Social Security

Pay As You Go

Social Security is a government program that provides benefits to people who are retired, unemployed, or disabled.

It was established in 1935 as part of the Old-Age, Survivors, and Disability Insurance Act (OASDI).

Its benefits include:

  • Retirement income
  • Disability income
  • Death and survivorship benefits
  • Medicare (health insurance program for those over 65 or with disabilities)
  • Medicaid (health insurance program for the low-income and needy)

Calculator: How much will you have at retirement?

Employers and employees pay Social Security taxes, which then go towards a large Social Security fund. The money in this fund goes primarily towards people who are eligible for collecting Social Security.

People receive Social Security income based on the amount of Social Security taxes they have paid (up to a certain maximum amount).

Social Security also provides a disproportionate amount to people with lower incomes – therefore it also helps those in need.

With the Baby Boomer generation, Social Security faces a financial challenge due to the generational pressure of 76 million people reaching retirement age (Baby Boomers were born around 1946-1964, which was when soldiers came home from fighting overseas in WWII).

The social security number

The Social Security number was developed after the Social Security Act of 1935 to identify the earnings records for the millions of people covered by the new law. A method was needed to maintain accurate records for each person working.


Today, legal residents working in the United States have an individual Social Security number. This number is required for filing taxes with the IRS and getting a job.

It consists of nine numbers, and the first three represent the area number, which is based on the location of the office that filed the number. A state with a large population usually has many area numbers, for example, California’s area numbers range from 545-573 and 602-626. Nevada, however, only has one area number: 530. The fourth and fifth numbers make up the group number, which ranges from 01 to 99. Finally, the last three numbers are the serial numbers. They are a numerical sequence from 0001 to 9999.

Sample social security card

Fun facts:

  • Social Security is one of the largest government programs in the world, paying out hundreds of billions of dollars per year.
  • About 158 million Americans pay Social Security taxes and 57 million collect monthly benefits in 2013. About one in four households receive income from Social Security.
  • Without changes, by 2033, Social Security trust funds will pretty much be gone and unable to pay scheduled benefits in full on a timely basis.
  • Prisoners do not get Social Security benefits because of an act passed in 2009.



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