How Does Social Security Work?
Launched in 1935, Social Security is a federal program that provides money to retirees, the disabled and survivors of workers who have died.
Social Security benefits are funded through a Social Security tax that most U.S. employees pay. However, the money that employees pay is not held in a personal account that they can later draw from. Instead, the tax they pay now is being used to pay people who are currently receiving benefits.
Although most of the people collecting Social Security are retirees, many others are eligible for assistance, according to the U.S. Social Security Administration. These recipients include the disabled, a spouse or child of someone who gets Social Security, a spouse or child of a worker who died, or a dependent parent of a worker who died. [Best Online Tax Software Reviews]
Depending on circumstances, people may be eligible for Social Security benefits at any age.
According to the U.S. Social Security Administration, 85 cents of every dollar Social Security pays out goes toward funding monthly benefits for current retirees and their families, as well as surviving spouses and children of workers who have died. The other 15 cents is used for benefits for people with disabilities and their families.
When employees are ready to collect their Social Security, payments are based on how much they earned during their career, with higher lifetime earnings resulting in higher monthly benefits.
Benefit amounts are also affected by the age at which an employee decides to retire. Payments are available as early as age 62, but the value would be about 25 percent lower than what's collected by those who wait until full retirement age, which ranges from 66 to 67 years old depending on the year they were born.
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Today, about 159 million people work and pay Social Security taxes, and roughly 55 million receive monthly benefits.
Chad Brooks is a Chicago-based freelance business and technology writer who has worked in public relations and spent 10 years as a newspaper reporter. You can reach him at chadgbrooks@gmail.com or follow him on Twitter @cbrooks76.