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Have you ever wondered how Social Security works?  It’s actually a somewhat complex system established by the 1935 Social Security Act due in part to the Great Depression.  President Franklin D. Roosevelt wanted the Federal Government to assist the elderly during their retirement years and establish aid for the disabled and survivors benefits for spouses and children of deceased workers.  Before Social Security, care and monetary funding for these individuals was up to the states, local communities and family members.

When the Great Depression hit, it was literally impossible for many families and local outreach programs to continue to render assistance as the economic crisis penetrated all areas of life and work for over a decade. Thus, FDR set up by executive order, a commission to investigate the social impact on Americans by the Depression and it was the findings that lead the President to ask Congress to create a program to help the elderly, disabled and survivors of deceased workers.

Social Security is a program not based upon the needs of the participants but rather how much and how long the participants pay into the system. Eligibility for benefits upon retirement includes a few factors:

  1. Age – individuals must be 62 years old or older to receive retirement benefits
  2. Length of employment – individuals must have worked for at least 40 quarters (over the life of their work experience) and paid into Social Security through payroll deductions (or on their own if self-employed)
  3. There is no requirement to be a US citizen
  4. Disability benefits eligibility is based upon a determination by the Social Security system along with the above listed qualifications (except for disability applicants under the age of 18).

Social Security is funded through specific payroll taxes deducted from the employees’ paycheck.  The Employer matches the amount paid by the employee.  If you look at your pay-stub, you will find under deductions something called “FICA” (Federal Insurance Contributions Act) that is actually a combined payroll tax amount for both Social Security and Medicare.  The premise of this funding is that the current work force is paying the current retirement group.  The breakdown or distribution of the payroll tax that goes into Social Security is as follows:

  • Retirement and Survivors Tax 10.6% (5.3% from employee & 5.3% from employer). This amount goes into the Old-Age and Survivor’s Trust fund
  • Disability Tax1.8% (0.9% from employee & 0.9% from employer).  This amount goes into the Disability Insurance Trust Fund

The remaining payroll tax collected, approximately 2.9% total from both employee and employer, is allocated to Medicare; a separate program from Social Security.

As a retiree, an individual may earn up to $25,000.00 without having to pay income tax on their Social Security.  If the person makes from $25,000 to $34,000 and files their tax status as ‘individual’, they will pay income tax on 50% of their Social Security benefits.  Should they make over $34,000 in a tax year, the individual filer will pay income tax on 85% of their Social Security retirement income.

And there you have it, a brief overview of the Social Security program. The need for a safe and stable monetary support for the elderly, the disabled and survivors of deceased workers came about during a horrific economic crisis and continues to help millions of Americans every year.  It’s estimated that even with the Social Security program, 10 out of every 100 retiree’s live in poverty so make sure that you start saving for your retirement as soon as possible by opening up an IRA account now.

Author Bio

Total Articles: 158
After amassing more than $255,000 in debt on a math degree from the University of Miami, Michael now enjoys spending time at home and writing about personal finance.

Article comments

reinkefj says:

>Have you ever wondered how Social Security works?

The Gooferment, using its gun power, has stolen and continues to steal from the workers taxes under the guise of “insurance”.

Like a Ponzi scheme, it uses what it steals from current workers to pay off older workers. Unlike a Ponzi scheme, it’s almost impossible to avoid this theft.

In practical terms, this program transfers money from poor minority men to rich white women.

It’s intergenerational theft!

And, as an “investment”, it’s the rough equivalent a negative rate of return estimated between 2 and 5%.

>President Franklin D. Roosevelt wanted to assist the elderly

While we’ll never know what he wanted, but we do know he was a “progressive” who admired socialism.

It was asserted that “social security” was a big step on the road to socialism. Huge societal changes were initiated by this action. In effect, he put the old on the dole.

>impact on Americans by the Depression

A Depression that was caused by the Congress in passing the Smoot Hawley tariff and exacerbated by the (unconstitutional and monopolistic) Federal Reserve Bank. So, the answer is, of course, “more gooferment”!

>Before Social Security, care and monetary funding for these individuals

Was their own responsibility. And that of their family. Multi-generation family farms were common BEFORE social security.


And, don’t overlook the fact that Congress changes the rules as it sees fit. Try doing that if you were an insurance company.

Social Security is a disaster. And, as such, everyone should be VERY careful in including it in their financial plans.

And, bear in mind that the Gooferment needs money, and the IRA / 401ks are held by “Custodians”. So everyone should be worried that they will have their IRA and or 401k when they need it to retire.

Lest you think “it can’t happen here”, then think back on the Bank Holiday, the Gold Seizure, and the Japanese Internment.

“Government is not reason; it is not eloquence; it is force! Like fire, it is a dangerous servant, and a fearful master.” George Washington

Andreas says:

“In practical terms, this program transfers money from poor minority men to rich white women.”

Oh please! I don’t like social security either. But people like you are part of the problem. Minorities get all sorts of benefits whites don’t get. They get hired when they are not as qualified. They get accepted to good universities when they are far less qualified. They get grants that I never qualified for (even though I was just as broke at that time). They take up a far larger proportion of welfare than whites.

Take your anti-white bullshit and stick it up your liberal ass.

CreditShout says:

This is a great overview. I learned about social security a long time ago and it was nice to refresh my memory on such a crucial part of finance.

Jim@Apply for Social Security says:

I actually feel one of the most disregarded elements in submitting an application for social security correctly is actually that a lot of people do not necessarily completely study their own claim. This is vital to being qualified.