What is Social Security?
Social Security is the foundation of economic security for millions of Americans—retirees, disabled persons, and families of retired, disabled or deceased workers. About 158 million Americans pay Social Security taxes and 57 million collect monthly benefits in 2013. About one household in four receives income from Social Security.
Social Security is largely a pay-as-you-go program. This means that today’s workers’ pay Social Security taxes into the program and money flows back out as monthly income to beneficiaries. As a pay-as-you-go system, Social Security differs from company pensions, which are “pre-funded.” In pre-funded retirement programs, the money is accumulated in advance so that it will be available to be paid out to today’s workers when they retire. The private plans need to be funded in advance to protect employees in case the company enters bankruptcy or goes out of business.
Social Security touches the life of almost every worker in America, yet few know how the program works. In practice, Social Security uses complex benefit formulas and detailed rules that make it difficult for people to understand the program’s scope, its financing, how benefits are determined, and a number of other issues.
Major Programs and How to Qualify
Social Security is a federal income-security program that was established in 1935 as part of President Franklin Delano Roosevelt’s New Deal. As a “pay as you go” program, the payroll taxes paid by current workers are used to fund the benefits of current Social Security recipients. Although originally a program providing economic security to certain retirees, today’s Social Security has expanded to provide a certain level of retirement income to almost all workers, certain family members, and survivors, as well as disability benefits. Overall, about 55 million people receive some type of benefit from Social Security.
Social Security’s Major Programs. Social Security consists of three programs that are administered by the Social Security Administration.
- Retirement. Social Security’s retirement program provides a lifetime monthly income for qualified workers once they reach their full retirement age. Depending on when they were born, that age ranges from 65 to 67. The amount of retirement benefits that a worker receives depends on his or her income while working. Workers also have the option of receiving a lower monthly income starting at age 62.
- Survivors. Social Security’s survivors program provides a monthly lifetime income to the surviving spouse of a deceased worker once he or she reaches retirement age. The amount of the monthly benefit depends on both spouses’ income while they were working. The survivors program also pays benefits to children under the age of 18 and the surviving spouse caring for them. Unless they are disabled, children’s benefits end when the last child either reaches age 18 or graduates from high school, whichever is later.
- Disability. Social Security also pays lifetime monthly income to workers who are disabled and, in some cases, to their spouses and children under the age of 18. These benefits depend on a worker’s earning history.
Qualifying for Social Security. Workers do not automatically qualify for Social Security retirement benefits. They must work and pay a minimum in Social Security taxes for at least 40 quarters (10 years) during their working lives if born in 1929 or later. These 40 quarters need not be consecutive. Currently, workers earn a credit for each three-month period in which they earn at least $1,200. Once they have worked and paid Social Security taxes for the required 40 quarters, they are fully qualified to receive Social Security retirement benefits upon reaching the required age. Some members of the retiree’s family may also receive benefits. Depending on circumstances, those family members could include spouses, current and in some cases divorced; children under the age of 18 or, if they are still in high school, up until age 19; and disabled children of potentially any age.
Workers who have paid Social Security taxes for a certain number of quarters, depending on their age, may qualify for disability benefits; if they pass away, survivors benefits could be paid to their spouses and any children under the age of 18, as well as their dependent parents, in some cases.
Disability benefits are paid to workers who are disabled for at least one year. In order to qualify, a worker must have paid Social Security taxes within a certain past period, depending on age and work history. “Disabled” in this case means unable to perform any substantial gainful work due to severe physical or mental impairment. Determination of eligibility is based on medical evidence and made by a government agency in the state in which the worker lives.
Survivors’ benefits may also be paid to certain family members of a worker who died before reaching retirement age. To qualify, the worker had to have accumulated a certain number of Social Security credits based on his age at death. Depending on circumstances, eligible family members could include widows or widowers (as well as surviving ex-spouses), children, and dependent parents. In certain cases, there is also a one-time payment of $255 that can be made to the spouse or child of the worker upon his death.
There is no requirement that an individual be an American citizen to qualify for Social Security benefits. While employers are required by other laws to ensure that anyone they hire is either a citizen or a legal immigrant, foreign nationals authorized to work in the U.S. can earn Social Security credits with a valid Social Security number.
Supplemental Security Income. The Supplemental Security Income (SSI) program is not part of Social Security. Even though the Social Security Administration administers SSI, the program is paid for with general tax revenues. No Social Security payroll taxes are used to pay for SSI, which helps aged, blind, and disabled people who have little or no income. It provides cash to meet basic needs for food, clothing, and shelter. To receive SSI, a worker must be blind, disabled, or at least 65 years of age.