Rooted in the concept of social insurance, Social Security is one of the most well-known and commonly utilized federal programs in the United States. While most know that its main role is to provide benefits for retirees who have paid into the system over their careers, Social Security is also used for other purposes. In this article we’ll review Social Security’s primary benefits as well as a recent change set to take effect next year.
The Social Security Act was signed into law in 1935 by President Franklin D. Roosevelt, following policy drafted by the Committee on Economic Security created to address economic hardships correlating with The Great Depression, particularly unemployment and old-age benefits. Over the last several decades, the Social Security program has seen numerous changes and expansions including extending benefits to dependents of workers in 1939, the establishment of the the Disability Insurance (DI) program in 1956, and the Medicare program in 1965.
What Social Security Provides
The Social Security Administration provides four major benefits: retirement benefits, Supplemental Security Disability Income (SSDI), Supplemental Security Income (SSI) and spousal and survivor benefits of a decedent.
Retirement benefits are paid to workers who earn at least 40 credits, which represents ten years of work. Benefits vary due to factors including age and wages earned; 62 is the earliest age to begin collecting benefits, but keep in mind that the SSA advises benefits will generally be lower for someone who begins collecting before full retirement age. It’s important to be aware of your full retirement age, as it gradually rises for those born between 1954 and 1960.
Spousal and survivor benefits are available for widows and widowers, children and dependent parents of deceased workers.
Disability benefits are distributed by Social Security through the Social Security disability insurance (SSDI) program and the Supplemental Security Income (SSI) program. The difference between these two programs is somewhat subtle; the American Association of Retired Persons (AARP) illustrates the differences between the two:
“SSDI benefits can be paid to blind or disabled workers, and like Social Security retirement benefits, to their children, to their widows or widowers, and to adults who haven’t worked but have been disabled since childhood.
SSI, meanwhile, pays benefits to low-income people who are 65 or older; to adults who are disabled (based on the same definition used by SSDI) or blind; and to children who are disabled and blind. The program is only for people who have very limited income and assets.”
AARP further notes that SSDI is paid through Social Security taxes, and while SSI is managed and distributed by Social Security, it’s funded by the US Treasury. SSDI benefits are connected to a beneficiary’s work credits, while SSI is not.
Key Stats and a New Change to Social Security Benefits
The SSA estimates about 173 million workers who are eligible for Social Security benefits, and that there are close to 62 million Americans who will collect about $955 billion in Social Security benefits. While retirement benefits remain the primary assistance resource provided by Social Security, disability benefits account for approximately 16% of benefits paid and survivor benefits make up 13% of benefits paid.
In October, it was announced that Social Security recipients will soon receive a 2% increase in benefits due to a rise in the cost of living adjustment. The adjustment amounts to an additional $27 per month for retirees Fortune Magazine notes that “Medicare recipients who have their Plan B premiums deducted from their monthly Social Security check may not receive any notable increase” due to a “hold harmless” clause implemented to prevent Part B premiums from outpacing Social Security’s cost of living adjustments.
Social Security can serve as a significant component in retirement planning. Social Security regularly undergoes adjustments, along with various sweeping regulatory changes that affect retirement and financial planning, so it’s important to maintain ongoing discussion with your trusted experts while developing and refining your overall financial strategy.