For close to a century, the Social Security Act has provided benefits to retirees, disabled workers, and survivors. The term Social Security is used for the Old Age, Survivors, and Disability Insurance (OASDI) program in the United States. It is run by the Social Security Administration.
Though it is better known for providing retirement benefits to a majority of workers, it also provides survivor benefits and other income for workers who are disabled in the course of their employment.
In 2023 alone, over 67 million Americans will benefit from Social Security payments. This federal program provides retirement and disability benefits to those who have applied for the benefits and subsequently qualified. Even spouses, children, and survivors are eligible for the benefits.
Initially, the minimum qualifying was 65 years, but it has since been revised to 62. Workers who have paid into the system for at least 10 years qualify for the benefits under the Special Securit Act.
The benefits increase for workers who defer their retirement plans. For a worker who retires at the age of 70, the benefits are way higher. The Social Security benefits are calculated based on the average indexed monthly earnings (AIME). The 35 highest earning years are calculated, so the amount varies across beneficiaries.
People who cannot join the workforce due to a disability, including blindness, and also surviving spouses and children, are also eligible for Social Security benefits if they meet all the eligibility criteria.
Working Of The Social Security Program
To put it in simple terms, Social Security is an insurance program; insurance against old age and disability that covers both the principal insured and also their immediate family members.
It is a contributory scheme where workers pay into the program typically through payroll withholding when they are in service. For self-employed workers, the Social Security contributory taxes are paid when they file their income tax returns. Workers are eligible for up to 4 credits every year. For every $1,510 that they earned in 2022, one credit was given up to an amount of $6,040, or 4 credits achieved.
The money is deposited into two Social Security trust funds. There are the OASI funds for retirees and the Disability Insurance Trust Fund for disabled beneficiaries. These two funds together go into paying for the benefits of people who have become eligible for the fund whether through retirement or because they have been deemed disabled.
The money that is not spent remains in the trust funds. The fund is managed by an appointed board of trustees. They oversee the financial operation of the twin Social Security funds. There are 6 members of whom 4 are the secretaries of Labor, Health and Human Services, Treasury, and the Social Security Commissioner. The other two members are public representatives who are appointed by the president and confirmed by the US Senate.
The other program under the federal benefits system is Medicare. This federal insurance program for Americans is for those who are 65 or more. People also receive Medicare benefits for their disability.
The Medicare program is also funded and backed through payroll withholding. That money is contributed to a third trust fund, managed by the Center for Medicare and Medicaid Services (CMS).
It is also important to note that when Social Security is primary to provide benefits to retirees and the disabled, survivors too are eligible for the funds. Spouses, both present and ex, may also be eligible for benefits that are based on the contribution of the primary beneficiary and the duration of their contribution.
How Long Should One Contribute To Get Social Security Benefits
To put it in simple terms, you would need forty Social Security credits to qualify for retirement benefits. And to earn credits, you need to pay Social Security tax on your income. You earn four per year.
Going by the 2023 figures, an income of $1,640 equals a single credit. And you have to earn $6,560 to learn the four credits for that year. For the purpose of eligibility, it doesn’t matter how long it gets to earn the full forty credits. But speaking on a practical note, a person has to bow out at the ages of 66 and 67 to receive high monthly benefits. But benefits will not increase if you continue working beyond 70.
Spouses can also claim Social Security benefits based on their spouses’ or even their own records. A divorced spouse who is not married at present can receive Social Security benefits if the marriage has lasted at least ten years.
The children of retired workers can also benefit from the SocialSecurity schemes till the age of eighteen. They will get it longer if the child is disabled. Sixteen is the cutoff date for children who are not your own.
The Social Security Amount
The final amount that workers get during retirement depends on the average indexed monthly earnings calculated during the 35 years during which the earnings have been highest. The amount thus is not the same across retirees. The average monthly benefit for 2023 is $21,900 annually or $1,825 per month.
Beneficiaries whose retirement age is between 66 and 67 get an annual increase of 8% for every year they delay collecting their benefits. This increase starts with the retirement year and continues increasing till they reach the full retirement age of 70.
So someone who started taking Social Security at the retirement age of 66 in 2020 will receive their total primary insurance amount. And if they delayed collecting benefits till the following year, they will be eligible for 108% of their primary insurance amount. And by delaying until they reach the age of 70, they will receive around 132% of the original amount.
It is apparent that the benefit varies depending upon when the beneficiary begins to collect it. For 2023, the maximum benefit for those who retire at 62 is $2,572, or $30,864 for the year. For those aged 70, the benefits add up to $4,555 or $4,660 annually.
