What Is Social Security?
Social Security in the United States is the term used to describe the federal Old-Age, Survivors, and Disability Insurance program, also known as OASDI. The term usually refers to retirement benefits, which are the largest portion of OASDI benefits that are paid every year. Today, the United States Social Security program is the single largest government insurance program in the world. In 2010 this expenditure amounted to $770 billion dollars in retirement benefits.
How Social Security Works
The Social Security program is funded through specially-dedicated payroll tax deductions, which are paid into the Social Security Trust Fund. The earliest a person may collect Social Security benefits is 62, but benefits are reduced until they reach the normal retirement age, which is determined by a persons’ birth year. The normal retirement age is based on the average retirement age.
The Way Benefits Are Calculated
A Worker's retirement benefits are calculated based on the average (pre-FICA) income for the 35 highest-income years until that person turns 62 years old. This number is adjusted for increases in the average wage, and divided by 12, giving an average monthly income figure known as the AIME. Benefits are based on a percentage of the AIME. For example, a worker whose AIME is $3000 might receive a monthly benefit of $1347.48.
The Uncertain Future Of Social Security
The cost of Social Security increases every year, as the cost of living and the number of retired persons in the United States increases. Benefits are paid directly from payroll tax income, however by 2017, payroll tax revenue will be less than the amount of federal retirement benefits paid out. This casts uncertainty on the future of Social Security, making it a significant and contentious issue in current political debates.