Social Security Explained: How It Works, Types of Benefits [2023]

What Is Social Security?

Do you know What Is Social Security, if yes then this article is for you. We are discussing What Is Social Security Read on for more.

In a nutshell, Social Security is a program that pays benefits to retired workers and disabled people and their families. It is also the foundation of many Americans’ economic security.

The program was established in 1935 and is governed by the Security Act. It includes the Old-Age and Survivors Insurance, Disability Insurance and Medicare programs.

In 2017, about 169 million Americans pay Social taxes and 61 million receive monthly benefits. Social Security is the only source of income for about half of all retirees and one in four disabled beneficiaries.

In general, you qualify for retirement benefits if you have worked long enough and earned enough credits. You earn credits based on the wages you have received from your work and the amount of money you have paid in Security taxes. You can check your earnings record at any time and you will get a Personal Social Security Statement every year.

If you have a medical condition that prevents you from working for at least a year or is expected to lead to death, you may be eligible for disability benefits. You must have a medical condition that meets Social Security’s strict definition of disability to be awarded these benefits. You may also qualify for supplemental security income (SSI) if you have limited resources and little or no work history.

KEY TAKEAWAYS

• Social Security is a social insurance program established in many countries, including the United States.

• Its primary purpose is to provide financial support and benefits to individuals who have reached retirement age, become disabled, or have dependents who qualify for benefits.

• In the United States, Social Security was established in 1935 as part of the New Deal legislation during the Great Depression.

• It is administered by the Social Security Administration (SSA) and funded through payroll taxes.

• Social Security provides retirement benefits, disability benefits, and survivor benefits.

• Retirement benefits are provided to individuals who reach the eligible retirement age and are based on their earnings history.

• Disability benefits are given to individuals with qualifying disabilities that prevent them from engaging in much gainful activity.

• Survivor benefits are available to the surviving spouses and children of deceased workers.

How Social Security Works

The program is a vital part of the retirement plans of most people and pays for at least half of the income of households headed by someone 65 or older. It also keeps more than 26.5 million Americans from falling below the poverty line. But an institution that looms so large in American life is bound to generate questions about how it works.

Social Security is funded through dedicated payroll taxes, the employee and employer shares of which are deposited into the program’s two trust funds (Old-Age and Survivors Insurance, or OASI, and Disability Insurance, or DI). Social Security’s administrative costs account for less than 1 percent of all income paid into the system, making it one of the most efficient government programs. The excess income is invested in interest-bearing Treasury securities. Nonetheless, the trustees project that these reserve balances will be depleted by 2034. After that, Social Security would be able to pay only about three-fourths of current scheduled benefits. This article is designed to help clear up some common misconceptions about how Social Security functions.

Who Can Get Retirement Benefits?

• Earning Credits: To qualify for retirement benefits, individuals must earn credits by working and paying Social Security taxes. In 2023, one credit is earned for every $1,560 in earnings, and individuals can earn a most of four credits per year. The number of credits required for eligibility depends on the individual’s birth year.

• Eligible Retirement Age: The eligible retirement age to receive full retirement benefits depends on the individual’s birth year. It ranges from 66 to 67 years.
• But, individuals can choose to start receiving reduced retirement benefits as early as age 62, although the benefit amount will be permanently reduced.

• Delayed Retirement Credits: If individuals choose to delay receiving retirement benefits beyond their eligible retirement age, their benefit amount will increase. Delayed retirement credits are added for each year of delay, up to a certain limit. This increase is to encourage individuals to postpone claiming benefits and results in a higher monthly benefit amount.

• Spousal Benefits: Spouses may also be eligible for retirement benefits based on their spouse’s work history. Generally, a spouse can receive up to 50% of the retired worker’s full benefit amount, subject to certain conditions. This can be beneficial if the spouse’s own benefit amount is lower.

• Divorced Spouse Benefits: Divorced individuals may be eligible for retirement benefits based on their ex-spouse’s work record if they were married for at least ten years, are currently unmarried, and meet other requirements.

How Much Can I Get in Social Security Benefits?

• Earnings History: Social Security benefits are based on an individual’s average earnings over their working years. The Social Security Administration (SSA) calculates the Average Indexed Monthly Earnings (AIME) by adjusting an individual’s earnings for inflation and averaging the highest-earning years. The AIME is then used in a formula to determine the Primary Insurance Amount (PIA), which is the basic benefit amount.

• Full Retirement Age (FRA): The full retirement age is the age at which individuals can receive their full retirement benefit amount. It varies depending on the year of birth, ranging from 66 to 67 years. If individuals start receiving benefits before their full retirement age, their benefit amount will be permanently reduced. Omit, if they delay benefits beyond their full retirement age, their benefit amount will increase.

• Claiming Age: Individuals can choose to start receiving Social retirement benefits as early as age 62 or delay benefits until age 70. But, the benefit amount is adjusted based on the claiming age. Starting benefits early will result in a permanent reduction in the monthly benefit amount, while delaying benefits can increase the monthly amount through delayed retirement credits.

• More Benefits: Also to basic retirement benefits, individuals may be eligible for spousal benefits or survivor benefits based on their spouse’s or deceased spouse’s work history. The amount of these benefits depends on various factors, such as the spouse’s earnings and the age at which benefits are claimed.

The History of Social Security

Here’s a brief overview of the history of Social in the United States:

1 : Early Ideas and Developments:

• Late 19th Century: Various social insurance programs were proposed and implemented at the state and local levels, primarily focused on providing benefits to certain groups such as Civil War veterans and disabled workers.

• 1910s-1920s: Progressive reformers and labor activists advocated for nationwide social insurance programs to address poverty, old age, and disability.

2 : The Great Depression and the New Deal:

• 1929-1930s: The Great Depression led to widespread economic hardship and a need for a comprehensive social safety net.

• 1935: President Franklin D. Roosevelt signed the Social Security Act into law on August 14, 1935, as part of his New Deal reforms.

• The original Social Security Act included programs for old-age benefits, unemployment insurance, and public help. It established the Social Security Board (later renamed the Social Security Administration) to administer the programs.

3 : Early Expansion and Amendments:

• 1939: Amendments expanded Social Security coverage to include dependents and survivors of covered workers, as well as benefits for spouses and children.

• 1950s-1960s: More amendments extended coverage to more workers, including self-employed individuals and farm workers.

4 : Medicare and Medicaid:

• 1965: The Social Security Act was amended to create the Medicare and Medicaid programs. Medicare provided health insurance for individuals aged 65 and older, while Medicaid provided healthcare for low-income individuals and families.

5 : Continuing Expansion and Reforms:

• 1972: Social Security benefits were indexed to adjust for inflation.

• 1983: Major reforms were enacted to address the program’s long-term financial stability, including an increase in the full retirement age and adjustments to payroll taxes.

• Next years: Various changes and reforms have been made to the program to address financial sustainability, adjust benefit calculations, and accommodate demographic shifts.

Throughout its history, Social Security has become a vital component of the safety net in the United States, providing financial and benefits to millions of retirees, individuals with disabilities, and survivors of deceased workers. It continues to evolve and adapt to meet the changing needs of the population.

What Is Full Retirement Age (FRA)?

• Varying Full Retirement Age: The FRA is not a fixed age for everyone. It depends on the year of birth. The reason for the variation is to account for increasing life expectancies and allow for adjustments to the Social Security program’s long-term financial sustainability.

• FRA for Current and Upcoming Retirees: As of my knowledge cutoff in September 2021, the FRA for those born in 1943 to 1954 is 66 years. For individuals born between 1955 and 1960, the FRA gradually increases by two months per year. For individuals born in 1960 or later, the FRA is 67 years.

• Early Retirement: Individuals have the option to start receiving Social Security retirement benefits as early as age 62. But, if they choose to receive benefits before reaching their FRA, the benefit amount is permanently reduced. The reduction is based on the number of months that benefits are claimed before reaching the FRA.

• Delayed Retirement: Omit, individuals can choose to delay receiving Social Security benefits beyond their FRA. For each year of delay, up until age 70, individuals earn delayed retirement credits that increase their benefit amount. Delaying benefits can result in a higher monthly benefit.

• Impact on Benefit Amount: If individuals claim benefits before their FRA, their monthly benefit amount will be permanently reduced. If they claim benefits after their FRA, their monthly benefit amount will be increased. Waiting until age 70 to claim benefits typically results in the highest possible benefit amount.

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FAQ – What Is Social Security?

Conclusion

The Social Security Act, which was formed in 1935, governs the program. It consists of Medicare, Disability Insurance, and Old-Age and Survivors Insurance programs.

Around 169 million Americans contributed to Social Security taxes in 2017, while 61 million received monthly benefits.

We hope that this article has helped you to know What Is Social Security, if you have any questions then let us know in the comment section.