What Is Social Security?

Social Security is a federal program that issues benefits to retirees who paid for the program during their working years, people who are unable to work due to a physical or mental condition, the spouses and children of beneficiaries, and the surviving family members of the beneficiaries.

Social Security benefits are administered by the Social Security Administration. Learn more about what Social Security is, how it works, the different types of Social Security benefits, and who can get benefits.

Definition and example of social security

Social Security is a federal benefit program that pays benefits to retirees and workers with disabilities, as well as their families and survivors.

Alternative Name: Old Age, Survivors and Disability Insurance Program
Acronym: OASDI

For example, workers who have paid Social Security for at least 10 years are generally eligible to receive Social Security retirement benefits when they turn 62.

How Social Security Works

Social Security is funded by a 12.4% tax paid by employers, employees, and the self-employed.3 This tax money is deposited into two Social Security trust funds: the Old Age and Survivors Insurance Trust Fund ( OASI) and the Disability Insurance Trust Fund (DI).

The Social Security Administration pays current benefits and administrative costs with these trust funds. Unused money is left in trust funds and invested in Treasury bonds.

Types of social security benefits

While Social Security is perhaps best known as a retirement program for older Americans, it also pays benefits to people outside of this demographic.

Social Security retirement benefits

As the worker earns income during his working years, he earns up to four Social Security credits per year. Generally, 40 credits are needed to receive retirement benefits. So in general, if someone has worked and paid Social Security for at least 10 years, they will be entitled to Social Security retirement benefits.

The amount of retirement benefits a retiree receives depends on their inflation-adjusted lifetime income, as well as how old they are when they decide to start receiving benefits.

Although people can begin receiving Social Security retirement benefits at age 62, they will receive lower payments than they expected until full retirement age. The full retirement age of a worker depends on when she was born.

On the other hand, if a worker chooses to defer receiving retirement benefits until after reaching full retirement age, her future retirement benefits will increase for each month of delay until she turns 70.

Social Security disability benefits

Social Security also provides benefits to workers of all ages who can no longer work due to a chronic or fatal condition, either mental or physical.

Like retirement benefits, Social Security also has employment requirements for disability benefits. This includes the person's age at the time they became disabled, how long they worked in the three to 10 years before becoming disabled, and how long they worked in total before becoming disabled.

To receive disability benefits, you must have worked for a minimum period of three to 10 years before becoming disabled, including the quarter in which you became disabled. This is known as a recent work requirement.

In addition to the recent work requirement, a person must have worked a certain number of years in their entire life to be eligible for Social Security disability benefits. This requirement is called the job duration requirement.

To meet the length of work requirement, an individual subtracts the year in which he turned 22 from the year in which he was incapacitated to obtain the required number of quarters of work.

For example, let's say you were born in 1980 and turned 22 in 2002. If you were disabled in 2020, you would subtract 2002 from 2020 to get to 18.

In this case, you would generally need to have worked at least 18 quarters (4.5 years) to satisfy the job duration requirement.

Social security benefits for families

When a Social Security beneficiary begins receiving retirement or disability benefits, their family members may also be eligible for benefits. Family members can receive up to 50% of the beneficiary's benefits, with total family limits ranging from 150% to 180%.

A relative's eligibility for benefits depends on their relationship to the beneficiary and possibly other factors such as their age, disability status, marital status, student status, and child care responsibilities.

Social Security Survivor Benefits

Upon the death of a Social Security beneficiary, their surviving family may be eligible for benefits. These are called survival benefits.

Survivors generally receive 75% to 100% of the beneficiary's basic Social Security benefit, with total family limits ranging from 150% to 180%.

Surviving spouses or minor children may be entitled to a one-time $ 255 survivor benefit payment upon the death of the beneficiary.

A survivor's eligibility for benefits depends on their relationship to the deceased beneficiary and possibly other factors such as their age, disability status, marital status, dependency status, student status, benefit status, and child care responsibilities.

Social Security vs. Supplemental pension income

Sometimes people confuse Social Security and Supplemental Security Income (SSI). Although the two programs are administered by the Social Security Administration, they target different groups of people and are funded in different ways.

Social Security, for example, pays benefits to individuals, their families, and their survivors based on how long the person has worked regardless of need.

SSI, on the other hand, is based on needs rather than a person's work history.

While Social Security is funded by special payroll taxes deposited in the two Social Security trust funds, SSI is funded by general tax revenue.

Criticisms of social security

One of the main criticisms of Social Security is that at some point in the future, perhaps as early as 2035, Social Security trust funds will no longer be able to pay all of the benefits scheduled under current law.

While projected trust fund deficits are often attributed to lower birth rates and increased worker life expectancies, some groups criticize the management of the trust funds themselves.

The Social Security Advisory Board, for example, noted that trust funds are invested exclusively in Treasury bonds, which have historically underperformed the stock market.

The board noted that if the trust funds were invested in stocks, high returns could significantly mitigate projected funding gaps.

We hope you enjoy watching this video about What Is Social Security

Source: CNBC

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