Social Security

May 7th 2016


Social Security is a general term that describes the government-sponsored programs that help support working people during periods of poverty, disability, unemployment, and retirement. When your income drops due to injuries, company layoffs, or age, the government will supplement your income with additional funds.

Social security is an insurance program that people pay into with a portion of their taxes. The state and federal government administer their own independent social security programs. For example, unemployment insurance is available to workers through state agencies. Retirement and disability benefits are other programs that are available through the federal government.

Before 1940, there was no government protection against the financial hardships that result from illness, unemployment, death, and old age. When people lost their primary sources of income, they were driven into poverty with no additional sources of financial support.

In the '30s, the Great Depression destroyed the economic well being for a majority of American citizens. High unemployment rates and failing banks caused many families to lose their livelihoods with no additional sources for financial stability. Unemployment rates were at staggering highs, especially for elderly Americans.

The crisis during the Great Depression prompted the government to redefine the concept of welfare in the United States. In 1935, President Franklin D. Roosevelt signed the Social Security Act with the objective of protecting Americans against basic uncertainties and hardships that result from poverty, disability, unemployment, and age.

How It Works

All employed taxpayers pay a portion of their income as a mandatory Social Security Tax. Like other taxes, the Social Security Tax rate varies based on income. In most situations, employers must match the amount withheld. Self-employed individuals must pay twice as much into social security.

The Social Security Tax dollars fund programs for retirement, death, unemployment, and more. If you experience a qualifying event through no fault of your own such as loss of employment or an injury, you will need to file an application with the appropriate state or federal agency. For example, if you lose your job, you will need to apply for benefits through your state's unemployment department. If you become disabled and can no longer work, you will need to contact the federal Social Security Administration to claim your benefits.

Every United States citizen, permanent resident, and temporary working resident receives a Social Security number to keep track of their financial status, program eligibility, and tax records. Every year, Social Security cardholders receive a summary of benefit eligibility in the mail. When you pay taxes, you earn a certain amount of retirement credits. Once you earn a minimum number of credits, you are eligible to receive monthly Social Security checks that are based on your lifetime income. Credits are capped at an annual maximum, and most people earn more than the minimum number.

Once you reach age 62, you can start redeeming these credits and collecting benefits for retirement. Most people wait until they are 65 to retire because the benefits are better.


Social Security is not an optional plan. If you earn income in the United States, then you are required to pay Social Security tax. There are situations that allow exceptions for low-income wage earners, but in any case, the majority of people must pay. Your Social Security check amount will depend on the amount that you have earned over the your life.

If you are disabled, you can also receive benefits based on what you have paid into Social Security. People who have earned a limited amount of income or who have never been employed can also qualify for disability benefits through Social Security in some cases.

For the most part, Social Security cannot completely cover the costs of retirement. Most people have a comprehensive retirement plan that includes savings and retirement funds. Regardless, Social Security provides a supplement that can help people make ends meet.


The current Social Security tax is 6.2 percent of your income. The Medicare tax rate is 1.45 percent. Unlike income tax rates that vary based on the total amount earned, the Social Security tax is the same for every wage earner.


Most employees pay Social Security taxes with every paycheck. When you are unemployed, you are not required to pay Social Security taxes, and if you are self-employed, you must pay double. If you have employees, you must pay Social Security taxes for them.

You can start collecting limited retirement benefits at age 62; however, most people start collecting benefits at age 65 since there are more benefit options.

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