An overview of how the Social Security System operates, including its history, funding through payroll taxes, and the benefits it provides to members.
The Social Security System is a government program that provides social insurance to qualified individuals based on their circumstances as workers, dependents, the unemployed, senior citizens, or those who are sick or disabled.
Historically, the development of the Social Security System began in 1935 during the term of President Franklin Delano Roosevelt, when the Great Depression took place and poverty among older people was as high as 50%. Under the Social Security Act signed into law by Roosevelt, retirees were given financial benefits, while a lump sum of money was paid to a deceased member's beneficiaries.
How the Social Security System Works
Funds for the system are generated from payroll taxes levied on the wages of each working individual. The payroll tax is based on the worker's income bracket: the higher an individual's income, the higher the amount he or she has to pay. On the other hand, the employer makes a matching contribution to the system that is exactly the same as the amount contributed by the worker. Self-employed individuals can also contribute and become members of the Social Security System.
In a nutshell, the self-generated funds for the Social Security System, collected from members, are the same money that pays the various benefits received by other members. The scenario is this: younger working members remit their payroll taxes to the system. These members, who are physically able, are expected to continue working and contributing their dues to the system for many more years. Meanwhile, while these active members go on working and paying, there are older (retiring) members as well as physically disabled members who will be receiving benefits from the Social Security System. The benefits that these entitled members receive come from the funds contributed by the actively paying members. This process continues in a cycle, much like one friend helping another, and vice versa.
Benefits from the Social Security System
Members are entitled to the following benefits: retirement benefits, disability benefits, survivor benefits, unemployment insurance and benefits, and pension benefits.
- Retirement benefits - The sum of money that a retiring member receives depends on his or her contributions during the period of membership. As pointed out earlier, the amount of contribution is relative to the member's income. Obviously, the higher the salary a member receives, the higher the retirement benefits he or she will be paid.
- Disability benefits - After five consecutive months of paying into the system, a member can already apply for disability benefits. Disability benefits are granted to members of any age who can prove that they have sustained injuries or suffered long-term health conditions that entitle them to disability claims.
- Survivor benefits - A surviving spouse is given survivor's benefits when the member spouse dies. Depending on the case, some divorced spouses are also entitled to these benefits. Likewise, a surviving spouse with disabled children or minors in his or her care will receive benefits as well. However, in this case, the identity of the children is strictly examined to prevent fraud. A security death index among members is projected each year to ensure the sufficiency of payments.
- Unemployment benefits - When a worker is laid off and loses his or her job, he or she receives a monthly pension for six months from the Social Security System. This aid is intended to help him or her during the time when he or she is not earning wages, is actively looking for another job, or is undergoing schooling, whichever is the case.
How the Social Security System Works
An overview of how the Social Security System operates, including its history, funding through payroll taxes, and the benefits it provides to members.
The Social Security System is a government program that provides social insurance to qualified individuals based on their circumstances as workers, dependents, the unemployed, senior citizens, or those who are sick or disabled.
Historically, the development of the Social Security System began in 1935 during the term of President Franklin Delano Roosevelt, when the Great Depression took place and poverty among older people was as high as 50%. Under the Social Security Act signed into law by Roosevelt, retirees were given financial benefits, while a lump sum of money was paid to a deceased member's beneficiaries.
How the Social Security System Works
Funds for the system are generated from payroll taxes levied on the wages of each working individual. The payroll tax is based on the worker's income bracket: the higher an individual's income, the higher the amount he or she has to pay. On the other hand, the employer makes a matching contribution to the system that is exactly the same as the amount contributed by the worker. Self-employed individuals can also contribute and become members of the Social Security System.
In a nutshell, the self-generated funds for the Social Security System, collected from members, are the same money that pays the various benefits received by other members. The scenario is this: younger working members remit their payroll taxes to the system. These members, who are physically able, are expected to continue working and contributing their dues to the system for many more years. Meanwhile, while these active members go on working and paying, there are older (retiring) members as well as physically disabled members who will be receiving benefits from the Social Security System. The benefits that these entitled members receive come from the funds contributed by the actively paying members. This process continues in a cycle, much like one friend helping another, and vice versa.
Benefits from the Social Security System
Members are entitled to the following benefits: retirement benefits, disability benefits, survivor benefits, unemployment insurance and benefits, and pension benefits.
- Retirement benefits - The sum of money that a retiring member receives depends on his or her contributions during the period of membership. As pointed out earlier, the amount of contribution is relative to the member's income. Obviously, the higher the salary a member receives, the higher the retirement benefits he or she will be paid.
- Disability benefits - After five consecutive months of paying into the system, a member can already apply for disability benefits. Disability benefits are granted to members of any age who can prove that they have sustained injuries or suffered long-term health conditions that entitle them to disability claims.
- Survivor benefits - A surviving spouse is given survivor's benefits when the member spouse dies. Depending on the case, some divorced spouses are also entitled to these benefits. Likewise, a surviving spouse with disabled children or minors in his or her care will receive benefits as well. However, in this case, the identity of the children is strictly examined to prevent fraud. A security death index among members is projected each year to ensure the sufficiency of payments.
- Unemployment benefits - When a worker is laid off and loses his or her job, he or she receives a monthly pension for six months from the Social Security System. This aid is intended to help him or her during the time when he or she is not earning wages, is actively looking for another job, or is undergoing schooling, whichever is the case.
How the Social Security System Works
By Howtodotips
An overview of how the Social Security System operates, including its history, funding through payroll taxes, and the benefits it provides to members.