What is the Social Security Administration (SSA)?

The Social Security Administration is like a payroll firm for the retired and disabled…

It doesn’t employ you, but it’s responsible for cutting you your monthly check.

What would become the Social Security Administration was created in 1935 in a law signed by President Franklin D. Roosevelt at the time when the Old-Age, Survivor, and Disability Insurance (OASDI) program was designed. The agency was initially created as the Social Security Board and was housed within the Department of Health and Human Services.

In 1946, it became the Social Security Administration. In 1994, the program became an independent agency in a bill signed by President Bill Clinton. The Social Security Administration began collecting payroll taxes in 1937. It paid its first benefit payment in 1940.

The agency headquarters are in Woodlawn, Maryland. Outside of their Central Office, they also have regional offices, processing centers, field offices, and teleservice centers across the country. The agency employs nearly 60,000 people.

The Social Security Administration provides monthly benefits to individuals who have retired or who are unable to earn their own income due to a disability. The agency currently collects payroll taxes from about 178 million people and provides benefits to about 64 million people.

The Social Security Administration also provides other important services. When a child is born, parents typically apply for a Social Security number for him or her. The agency generates a Social Security number and card, and this serves and the individual’s numerical identity for many administrative purposes. This number is vital to the agency, because down the road when that child begins working, their Social Security number is how the agency will track their income, which determines what benefits they receive in retirement. If someone needs to change their name someday due to marriage or divorce, the agency can help that person to legally change their name, and issues him or her a new Social Security card.

The official name for the Social Security program is the Old-Age, Survivors, and Disability Insurance (OASDI) program. As the name suggests, those who are elderly, disabled, or survivors of those individuals might be eligible to receive benefits.

Most of the payments the Social Security Administration makes each month are retirement benefits, meaning the money is going to individuals who have retired after paying Social Security taxes in the workforce. Retirement benefits account for 73.2% of the benefits the Social Security Administration pays. Someone can get these benefits if they’ve reached retirement age and have earned at least 40 work credits (which usually means about 10 years in the workforce).

Currently, the full-benefit retirement age is currently 66, but it is being raised to 67 in stages. This is the age someone must reach to receive their full Social Security benefit amount. Social Security benefits for retirement are calculated by a formula that looks at the individual’s highest-paid years in the workforce and adjusts the amount for inflation.

Though the full-benefit retirement age is 66 years old, and that is when you can receive your full retirement benefit, you can receive more or less money by collecting benefits earlier or later. You can begin collecting benefits at age 62, but you’ll get a lower monthly amount. If you wait until age 70 to start receiving benefits, you can get a higher monthly amount — Kind of like a bonus. The average monthly retirement benefit in April 2022 was $1,620. For many Americans, the Social Security benefits they receive may not be enough to provide a livable income during their retirement years. For this reason, many individuals also save for retirement through an employer-sponsored 401(k) or an individual retirement account (IRA).

Another benefit the Social Security Administration pays is to disabled individuals. These benefits apply to individuals who have a disability that meets the Social Security Administration’s definition of disability — generally meaning that it will keep them out of the workforce for at least one year.

For an individual to receive a disability benefit, they still must have been in the workforce and paid Social Security taxes. There is a different program, Supplemental Security Income (SSI), that provides benefits to individuals who may not be eligible under this work requirement.

The average monthly disability benefit in April 2022 was $1,358. These disability payments make up about 14.5% of benefits the Social Security Administration pays.

Someone also might be eligible to receive benefits from the Social Security Administration if they are the surviving spouse or child of an individual who received retirement or disability benefits. These survivor payments make up about 12.3% of the benefits that the Social Security Administration pays.

All employees, employers, and self-employed individuals in the United States pay payroll taxes that fund the benefits that the Social Security Administration provides. All workers pay a 6.2% payroll tax on the first $137,700 of their income. Employers have to match the 6.2% that their employees pay.

The tax works a little differently for self-employed individuals. Since those individuals are both the employer and the employee in their business, they are responsible for paying both parts of the tax, which amounts to a 12.4% tax on the first $137,700 of their income.

Just about everyone has to pay the Social Security payroll tax. There are only a few exceptions, including religious groups who are opposed to receiving Social Security benefits, foreign students, and foreign government employees. Anyone who doesn’t pay Social Security taxes is also not eligible to receive Social Security benefits later in life.

Some individuals aren’t eligible to receive benefits under the Social Security program, but also aren’t able to work and earn a living wage. Those individuals might be eligible to receive benefits under the Supplement Security Income (SSI) program. The funding for SSI benefits does not come from Social Security taxes like the other benefits the Social Security Administration provides. Instead, the funding comes from general tax revenues.

Under traditional retirement or disability benefits, your work history determines your eligibility. With SSI, your need determines your eligibility.

The SSI program provides a safety net for individuals in need who are either elderly, blind, or disabled and who have little to no income. To apply for SSI benefits, an individual must have less than $2,000 in assets for an individual and $3,000 for a married couple. These assets do not include an individual’s home, vehicle, or other household goods.

The amount an individual can receive under SSI is less than the benefits possible under the Old-Age, Survivors, and Disability Insurance (OASDI) program. For 2023, the maximum an individual can receive monthly is $914, and the maximum a couple can receive monthly is $1,371. However, those who receive benefits under SSI are also eligible for Medicaid, which provides health insurance coverage to low-income individuals. These individuals might also be eligible for other government benefits such as food stamps.

There has been a lot of debate as to the future of the Social Security program. Younger generations might have doubts as to whether the program will be around to benefit them in their old age. Americans today live longer than they did at the program’s inception, meaning they are receiving benefits for more years than previous recipients. People also are not having as many children, meaning there are fewer taxpayers to fund the program.

The Social Security Administration has responded to these concerns. They’ve shared that the reserves they currently have set aside will only last until 2035. That doesn’t mean the program will be totally out of money though. Once the reserves run out, the tax revenue that funds the program will be enough to pay about 80% of the benefits. By 2093, the tax revenue will be enough to fund 75% of the benefits.

So, while the program is not going to run out of money anytime soon, it will be underfunded in 2035 if there are no policy changes before then.