Social Security Benefits

What are 'Social Security Benefits'

Social Security benefits are paid out monthly to retired workers and their spouses who have, during their working years, paid into the Social Security system. Social Security benefits are also available to qualifying individuals who are completely and permanently disabled, and are determined by a specific and rigid set of criteria issued by the Social Security Administration.

BREAKING DOWN 'Social Security Benefits'

Depending upon a taxpayer’s level of income, Social Security benefits may be taxable. As of 2016, taxpayers without a spouse and with a yearly income that exceeds $25,000 may have a portion of their Social Security benefits taxed. Likewise, married couples that file jointly and earn more than $32,000 per year may also have these benefits taxed. Benefits received due to disability are, in most cases, tax-free.

The History of Social Security

Social Security in the United States is largely the Old-Age, Survivors and Disability Insurance (OASDI) federal program. President Franklin Roosevelt signed the original Social Security Act into law in 1935. The current law, after a number of amendments, encompasses a number of social insurance and social welfare programs, including the issuance of Social Security benefits.

The payment of retirement, or Social Security, benefits is the largest component of OASDI. These benefits, a form of social insurance, are largely biased toward workers at the lowest end of the income bracket in an effort to prevent such individuals and families from retirement into relative poverty.

How It Works

Social Security and all benefits that are received are funded through payroll taxes under the Federal Insurance Contributions Act (FICA) tax or the Self Employed Contributions Act (SECA) tax. The Internal Revenue Service (IRS) collects tax deposits and formally entrusts them to one of the collective group of Social Security trust funds. This group includes the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Hospital Insurance Trust Fund, the Federal Supplementary Medical Insurance Trust Fund and the Federal Disability Insurance Trust Fund. With little to no exceptions, the Social Security Administration and the IRS record each worker’s earnings, throughout his or her career, and effectuate FICA or SECA tax payment on said earnings.

Estimation of Benefits

In 2008, the Social Security Administration pioneered a new tool, available on its official government website, that allows workers to estimate their Social Security benefits. This tool is best suited for a worker who qualifies for benefits, is not currently receiving benefits, and who is also not a beneficiary of Medicare. Such workers, utilizing this tool, can gain an approximation of the Social Security benefits that will be provided in different age brackets at the time of retirement. Retirees that have non-FICA or SECA-taxed wages will require additional help, as rules for such individuals are more complex.

RELATED TERMS
  1. Social Security Trust Fund

    An account used by the United States federal government to record ...
  2. Social Security

    A United States federal program of social insurance and benefits ...
  3. Old Age, Survivors And Disability ...

    The official name for Social Security in the United States. The ...
  4. Social Security Tax

    The tax levied on both employers and employees used to fund the ...
  5. Outside Earnings

    Income that temporarily reduces a retired individual's Social ...
  6. Disability Insurance Trust Fund

    An account within the Social Security Trust Fund used to pay ...
Related Articles
  1. Retirement

    Can the Market Affect Social Security Benefits?

    What you should know about the relationship between the stock market and your monthly Social Security check.
  2. Retirement

    The Purpose of a Social Security Statement

    Learn what information your Social Security benefit statement contains and how you can use the information to more intelligently plan for retirement.
  3. Retirement

    How Social Security Works After Retirement

    Millions of Baby Boomers are looking forward to collecting benefits, but several factors can affect how much they get and whether the money is taxed.
  4. Retirement

    How Social Security Benefits Are Estimated & Taxed

    The Social Security check you'll get depends on your work history, when you start claiming a benefit and these other factors.
  5. Financial Advisors

    What Will My Social Security Check Look Like?

    It's important to know what your Social Security check will look like in retirement. Here's how you can figure it out.
  6. Financial Advisors

    When Taking Social Security Early Can Make Sense

    Sometimes it makes financial sense to take Social Security early. Here's a look at when this might be a good idea.
  7. Retirement

    When Do I Stop Paying Social Security Tax?

    Almost never, unless you belong to one of these special groups.
  8. Professionals

    IRA Holders: How to Avoid this Huge Mistake

    Here's why using your IRA funds to delay taking Social Security benefits may be a good option for more financial security in retirement.
  9. Retirement

    How Social Security for Legal Immigrants Works

    If you earn enough work credits in the U.S. – or combined with credits from certain other countries – you can claim benefits. Here is how.
  10. Retirement

    Social Security's Insolvency and Your Retirement

    The Social Security system could run out of money by 2031. Here's a look at some proposed solutions to the problem and what can be done to prepare.
RELATED FAQS
  1. Must I pay Social Security taxes on my earnings after full retirement age?

    Paying Social Security contributions continues even past reaching full retirement age, but that can increase future Social ... Read Answer >>
  2. What is the Social Security administration responsible for?

    Learn about the Social Security Administration's main responsibilities along with its history, structure and social safety ... Read Answer >>
  3. What are the maximum Social Security disability benefits?

    Find out the maximum Social Security disability benefits for qualifying individuals and couples in 2015, including who is ... Read Answer >>
  4. Are Social Security benefits affected by unemployment benefits?

    Find out if Social Security benefits are affected by unemployment benefits, and if so, how much this benefit can be reduced ... Read Answer >>
  5. Is there any way to opt out of paying Social Security?

    Understand more about the purpose of the Social Security system and learn which groups of taxpayers are automatically exempt ... Read Answer >>
  6. How are Social Security benefits affected by your income?

    Understand the relationship between a worker's earned income and benefits he or she receives from Social Security in retirement, ... Read Answer >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center