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

    A United States federal program of social insurance and benefits ...
  2. Social Security Trust Fund

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

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

    Income that temporarily reduces a retired individual's Social ...
  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

    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

    Introduction to Social Security

    You've probably contributed to this fund, but will you reap the benefits? Find out here.
  3. Retirement

    What Will Social Security Look Like When You Retire?

    Many workers are not confident that Social Security will be around during their retirement. Here's what you need to know about its future.
  4. Retirement

    3 Ways to Get Social Security Benefits

    Social Security isn't just for retirement. Learn about all three benefits provided by the Social Security Administration: retirement, survivor and disability.
  5. Financial Advisor

    10 Things You Need to Know About Social Security

    Every saver should know these ten things about Social Security retirement benefits.
  6. 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.
  7. 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.
  8. Retirement

    4 Things That Are Reducing Your Social Security

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

    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.
  10. 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.
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 >>
Hot Definitions
  1. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  2. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  3. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
  4. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers ...
  5. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities ...
  6. Wash-Sale Rule

    An Internal Revenue Service (IRS) rule that prohibits a taxpayer from claiming a loss on the sale or trade of a security ...
Trading Center