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The Social Security System in the United States

The U.S. Congress approved the Social Security Act in 1935. The Depression called attention to the elderly in need, encouraging the enactment of the regulations and approval of the program. Congress added survivor benefits and benefits to family members in 1939. Disability provisions came about in 1954 and Medicare in 1965. Congress has modified the system, following the basic plan, and Social Security celebrated its 75th anniversary in 2010.

  1. Funding

    • Social Security has three payment sectors -- retirement, survivor benefits and disability. All three divisions operate on Federal Insurance Contributions Act or FICA taxes, which are employer-matched funds designated to Social Security and Medicare. Workers in the United States pay income taxes through withholding from paychecks. They also pay FICA taxes to cover Social Security benefits and Medicare. With the first payment of taxes, the worker starts a lifetime of contributions to the Social Security system. Contributions continue as long as the individual works, even past retirement age. Children may receive benefits on a parent's work history, and a spouse may collect benefits based on a wife or husband's employment. All Social Security benefits depend on the work history of someone who paid into the system.

    Availability

    • If at some point along the way the worker becomes disabled, Social Security benefits may help until he can work again. If the worker dies, life insurance in the form of an annuity is available to those who counted on the worker for support. When the worker retires, Social Security provides a monthly check for retirement. According to Social Security statistics, about 96 percent of workers in the U.S. pay into the Social Security system. Social Security replaces about 40 percent of pre-retirement income, and this is about half of what the retiree needs. Pensions, interest and part-time employment often make up the other half for the retiree.

    Benefits

    • Social Security calculates benefits for retirees based on 35 years of employment, and the worker must have at least 10 years or 40 credits to qualify for retirement. Workers who earn high incomes receive larger benefit checks than those who have low-income jobs. The maximum monthly benefit for Social Security retirement at the full retirement age of 66 in 2011 is $2,366. A worker receiving this amount would pay the maximum into the Social Security system with FICA taxes every year for the 35 years used for calculation. This worker could also wait to retire at age 70 and receive about 30 percent more in benefits. Other family members may collect on his work history with no reduction in his benefit. The spouse could receive 50 percent of the $2,366 at full retirement age.

    Non-Workers

    • Because Social Security bases benefits strictly on work history, you may wonder what happens to those who don't work, or who have never worked in the United States. Social Security administers a program that is outside the scope of the FICA tax system to provide the basic necessities of life. Supplemental Security Income is need-based, not work-based. SSI recipients must qualify with low income and low resources or assets, and must be disabled, blind or elderly to receive benefits. Due to this program, established in 1974, there is no minimum for Social Security benefits. A sporadic low-income worker who is blind, disabled or elderly may receive minimal Social Security benefits and supplement those with SSI. A qualifying individual who has never worked receives SSI only.

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