What are the three types of Social Security benefits available?

The Social Security was established with the passage of Social Security Act of 1935 when the effects of the Great Depression laid bare the inadequacies of the patchwork of local, state and family networks to care for the elderly.

The legislation passed by Congress and signed by Franklin D Roosevelt created much more than a federal support system for the elderly. The bill included unemployment insurance, benefits for victims of industrial accidents and aid for their survivors, as well as financial support for the blind and the physically handicapped.

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The three programs of Social Security

The Social Security Administration oversees the Old-Age, Survivors, and Disability Insurance (OASDI) program, best known for providing retirement benefits to seniors, but as the name indicates, it also provides survivor benefits and disability income. Workers pay into the system through a payroll taxes called Federal Insurance Contributions Act tax (FICA) or Self Employed Contributions Act Tax (SECA).

During any given year a contributor to the Social Security program can earn up to four credits. In order to be eligible for benefits upon retirement you need to earn 40 credits, but there is a different calculation for survivors and disabled beneficiaries. The amount received in benefits and what you pay in per credit change each year based on the annual cost of living adjustment (COLA).

In 2021, one credit is granted for every $1,470 in covered earnings until a maximum of $5,880 which is equal to four credits. Over a lifetime of work you may earn more credits than the minimum but this does not affect the benefits you receive. The funds collected from FICA and SECA go into two Social Security trust funds, one for old-age and survivors, the other for disability beneficiaries, which are used to pay out benefits.

Old-Age Social Security benefits

As stated before, you need to earn at least 40 credits to claim old-age benefits, but exceeding that number doesn’t translate into a higher payout when you start collecting on what you put into your pot. Old-age benefits are based on your earnings record, the Social Security Administration takes the average of your 35 highest-earning years along with other factors to calculate your monthly benefit when you claim.

You can begin to collect benefits at 62, given that you’ve earned enough credits, but the longer you work, the higher your potential payout when you apply for benefits. Waiting until full retirement age (FRA) will greatly increase the amount you can claim, which is 66 for people born in 1954, then it gradually increases by two months for each year until reaching 1960. For those born in 1960 and after full retirement age is 67, but you won’t receive your maximum possible benefits unless you work until 70.

Social Security survivors benefits

Survivor benefits to family members from a contributor depend on the age when that worker died, with fewer credits needed the younger the worker dies. The Social Security Administration has a special rule whereby the surviving children, and spouse who is caring for the children can receive survivors benefits after the worker has attained just six credits in the three years prior to his or her death.

The Social Security Administration will continue to pay survivors of someone already receiving retirement or disability benefits at the time of their death based on that entitlement.

Social Security Disability Insurance

Those who are blind or have a disability could have access to potentially two different programs if they meet the criteria.

Social Security Disability Insurance (SSDI) is available to those who are registered as disabled, and can’t work due to their physical or mental disability that is expected to last for a year or more, or result in death. Recipients must satisfy certain work history requirements but family members can also be used to satisfy the requirements, which would be difficult for many to achieve who are born disabled.

There is also Supplemental Security Income (SSI) which provides financial assistance for people with disabilities, along with seniors, who have a limited income. Most states have their own support programs to assist people on SSI benefits.