Social security is the world’s largest program which pays out benefits and social insurance to the people after their retirement. Other incomes through this system of social security include disability income, Medicare income and death and survivorship benefits to the spouses of people.
This program was started in 1935 by President Franklin D. Roosevelt. This program was a part of the President’s New Deal plan to lift the US economy out the Great Depression.
The basic funding of the Social Security System comes from the payroll taxes paid by the employees and employers. The workers contribute 6.2% of their annual income towards Social Security System and their employers also match this amount. Self-employed workers need to contribute 12.4% of their annual income towards this system.
You get the benefits of this system at your retirement. The full retirement age at which you can take benefits from these savings is 67. You can even start it at the age of 62, but then your monthly payments would be less. But if you claim the benefits at a later stage say even 70, you can get the highest monthly payments. The average income that you get from this system will depend on your average wages you earn during the working lifetime.
The payments are managed by the government and the Federal Reserve Board and they are saved in the Social Security Trust Fund.
Another important thing you should be aware of is that the payments are adjusted every year to keep up with the levels of inflation prevalent in the economy. You need not worry about the payments you will get on your future if you see inflation rates rising steeply.
This system also helps people who cannot work after some time if they become disabled.
In case of the death of the spouse, the remaining spouse gets the social security payments, and in fact if both the spouses work and one of them dies, and the remaining spouse delays payments till 70 years of age then the remaining spouse can get higher benefits. Ex-spouses can also claim benefits from the Social Security system if the marriage lasted for more than 10 years.
Although, this system has proper collection channels for funding, but still it faces the threat if becoming insolvent. The major factors can be longer life expectancies, inflation and a large amount of population entering retirement age.
Image credit: enriquerosario.com/