Explaining Social Security in 8 Steps

The Social Security program affects nearly all Americans and helps support disabled and older adults. There are about 167 million people paying taxes into the program with almost 60 million receiving money each month. The vast majority of beneficiaries are retirees, although there are also millions of survivors and disabled adults who rely on this benefit.

On average, a benefit can replace around 40% of a wage earner’s income after they retire. The program is not designed to be a retiree’s sole source of income, but it has become that for many. For most workers, Social Security will be their only form of guaranteed income when they retire as most employers have shifted away from defined benefit pensions and toward defined contribution plans like 401(k)s.

Once you begin receiving your benefit, your payments will continue to increase to keep pace with inflation, unlike an annuity or pension. This is one of the most commonly overlooked advantages of Social Security. The program also offers a guaranteed benefit that is based on your earnings. The more you earn, the higher your benefit. This system provides a foundation to retire for millions of Americans, yet many do not understand exactly how it works. Here’s what you should know about the advantages the system offers and how you become eligible.

What Is Social Security?

America’s Social Security System was created in 1935 by President Roosevelt as the first form of federal assistance for the elderly. The program began as a means to provide income to retirees and the unemployed with a lump sum benefit at death. The program has been expanded and changed many times over the last century, but its goal remains the same: economic security for retired and disabled adults.

Social Security is a financial safety net for American workers who are ready to retire or become disabled. The program is based on workers’ contributions into the system while employed. The majority of workers in the U.S. pay into the system while employed through payroll deductions and receive money later when they retire.

While many people think of this system as just a program for retirees, benefits are available for survivors, spouses, and disabled adults as well. Many people who receive a benefit are disabled, a family member of someone receiving a benefit, a divorced person using a spousal benefit, a family member of a deceased worker, or a dependent parent of a deceased worker.

While the Social Security system is generally stable, the trust fund is set to run out in 17 years. Without action, tens of millions of Americans will receive just 75% of their benefit when the fund begins to run out. Fortunately, this is likely to be averted, possibly by increasing the age at which workers can qualify for payments.