How do social security benefits work?


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How do social security benefits work?
More than 140 countries have some type of social security program.
Encyclopædia Britannica, Inc.

Transcript

Social security is a social welfare and insurance program that gives a replacement source of income to families or individuals when a regular source of income ends or is interrupted, as in retirement, injury, disability, or death. More than 140 countries have some type of social security program. These vary in terms of what benefits are given and how they are calculated. In the United States, social security provides benefits to more than 60 million people each year. Social security began in the U.S. during the Great Depression. The traditional methods of support for older adults (relying on family, assets, or charity) had all failed. Economists and government officials saw the importance of creating instead a source of ongoing income for retired adults and other groups. President Franklin D. Roosevelt signed the Social Security Act into law in 1935. Up to 97 percent of older Americans are expected to claim social security benefits at retirement. The amount of social security benefits a retiree will receive is calculated based on the highest 35 years of wages earned over their career. The program is funded by a payroll tax that is paid by both employers and employees, each at a fixed rate of 6.2% of wages. Benefits are dynamic, meaning there are adjustments each year to the amount beneficiaries receive, to keep up with the cost of living and inflation. They are also progressive, so lower-income workers will receive a larger percentage of their previous earnings than higher-paid workers will upon retirement, in an effort to create a reasonable replacement income for everyone. Although the Social Security Administration currently holds excess funds in reserve, in 2021 the program began paying out more in benefits than it collects from current workers. Unless Congress intervenes, the surplus will be spent by 2033, after which retirement benefits may be reduced by about 20%. Research shows that the program helps keep at least 16 million older adults out of poverty every year, doing what it was designed to do in the 1930s.