Social Security in the United States refers to a federal system of social insurance that provides financial protection to people and families when facing retirement, disability, or the death of a wage-earner.
It is meant to be a baseline support, not a full income replacement.
In this article, we explain what Social Security means, why it exists, its core functions, and the mechanics behind benefit calculation and eligibility.
What is the formal definition of Social Security?
Social Security is a U.S. government program (specifically Old-Age, Survivors, and Disability Insurance, or OASDI) that provides monthly benefits to retirees, disabled individuals, and survivors of deceased workers.
It is funded primarily through payroll taxes (FICA for employees and SECA for self-employed) paid by workers and employers.
In broader social policy terms, “social security” refers to systems of social protection designed to ensure individuals or families against economic risks such as old age, disability, unemployment, or death.
The Social Security Administration (SSA) is the agency that administers this system: it issues Social Security numbers, runs benefit programs, manages the trust funds, and handles eligibility and payments.
Why was Social Security created and what is its purpose?
Social Security was established by the Social Security Act of 1935 as part of the U.S. safety net during the Great Depression.
Its goal was to provide basic protection to elderly workers who could no longer work, and to stabilize consumption across lifetimes.
Over time, it has expanded: survivor benefits were added in 1939, and disability benefits came in 1956.
The system aims to:
- Provide income in retirement to replace part of pre-retirement earnings
- Protect families after a worker’s death by paying survivors’ benefits
- Provide relief for people who become disabled and cannot work
- Reduce poverty among seniors and vulnerable populations, serving as a financial floor
It was never intended to replace full income but to supplement other savings, pensions, or work income.
What types of benefits does Social Security provide?
The main benefit categories are:
- Retirement benefits: monthly payments to people who have worked and paid into the system. Typically, eligibility begins at age 62, though full benefits depend on one’s “full retirement age.”
- Disability benefits (SSDI): payments to individuals who become disabled and cannot perform “substantial gainful work,” and who have the required work credits.
- Survivor’s benefits: benefits to family members (spouses, children, sometimes parents or ex-spouses) after a worker’s death.
- Family benefits: dependents or auxiliary benefits for spouse or children when a worker qualifies.
Additionally, there is Supplemental Security Income (SSI), which is distinct from OASDI: a need-based program for low-income aged, blind, or disabled individuals.
The SSA administers it, but SSI is funded from general revenues, not payroll taxes.
How does someone become eligible for Social Security benefits?
Eligibility for retirement or disability benefits depends on earning “credits” during your working life.
In 2025, you typically need 40 credits (equivalent to about 10 years of work) to qualify for retirement benefits.
For disability benefits, you must have a sufficient work history (number of credits based on age) and meet medical criteria (documented impairment preventing “substantial gainful activity”).
For survivors’ benefits, eligibility depends on the deceased worker’s Record and contributions; certain family members may qualify based on their relationship.
How are Social Security benefits calculated?
Benefit amounts are based on a worker’s average indexed monthly earnings (AIME), using up to the highest 35 years of covered earnings, adjusted for wage growth.
Then a formula with “bend points” applies percentages to portions of the AIME to produce a primary insurance amount (PIA).
When you claim early (before full retirement age), your benefit is reduced. If you delay past full retirement age (up to age 70), your benefit increases (delayed retirement credits).
Cost-of-living adjustments (COLA) may increase benefits in future years to keep up with inflation.
In short: work history + earnings + age of claiming + COLA = benefit amount.
What role do payroll taxes and trust funds play?
Social Security is financed largely by payroll taxes. Employees and employers each pay a percentage (under FICA), and self-employed workers pay under SECA.
These taxes go into trust funds (the OASI Trust Fund for retirement and survivors, and the DI Trust Fund for disability).
The funds pay benefits and hold reserves invested in special government securities.
If taxes collected in a given year are insufficient to pay full benefits, the trust funds are used to cover the difference.
What challenges and future outlook does Social Security face?
Social Security faces demographic pressures: an aging population, lower birth rates, and changing labor force participation.
These reduce the ratio of workers to beneficiaries.
The Trustees project that trust fund reserves may be depleted in the early 2030s unless reforms are enacted.
Once reserves run out, incoming payroll taxes would only cover a portion of scheduled benefits.
Many policy proposals exist to address the gap: raising payroll tax rates, adjusting benefit formulas, increasing the retirement age, or removing the taxable payroll ceiling.
Given these pressures, Social Security remains foundational, but it requires adjustments to remain sustainable.
