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. Old Age, Survivors And Disability ...

    The official name for Social Security in the United States. The ...
  3. Disability Insurance Trust Fund

    An account within the Social Security Trust Fund used to pay ...
  4. Social Security Act

    A law enacted by President Franklin D. Roosevelt in 1935 to create ...
  5. Actuarial Balance

    The difference between future Social Security obligations and ...
  6. Old-Age and Survivors Insurance ...

    The Old-Age and Survivors Insurance Trust Fund, a Social Security ...
Related Articles
  1. Retirement

    10 Common Questions About Social Security

    Find out everything you need to know about this program.
  2. 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.
  3. 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.
  4. Retirement

    How Social Security Will Change In 2015

    The average retiree’s check will rise by 1.7% in 2015, the Social Security Administration says. And the ceiling on taxable earnings will rise, as well.
  5. 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.
  6. 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.
  7. Retirement

    Top 6 Myths About Social Security Benefits

    Misinformation on retirement benefits is common. We'll set the record straight.
  8. Retirement

    4 Things That Are Reducing Your Social Security

    Worried about Social Security dwindling? We discuss four ways it’s already happening.
  9. Retirement

    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 from the tax.
  10. Financial Advisor

    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. Why is Social Security running out of money?

    Find out why you may not have Social Security benefits available to you when it's time to retire. 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 >>
Hot Definitions
  1. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  2. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  3. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  4. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  5. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  6. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
Trading Center