A government program called Social Security provides payments to retirees who paid into it throughout their working years, persons who are unable to work due to medical or mental conditions, beneficiaries’ wives and children, and survivors of beneficiaries.
- According to their age and work history, retirees and handicapped workers who qualify for Social Security get payments, as well as their family members and survivors provided they meet specified criteria.
- Employers, workers, and self-employed people pay a special 12.4% tax into the two Social Security trust accounts to pay for Social Security.1
- It is anticipated that at some point in the future, the Social Security trust funds won’t be able to cover the whole cost of benefits.
- Supplemental Security Income (SSI), a program that awards payments to people based on their need rather than their job history, is not the same as Social Security.
Definition and Social Security Example
A federal program called Social Security provides benefits to retired people, disabled workers, as well as to their dependents and survivors.
- Different name : Program for Older Americans, Survivors, and Disability Insurance
- Acronym : OASDI
For instance, individuals who have contributed to Social Security for at least ten years are typically eligible for reduced retirement benefits at age 62 and full benefits if they want to wait until they reach full retirement age (which varies depending on when the individual was born).
The Workings of Social Security
Employers and employees each pay a 12.4% tax to fund Social Security; self-employed people pay the whole 12.4%. The Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund are the two Social Security trust funds into which this tax money is placed.1. The Social Security Administration. The question “How Is Social Security Financed?” on 4 February 2022.
These trust funds are used by the Social Security Administration to pay for both administrative and current benefits. The trust funds invest any remaining funds in Treasury bonds.
Social Security Benefits Categories
Despite being arguably best recognized as a retirement program for elderly Americans, Social Security also provides benefits to people who do not belong to that group.
Benefits of Social Security Retirement
A person can accumulate up to four Social Security credits annually when they make money over their working years. For retirement benefits, normally 40 credits are needed. Therefore, in general, if a person has worked and contributed to Social Security for at least ten years, they are eligible for retirement benefits under the program.
A retiree’s inflation-adjusted career earnings and age at which they elect to start receiving benefits determine how much in retirement benefits they will get.
Even though people may be eligible to start receiving Social Security retirement benefits at age 62, they will get less money than if they wait until they are fully eligible. The age at which a worker can retire fully relies on their birthdate.
However, if a worker decides to hold off on getting retirement benefits until after reaching full retirement age, their future retirement benefits will rise with each month that passes until they reach the age of 70.
On the Social Security Administration website, you can estimate your future Social Security benefits.
Benefits under Social Security Disability
Additionally, Social Security provides compensation to people of all ages who are unable to work owing to a persistent or fatal mental or physical ailment.
Disability benefits are subject to the same job conditions as retirement benefits under Social Security. These include the person’s age when they were disabled, how long they worked overall before becoming disabled, and how long they worked between three and ten years prior to becoming disabled.
For a minimum of three to ten years before to becoming disabled, including the quarter in which you were disabled, you must have worked in order to be eligible for disability benefits. The recent employment requirement is what is meant by this.
In addition to having worked recently, a person must have done so within the past 10 years to be eligible for Social Security disability benefits. The duration of work requirement is the name given to this criterion.
An individual would subtract the year they turned 22 from the year they became incapacitated to determine the number of quarters of work necessary to achieve the duration of work criteria.4
Let’s take the example of someone who was born in 1980 and turned 22 in 2002. If you got crippled in 2020, you would arrive at 18 if you subtracted 2002 from 2020. In this situation, the duration-of-work criterion would typically require that you have worked for at least 18 quarters (4.5 years).
Benefits from Social Security for Families
Families of Social Security beneficiaries may become eligible for benefits once they begin receiving retirement or disability payments. Up to 50% of the beneficiary’s benefits may be received by family members, with total family limitations ranging from 150% to 180%.
The beneficiary’s relationship to the relative will determine if they are eligible for payments; however, there may be additional considerations, such as the relative’s age, disability status, marital status, educational status, and childcare obligations.
Social Security Survivor Benefits
The surviving relatives of a Social Security beneficiary may be entitled to payments after their passing. We refer to this as survivors’ benefits.
With family limits ranging from 150% to 180%, survivors typically get 75% to 100% of the beneficiary’s basic Social Security income.
Upon the beneficiary’s passing, surviving spouses or minor children may be entitled to a one-time payment of $255 as a survivor’s benefit.
Relationship to the dead beneficiary and potential other characteristics including age, disability status, marital status, dependent status, student status, benefits status, and childcare obligations all play a role in a survivor’s eligibility for benefits.
Compared to Supplemental Security Income, Social Security
Social Security and Supplemental Security Income (SSI) are occasionally misunderstood. Although the Social Security Administration oversees both programs, they are designed for distinct populations and are funded in different ways.
For instance, Social Security provides benefits to people, their families, and survivors based only on how long they were employed, regardless of their actual financial need.
SSI, on the other hand, bases benefits on a person’s needs rather than their employment history.
SSI is funded by regular tax receipts, but Social Security is paid for by special payroll taxes deposited into the two Social Security trust funds.
Social Security has come under fire.
One of the main criticisms of Social Security is that eventually—possibly as soon as 2034—the Social Security trust funds won’t be able to pay the full benefits that are now scheduled under present law.8
Some organizations fault the trust funds’ management, even though the expected shortfalls of the trust funds are often related to lower birth rates and longer worker life expectancies.
For instance, the Social Security Advisory Board has called attention to the fact that the trust funds’ main investment is in Treasury bonds, which historically underperformed the stock market. The board highlighted that higher returns may greatly reduce their anticipated financial gaps if the trust funds were invested in stocks.