Friday marks the 80th anniversary of the signing of the Social Security Act in to law and to celebrate, we’re dedicating today’s wonky word to Social Security. (Friday we will learn why it is one of the most effective government programs to date.)
In 1935, President Roosevelt signed the Social Security Act as a part of his New Deal plan to lift America out of the Great Depression. Social Security is a federal program that provides benefits and insurance to older and disabled Americans. Those who qualify to receive benefits include:
- Starting at the age of 62, individuals receive social security as retirement income
- Disabled individuals
- Children under the age of 18 or spouses who receive survivor benefits after the death of a primary breadwinner
The program is funded through payroll taxes collected from employees and employers. But there’s a cap on how much businesses and workers pay into the program.
In 2015, a worker pays into Social Security up to the first $118,500 in annual earnings. Because of this cap, an individual earning more than $118,500 per year will not contribute payroll taxes on income above this threshold and this individual will also not receive benefits based on income above the threshold. The reason is this. Individuals earning above $118,500 per year are more likely to have the financial resources to make ends meet after they retire or if they become disabled. Therefore, higher-income individuals do not need Social Security benefits at the same rate as low-to-moderate-income individuals do. In fact, the majority of Social Security recipients have few if any other income sources. For two-thirds of elderly recipients, Social Security comprises half of their total income.
Payroll taxes used to fund Social Security are collected by the IRS and placed in to separate funds used to cover the processing and administration of benefits for those receiving retirement, disability, death, or survivor benefits. Collectively, these separate funds are referred to as Social Security Trust Funds.
On Friday, we’ll explain why Social Security is not only a program for retirees and how its broad impact lifts millions of Americans out of poverty each year.