Social Security (United States)

Social Security revenue and cost

Medicare, Medicaid, and social security spending

Social Security COLA

20200101 Remaining life expectancy - US

Social Security Trust Fund

Social Security in the United States is a comprehensive federal program designed to provide financial support to individuals during retirement, disability, or to the families of deceased workers. Established by the Social Security Act in 1935 as part of President Franklin D. Roosevelt's New Deal, Social Security is funded through payroll taxes collected under the Federal Insurance Contributions Act (FICA) or the Self Employment Contributions Act (SECA) for the self-employed.

History

The inception of Social Security can be traced back to the Great Depression, a period marked by severe economic downturn and high unemployment rates in the U.S. The Social Security Act was signed into law on August 14, 1935, aiming to provide a safety net for the elderly, the unemployed, and children. Over the years, the program has undergone several amendments to expand its coverage and benefits, including the introduction of disability insurance in 1956 and Medicare in 1965.

Components

Social Security encompasses several programs, the most notable being:

• Old-Age, Survivors, and Disability Insurance (OASDI): Often simply referred to as Social Security, OASDI provides benefits to retired workers, disabled workers, and survivors of deceased workers.
• Medicare: A health insurance program for people aged 65 and older, certain younger people with disabilities, and people with End-Stage Renal Disease (ESRD).

Funding

Social Security is primarily funded through payroll taxes levied on current workers and their employers, with each paying a rate of 6.2% of wages up to a certain wage limit. Self-employed individuals pay both the employee and employer portions. These funds are deposited into two trust funds: the Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund.

Benefits

Social Security benefits are calculated based on a worker's earnings history, with adjustments for inflation. The amount of a retiree's benefit depends on the age at which they choose to begin receiving benefits, with full retirement age varying depending on the year of birth. Early retirement options are available, but they result in reduced benefits.

Challenges and Reforms

Social Security faces long-term financial challenges, primarily due to demographic shifts, including an aging population and a declining ratio of workers to beneficiaries. Various reform proposals have been debated, including adjustments to the benefit formula, raising the retirement age, and increasing payroll taxes.

Impact

Social Security has significantly reduced poverty among the elderly and provides critical income support to millions of Americans, including retirees, disabled individuals, and families of deceased workers. It remains a fundamental component of the U.S. social safety net.