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Understanding Social Security in the United States
Overview of Social Security
Social Security is a federal program that provides monetary assistance to individuals with inadequate or no income, primarily focusing on retirees, disabled workers, and survivors of deceased workers. :contentReference[oaicite:0]{index=0}
History and Development
Before the establishment of Social Security, care for the elderly or disabled in the U.S. was not a federal responsibility. This changed in 1935 when President Franklin D. Roosevelt signed the Social Security Act into law, introducing a system to support retirees and, later, expanding to include survivors and disability benefits. :contentReference[oaicite:1]{index=1}
Key Facts and Figures
- Approximately 169 million Americans pay Social Security taxes. :contentReference[oaicite:2]{index=2}
- About 65 million Americans receive monthly benefits, equating to roughly one in five Americans. :contentReference[oaicite:3]{index=3}
- More than three out of five beneficiaries rely on Social Security for over half of their income. :contentReference[oaicite:4]{index=4}
- Administrative costs account for approximately 1% of total expenditures from the Old-Age & Survivors Insurance and Disability Insurance trust funds. :contentReference[oaicite:5]{index=5}
Cost-of-Living Adjustment (COLA)
Social Security benefits are adjusted annually based on the Cost-of-Living Adjustment (COLA) to account for inflation, ensuring beneficiaries maintain their purchasing power. COLA is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). :contentReference[oaicite:6]{index=6}
Funding and Taxation
Social Security Tax
The program operates on a pay-as-you-go system, where current workers' payroll taxes fund current beneficiaries. Employees and employers each contribute 6.2% of earnings, totaling a 12.4% tax, up to a wage base limit. Self-employed individuals pay the full 12.4%. :contentReference[oaicite:7]{index=7}
Income Tax on Benefits
Social Security benefits may be subject to federal income tax, depending on combined income levels. For single filers with combined income between $25,000 and $34,000, up to 50% of benefits may be taxable; above $34,000, up to 85% may be taxable. :contentReference[oaicite:8]{index=8}
Retirement Benefits
Eligibility and Calculation
Eligibility for retirement benefits requires earning at least 40 credits, typically equating to 10 years of work. Benefits are calculated based on the average of a person's 35 highest-earning years. :contentReference[oaicite:9]{index=9}
Full Retirement Age (FRA)
Full Retirement Age varies depending on birth year. For those born in 1960 or later, FRA is 67. Claiming benefits before FRA results in reduced benefits, while delaying benefits past FRA, up to age 70, increases the monthly benefit amount. :contentReference[oaicite:10]{index=10}
Working While Receiving Benefits
It's possible to work while receiving Social Security benefits. However, if you're below FRA and your earnings exceed certain limits, your benefits may be temporarily reduced. Once you reach FRA, you can earn any amount without affecting your benefits. :contentReference[oaicite:11]{index=11}
Disability Benefits
Social Security Disability Insurance (SSDI)
SSDI provides benefits to disabled workers who have accumulated sufficient work credits. ::contentReference[oaicite:12]{index=12}
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