits and income for employees who become incapacitated for work.
Key learning points
- Social Security is a federal program in the US that provides retirement benefits and disability income to qualified people, as well as their spouses, children, and survivors.
- To be eligible for Social Security retirement benefits, employees must be at least 62 years old and have been paying into the system for 10 years or more.
- Employees who wait to collect Social Security until age 70 will receive higher monthly benefits.
- Spouses and ex-spouses may also be eligible for benefits based on the earnings of their partner or ex-partner.
- People who are unable to work because of a disability may be eligible for benefits if they meet certain conditions.
How social security works
Social Security is an insurance program. Employees pay in the program, usually through wage withholding where they work. Paying self-employed persons Social Security taxes when they file their federal tax returns.
Employees can earn up to four credits each year. In 2021, for every $1,470 earned, one credit will be awarded until $5,880 or four credits are achieved. That money goes to two Social Security trust funds: the Trust Fund for Old Age and Survivors Insurance (OASI) for retirees and the Trust Fund Disability Insurance (DI) for benefit claimants – where it is used to pay benefits to people who are currently eligible for it. The money that is not spent stays in the trust funds.
A supervisory board oversees the financial functioning of the two social security funds. Four of the six members are the secretaries of the Departments of Finance, Labor and Health, and Human Services, and the Commissioner for Social Security, while the remaining two members are public representatives, appointed by the President and confirmed by the Senate.
Medicare, the federal health insurance program for Americans age 65 and older and some people with disabilities, is also supported by payroll deductions, but that money goes to a third-party trust fund, administered by the Centers for Medicare & Medicaid Services (CMS).
Types of Social Security Benefits
Social Security offers benefits to retirees, their dependents and employees who become disabled.
Employees who have paid into the Social Security system for at least 10 years are eligible for early retirement benefits at age 62. Waiting for you”full retirement age– 65 to 67 depending on when you were born – results in higher monthly benefits. like you deferral of the collection of pension benefits up to the age of 70, you will receive even more, but the benefit will not increase if you wait longer.
Spouses can also claim benefits based on their own income or that of their spouse. A divorced spouse who is not currently married can receive benefits based on an ex-spouse’s income if the marriage has lasted at least 10 years. Children of retirees can also receive benefits until they turn 18 (longer if the child is disabled or a student). The limit is 16 if you are looking after a child that is not your own.
Employees can get a projection of their benefits at different retirement ages by using the Pension Estimator on the Social Security website.
People who are unable to work because of a physical or mental disability that is expected to last a year or more – or result in death – may be eligible for Social Security Disability Benefits. To be eligible, you generally have to meet certain income tests. Family members of disabled workers may also qualify.
The spouse and children of a deceased employee may be eligible for survivor benefits based on the employee’s income. That includes surviving spouses who are 60 years of age or older, or 50 years of age or older and disabled, provided they have not remarried. A surviving spouse who cares for a child under the age of 16 or who is disabled may also be eligible for these benefits.
Children generally must be under the age of 18 or disabled to receive benefits. Under certain circumstances, a stepchild, grandchild, step-grandchild or adopted child may also be eligible for benefits.
Parents age 62 or older who depended on a deceased employee for at least half of their income may also be able to receive benefits. In some circumstances, surviving spouses and minor children are also entitled to a one-time payment of $255 upon the death of an eligible employee.
The History of Social Security
The US social security system came into existence on August 14, 1935, when President Franklin D. Roosevelt signed the agreement Social Security Act in the law. The first monthly benefit checks became payable on January 1, 1940, and the first person to collect one was Ida M. Fuller, a retired legal secretary in Vermont. Her check was $22.54.
The system and its rules have evolved over the decades. Today, Social Security is one of the largest government programs in the world, paying out hundreds of billions of dollars each year.
The number of people paying Social Security taxes in 2021. About 65 million receive monthly Social Security benefits.
The future of social security
With the aging of the American population, some observers have expressed concern about the viability of a system in which less active workers will support a greater number of retirees.
In its 2021 report, the Social Security Board of Trustees predicts that the pension fund’s (OASI Trust Fund) reserves will be depleted in 2033 (vs. 2034 according to the 2020 report), in part as a result of the COVID-19 pandemic that sparked to reduced employment and earnings. At that point, the continued tax revenue will be enough to pay 76% of the planned distributions going forward. The trustees predict that the disability trust fund — the DI Trust Fund — will dry up in 2057 (versus the 2065 estimate in the 2020 report).
If that prediction is correct, Congress will have to: find ways to fill the gap, which can lead to higher taxes on employees, lower benefits, higher age requirements for retirees, or a combination of these elements.
It is worth noting that the 2021 report assumes that the pandemic will “have no net effect on individual long-term final assumptions”. Trustees noted that they will monitor the situation and may update forecasts in future reports to account for material changes.
What benefits does Social Security offer?
Social Security provides benefits for qualified retirees, the disabled, as well as their spouses, children and survivors. The payment amount is based on your earnings history, among other things.
What is the difference between Social Security and Supplemental Security Income (SSI)?
Supplemental Security Income (SSI) is a separate program of social security benefits for retirees or disabled people and their dependents. SSI provides monthly cash benefits to the elderly or disabled with little to no income to help them meet their basic needs.
What is the full retirement age?
The full retirement age (FRA) is the age you must reach to be eligible for full Social Security retirement benefits. The age varies depending on when you were born. The FRA is 66 years and two months for those born in 1955 and gradually increases to 67 for those born in 1960 and later.