Social Security (United States)

Based on Wikipedia: Social Security (United States)

Here's a number that should make you sit up: 66.8 million Americans receive a Social Security check every month. That's roughly one in five people in the entire country. And yet, despite being perhaps the most consequential piece of domestic legislation in American history, most people couldn't tell you how it actually works.

They know it exists. They know money gets taken out of their paycheck for it. They have a vague sense that someday, if everything goes according to plan, they'll get something back. But the mechanics? The politics? The precarious math that keeps the whole thing running? That's where things get fuzzy.

A Program Born in Crisis

Social Security emerged from the Great Depression, signed into law by President Franklin D. Roosevelt on August 14, 1935. The original document was just 37 pages long—a remarkable feat of brevity given that it attempted to fundamentally reshape the relationship between American citizens and their government.

The idea was simple, even if the politics were anything but. Before Social Security, growing old in America often meant growing poor. If you hadn't saved enough, if your investments went bad, if you simply lived longer than your money lasted—that was your problem. The result was a landscape dotted with "poor farms," essentially poorhouses where the destitute elderly went to live out their final years in grim conditions.

Social Security changed that calculus. Workers would pay into a system during their earning years, and the system would pay them back in retirement. It wasn't charity. It wasn't welfare, exactly. It was insurance—social insurance, to use the term Roosevelt preferred.

Not everyone was convinced.

Secretary of Labor Frances Perkins, the first woman to serve in a presidential cabinet and a driving force behind the legislation, later recalled a telling exchange during a Senate Finance Committee hearing. Senator Thomas Gore of Oklahoma asked her directly: "Isn't this Socialism?" She said no. He pressed on: "Isn't this a teeny-weeny bit of Socialism?"

The accusation has echoed through nearly a century of American politics. But whatever you call it, the program stuck.

How the Money Actually Flows

Social Security operates on a principle that sounds almost too simple to work: current workers pay for current retirees. This is called "pay-as-you-go" financing, and it's quite different from how most people imagine retirement savings.

When you see that line item on your paycheck labeled "FICA"—which stands for the Federal Insurance Contributions Act—that money isn't going into an account with your name on it. It's going to pay the benefits of people who are retired right now. When you retire, the workers of that future era will pay for you.

The tax itself is straightforward. Workers pay 6.2 percent of their wages, and employers match that amount, for a total of 12.4 percent. Self-employed people pay the full 12.4 percent themselves. But here's the catch: only earnings up to a certain threshold are taxed. In 2026, that cap is $184,500. Earn a dollar above that? No additional Social Security tax on it.

This ceiling is why you'll sometimes hear wealthy people say Social Security "isn't that bad" as a tax. For someone earning $500,000 a year, Social Security taxes represent a much smaller percentage of their total income than for someone earning $50,000. It's a regressive feature baked into a program often described as progressive.

Nearly everyone participates. About 94 percent of workers in paid employment contribute to Social Security. The main exceptions are roughly 6.6 million state and local government workers—about 28 percent of that workforce—who participate in separate pension systems instead.

The Trust Fund Problem

Social Security money flows into two separate trust funds. One handles retirement and survivor benefits—that's the Old-Age and Survivors Insurance fund, or OASI. The other handles disability payments—the Disability Insurance fund, or DI. Together, they're often referred to as OASDI.

For decades, more money flowed in than flowed out. Between 1983 and 2009, Social Security ran consistent surpluses. The trust funds accumulated reserves. As of 2022, the combined reserves stood at roughly $2.8 trillion.

But the math has shifted.

The baby boom generation—that massive cohort born between 1946 and 1964—is now retiring. Every day, about 10,000 baby boomers turn 65. They're living longer than previous generations. And the generations behind them are smaller.

The result is a demographic squeeze. More people drawing benefits, fewer people paying in. The trust funds are now drawing down rather than building up.

According to the Social Security Trustees' 2024 projections, the combined trust fund will be depleted by 2035. This doesn't mean Social Security would disappear—payroll taxes would still flow in, enough to pay about 77 percent of promised benefits. But without legislative changes, benefits would need to be cut by roughly a quarter.

This is the cliff that policymakers have been discussing, and mostly avoiding, for decades.

What You Actually Get

The average monthly Social Security benefit in May 2025 was $1,903. That's not nothing. But it's not exactly comfortable either, especially if it's your primary source of retirement income.

Calculating your specific benefit involves a formula that would make most people's eyes glaze over, but understanding the basic mechanics is worth the effort.

First, the system looks at your 35 highest-earning years. If you worked fewer than 35 years, zeroes get averaged in, which pulls your average down. Those earnings get adjusted for inflation using something called the national average wage index, which tracks how wages across the economy have grown over time.

This adjustment matters. A dollar earned in 1985 counts for more than a dollar earned in 2020, once adjusted. The system isn't just looking at raw numbers—it's trying to capture what your earnings represented relative to the economy at the time.

All those adjusted earnings get averaged into something called your Average Indexed Monthly Earnings, or AIME. Then that number gets run through a formula with "bend points"—specific dollar thresholds where the replacement rate changes.

For workers turning 62 in 2024, it works like this:

• 90 percent of the first $1,174 in average monthly earnings
• 32 percent of earnings between $1,174 and $7,078
• 15 percent of anything above $7,078

Notice something? The system is designed to replace a higher percentage of income for lower earners. Someone who averaged $1,000 a month over their career gets 90 percent replaced. Someone who averaged $10,000 a month gets much less—proportionally, anyway.

This is the progressive tilt in Social Security. Low-wage workers get back more per dollar contributed. High-wage workers get back less. It's wealth redistribution wrapped in the language of insurance.

When to Start Collecting

You can start receiving Social Security retirement benefits as early as age 62. But "can" and "should" are different questions.

Take benefits early, and they're permanently reduced. Wait, and they grow. Your "full retirement age"—when you're entitled to 100 percent of your calculated benefit—depends on when you were born. For people born in 1960 or later, it's 67.

Claim at 62? You'll get about 70 percent of your full benefit. Every month you wait increases your payment. And if you can hold out until 70, you get delayed retirement credits that push your benefit to 124 percent of what it would have been at full retirement age.

This creates genuine strategic decisions. Do you take smaller checks for more years, or larger checks for fewer years? Your health, your finances, your spouse's situation, your other income sources—all of it factors in.

There's no universally right answer. But for people who can afford to wait and expect to live into their eighties, delaying often makes mathematical sense.

It's Not Just for Retirees

When most people think "Social Security," they think retirement. But the program is broader than that.

Of those 66.8 million beneficiaries, about 52.4 million are retired workers or their family members. But 7.4 million are receiving disability benefits, along with another 1.2 million dependents. And roughly 5.8 million people, including 2 million children, receive survivor benefits—payments that go to the families of workers who die.

The disability program—Social Security Disability Insurance, or SSDI—functions almost like a parallel track. Workers who become disabled before retirement age can qualify if they've worked enough years and can demonstrate they cannot perform substantial work due to their condition.

Survivor benefits tell some of the most poignant stories in the Social Security system. A worker who dies young may have contributed for only a decade or two, but their spouse and children can still receive benefits based on that worker's earnings record. These payments have kept millions of families from financial catastrophe.

The Dual Entitlement Problem

Here's a wrinkle in the system that disproportionately affects women.

Imagine a married couple where one spouse earned significantly more than the other throughout their careers. The lower-earning spouse is entitled to their own retirement benefit based on their own work record. But they're also entitled to a "spousal benefit" equal to up to 50 percent of their higher-earning spouse's benefit.

You might think they'd get both. They don't.

Under dual entitlement rules, you get your own benefit first, and then only the difference—if any—between that and the spousal benefit. In practice, this means many women who spent years in the workforce receive no more than they would have if they'd never worked at all.

In 2022, about 7 million women were affected by these rules. The imbalance reflects historical patterns of wage inequality between men and women, patterns that Social Security's structure can amplify rather than correct.

A Legal Landmark Most People Have Never Heard Of

In 1960, the Supreme Court issued a ruling that fundamentally shaped what Social Security is—and isn't.

The case was called Flemming v. Nestor. Ephram Nestor had paid into Social Security for years, then had his benefits terminated after being deported for having been a Communist Party member. He sued, arguing he had a right to the benefits he'd paid for.

The Court disagreed.

The justices ruled that Social Security benefits are not a contractual right. Congress can change the rules at any time. The money you've paid in doesn't create a legal entitlement to specific benefits. It's not like a private annuity or pension where your contributions buy you a defined future payment.

This means that, legally speaking, the benefits you've been promised exist only as long as Congress chooses to keep promising them. It's a sobering precedent. The political pressures to maintain benefits are enormous—66.8 million voters receive checks, after all—but the legal obligation is essentially nonexistent.

The Medicare Connection

Social Security and Medicare are siblings, not twins. They're administered separately, funded separately, and have different eligibility rules. But they're intertwined in public perception and in practice.

Medicare was added to the Social Security Act in 1965, extending health coverage to Americans 65 and older. The addition came with its own payroll tax—starting at 0.7 percent and growing substantially over the decades.

If you qualify for Social Security retirement benefits, you typically qualify for Medicare at 65. If you've been receiving Social Security disability benefits for 24 months, you qualify for Medicare regardless of age. The two programs often function as a package deal, even though their financial situations and policy debates are distinct.

The Cost-of-Living Adjustment

One of Social Security's most important features is also one of its most taken-for-granted: benefits are adjusted for inflation.

This wasn't always the case. In the program's early decades, Congress would periodically pass legislation to increase benefits—sometimes dramatically, like the 77 percent increase in 1950. But these adjustments were irregular and political.

In 1975, automatic cost-of-living adjustments, or COLAs, became law. Now, every year, benefits increase based on changes in the Consumer Price Index. When inflation spikes, benefits go up. When inflation is low, the adjustments are modest.

This indexing protects retirees from seeing their purchasing power erode over time. A benefit that bought a certain standard of living in your first year of retirement should buy roughly the same standard of living twenty years later.

The COLA for 2024 was 3.2 percent, raising the average benefit from $1,783 to $1,903. In years of high inflation, these adjustments can be substantial. In some years, they're zero.

The Politics of Reform

Everyone knows Social Security faces long-term financing challenges. Almost no one wants to do anything about it.

The math isn't complicated. To keep the system solvent, some combination of three things needs to happen: benefits need to be reduced, taxes need to be increased, or the retirement age needs to go up.

Each option has passionate opponents.

Reducing benefits hits current and near-retirees who've planned their lives around certain expectations. Raising taxes hits current workers who are already seeing money taken from their paychecks. Increasing the retirement age effectively reduces lifetime benefits for everyone and falls hardest on workers in physically demanding jobs who may not be able to work into their late sixties.

The last major reform came in 1983, when a bipartisan commission led by Alan Greenspan produced recommendations that Congress enacted. Those changes—including gradually raising the full retirement age to 67 and taxing some Social Security benefits—bought decades of solvency.

Those decades are now running out, and no comparable bipartisan effort has emerged to address the next crisis.

What Depletion Would Actually Mean

When projections say the trust fund will be "depleted" by 2035, the language can be misleading. It sounds like Social Security would simply stop existing.

It wouldn't.

Payroll taxes would continue flowing in. Roughly 77 percent of promised benefits could still be paid from ongoing revenue. The question is what happens to the other 23 percent.

One possibility: across-the-board cuts. Everyone's benefit drops by roughly a quarter. This would be painful but predictable.

Another possibility: delayed payments. Full benefits continue, but checks don't arrive on time. This would create chaos, especially for retirees who depend on that income to pay rent or buy groceries.

A third possibility: some legislative fix gets passed at the last minute. This has happened before. In 1983, the trust fund was mere months from depletion when Congress acted.

Betting on last-minute legislative action isn't crazy. It's how American politics often works. But it's not exactly reassuring either.

The Broader Picture

Social Security costs about 5.2 percent of the entire U.S. gross domestic product. That share is projected to rise to about 6.3 percent by 2076 before declining slightly.

Is that too much? Too little? The question is fundamentally about values, not mathematics.

Other developed countries spend more on their elderly populations. Many have more generous pension systems. The tradeoff is typically higher taxes on workers or less spending on other priorities.

America has made a particular choice: a relatively modest social insurance system, funded primarily by payroll taxes, that provides a floor but not a ceiling for retirement security. Whether that choice remains tenable depends on demographic trends, economic growth, and political will.

For now, Social Security remains what it has been for 90 years: the closest thing America has to a universal economic guarantee, touching the lives of nearly every citizen, funded by nearly every worker, and perpetually in need of attention that Congress seems perpetually reluctant to provide.

The checks keep going out. The taxes keep coming in. The clock keeps ticking. And 66.8 million Americans wait to see what happens next.