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What is the difference between social security and supplemental security income?

Millions receive money each month from the Social Security Administration as Social Security or Supplemental Security Income. What is the difference?

Millions receive money each month from the Social Security Administration as Social Security or Supplemental Security Income. What is the difference?
JEFF PACHOUDAFP

The Social Security Administration (SSA) pay out benefits for a variety of programs, two of the most common being Social Security and Supplemental Security Income (SSI). The programs target different populations, but certain individuals may be eligible to claim benefits from both.

What is Supplemental Security Income?

SSI provides an income to low-income people who are blind, deaf, and/or elderly. Unlike Social Security, children, themselves, who are blind or deaf are eligible to receive SSI benefits.

To receive Social Security benefits a person has to have "worked long enough and paid Social Security taxes" in order be "insured" so that the benefits be paid to you or "certain members of your family." 

SSI on the other hand, is not "based on your prior work or a family member's prior work."

To boost the federal benefit, many states send a supplemental payment to those eligible. Additionally, many beneficiaries are also able to receive Medicaid to help "pay for hospital stays, doctor bills, prescription drugs, and other health costs."

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Who receives social security benefits?

Social security is primarily paid to retirees who have paid taxes to the SSA for at least forty-quarters. Based on the number of years worked and the incomes earned over those years, the SSA will distribute a monthly benefit. For 2022, the average monthly benefit will be around $1,657, up around $96 from 2021 due to the 5.9 percent Cost-of-living adjustment (COLA).

 How are benefits calculated?

The SSA has explained that the benefit amount you receive is based on "your highest 35 years of earnings and varies depending on how much you earn and when you choose to start benefits." Those who retire later will be rewarded with a higher benefit amount.

Unlike a private retirement account like a 401(k), when you pay taxes to the SSA, they do not hold onto those funds and save them for you, they are used to pay out benefits to those in eligible now. Similarly, when one retirees, their benefits will be paid by the taxes of those who are still in the workforce.

SSI payments are paid through the US Treasury Department through the collection of personal, corporate, and other taxes.

Will the SSA run out of money?

One concern many economists have is that the labor market is shrinking as the amount of people retiring in growing.

The Baby Boomer generation, one of the largest in US history, has begun to retire, meaning that either the country will need more workers or those workers will have to work higher paying jobs to ensure the solvency of the SSA.

But more concerning that the makeup of the workforce, is the fact that Baby Boomers, and the generations that follow are expected to live much longer lives. This means that more benefits will need to be paid over a greater amount of time. As inflation has ripped through the market, many seniors have seen their purchasing power take serious hits. As many live on a fixed income, this has led many to make decisions over whether they should eat a third meal or get a prescription filled --choices that no one should have to make. Part of the reason their purchasing power has been so impacted is because COLAs over the last decade have not kept up with the other costs in the economy. 

One organization, the Senior Citizens League reported that "Over the past 21 years, COLAs have raised Social Security benefits by 55 percent but housing costs rose nearly 118 percent and healthcare costs rose 145 percent over the same period."

As people live longer, the wages that they made as a worker will lose value, and in the end a more comprehensive review of benefits may need to be gone through to ensure that benefit amounts reflect the needs of those who paid into the system.