Tuesday, February 01, 2005
Social Security Q&A
A Tiny Revolution answers some questions about Social Security.
What is Social Security?
Social Security, founded in 1935, is a government-guaranteed retirement program. (At least, this is what people usually mean when they talk about Social Security. It also provides disability and life insurance.)
45 million of us, or more than one in every seven Americans, receive Social Security benefits. It's the most successful and most popular government program in U.S. history. In fact, it may be the most successful and popular government program in the history of the world.
How does Social Security work?
It's very simple: the government takes 12.4% of every worker's paycheck in what are called "payroll taxes." Then the Social Security Administration sends the money off to current retirees and other beneficiaries. The amount each retiree gets varies. The more you paid in during your working life, the more you get when you're retired.
Today, an average retiree—I'm going to call her Mary, after my grandmother—gets about $15,000 per year in benefits. Mary is guaranteed to get this $15,000 every year as long as she lives. Her savings might run out, the stock market might crash, and her old company might go bankrupt and stop paying her pension. But she will still get Social Security. Just as important, her benefits are protected against inflation. So if prices double, her benefits will automatically double to $30,000.
Once set, a retiree's benefit stays the same but is guaranteed no matter how long he or she lives. That's a lot of the "Security" part of "Social Security." It's almost impossible to get that guarantee, and protection against inflation, from anywhere except Social Security.
There's much more here. I highly recommend reading the whole thing.
posted by chris at 2:42 PM
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