Broker Check

The basics of Social Security

Social Security is a social insurance program in the United States that provides financial benefits to eligible individuals and their dependents. It was established in 1935 as part of the New Deal reforms during the Great Depression. The program is administered by the Social Security Administration (SSA), an agency of the federal government.

Purpose: Social Security is designed to provide a financial safety net for retired, disabled, and deceased workers and their families. It aims to replace a portion of an individual's pre- retirement income to help them maintain a basic standard of living.

Funding: Social Security is primarily funded through payroll taxes known as FICA (Federal Insurance Contributions Act) taxes. These taxes are paid by both employees and employers, with the current combined rate set at 12.4% of the employee's earnings, up to a certain income cap.

Eligibility: To qualify for Social Security benefits, individuals must accumulate enough work credits by paying Social Security taxes throughout their working years. The number of credits required depends on the individual's age at the time they apply for benefits. In general, most people need 40 credits, equivalent to 10 years of work.

Retirement benefits: The primary benefit provided by Social Security is retirement income. The amount of retirement benefits a person receives is based on their earnings history and the age at which they choose to start receiving benefits. The earliest age to claim benefits is 62, but the full retirement age (FRA) for most individuals is between 66 and 67, depending on the year of birth. Delaying benefits beyond the FRA can result in increased monthly payments.

Disability benefits: Social Security also provides benefits to individuals with disabilities who are unable to work. Eligibility for disability benefits is based on the severity and duration of the disability, as well as the individual's work history. To qualify, applicants must meet the SSA's definition of disability and have enough work credits.

Survivor benefits: When a worker dies, Social Security may provide survivor benefits to their eligible dependents, such as a spouse, children, or parents. Survivor benefits can help replace a portion of the deceased worker's income and are based on the worker's earnings record.

Cost-of-living adjustments (COLA): Social Security benefits are periodically adjusted to keep pace with inflation. The SSA determines cost-of-living adjustments (COLA) based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Medicare: While not part of Social Security itself, Medicare is closely linked and provides healthcare coverage for individuals aged 65 and older or those with certain disabilities. Most individuals become eligible for Medicare at age 65 and can enroll through the Social Security Administration.

It's important to note that these are just the basics. Social Security rules and regulations can be complex. For detailed information and personalized advice, it's advisable to consult the official Social Security Administration website or seek assistance from a qualified professional.