SOCIAL SECURITY  SYSTEM IN THE USA

Social Security USA | How Seniors in the U.S. Are Financially Protected

Dated 20.06.2025: The United States has operated a robust Social Security system for over 90 years. Originally enacted in 1935 by President Franklin D. Roosevelt, It Act has evolved significantly to cover retirees, disabled workers, and survivors of deceased contributors.

In this article, we explore how Social Security USA supports senior citizens, recent reforms made to the system in 2024–25, and future concerns regarding its financial sustainability. In our next article, we’ll compare these with India’s social protection schemes.

Over the years, the system was expanded through amendments to include:

• Survivors benefits (for spouses and children of deceased workers) in 1939.
• Disability benefits in 1956.
• Medicare (health insurance for the elderly) was added in 1965, and its administration was placed under the Social Security Administration.

PRESENT   SOCIAL  SECURITY  SYSTEM IN USA 

The Social Security system in the USA is a federal program that provides social insurance benefits to millions of Americans. It’s officially known as the Old-Age, Survivors, and Disability Insurance (OASDI) program, administered by the Social Security Administration (SSA).

 How it’s Funded?

• Payroll Taxes: Social Security is primarily funded through dedicated payroll taxes, known as Federal Insurance Contributions Act (FICA) taxes for employees and Self-Employed Contributions Act (SECA) taxes for self-employed individuals.
  
  • Employees and Employers: Each typically pay 6.2% of an employee’s earnings (up to a certain annual limit, which changes each year) into Social Security.
  • Self-Employed Individuals: Pay the full 12.4% as they are both the employer and employee.
• Trust Funds: The tax money collected goes into two Social Security trust funds: the Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund. These funds are used to pay current benefits. It’s important to understand that the money you pay in taxes isn’t held in a personal account for you; rather, it’s used to pay benefits to people who are currently receiving them

How to Qualify for Benefits:

• Work Credits: As you work and pay Social Security taxes, you earn “credits.” In 2025, you earn one credit for each $1,810 in earnings, up to a maximum of four credits per year.
• Eligibility: Most people need 40 credits (which typically means 10 years of work) to be eligible for retirement benefits. Fewer credits may be needed for disability or survivors benefits, depending on age . 

How Benefits are Calculated:

• Earnings History: Your Social Security benefit amount is based on your lifetime earnings. The SSA takes your highest 35 years of indexed earnings (adjusted for wage growth over time) to calculate your “Average Indexed Monthly Earnings” (AIME).
• Benefit Formula: A progressive formula is then applied to your AIME to determine your “Primary Insurance Amount” (PIA), which is your full monthly benefit at your full retirement age. This formula is progressive, meaning it replaces a higher percentage of pre-retirement income for lower earners.
• Claiming Age: The age at which you start receiving benefits significantly impacts the amount you receive.
  
  • Early Retirement (as early as age 62): Your monthly benefit will be permanently reduced.
  • Full Retirement Age (FRA): This age varies depending on your birth year (e.g., 67 for those born in 1960 or later). Claiming at your FRA means you receive 100% of your PIA.
  • Delayed Retirement (up to age 70): For each year you delay claiming beyond your FRA (up to age 70), your monthly benefit increases by a certain percentage (currently 8% per year).

RECENT CHANGES TO THE SOCIAL SECURITY SYSTEM : 

There have been some significant changes to the U.S. Social Security system recently, and there are ongoing discussions and projections about future adjustments  

Recent Changes (Effective in late 2024 / early 2025):

• Social Security Fairness Act (Repeal of WEP and GPO): This is a major recent change. Signed into law on January 5, 2025, it effectively ends the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).
  • Who it affects: These provisions previously reduced or eliminated Social Security benefits for individuals who also received a pension from work not covered by Social Security (meaning they didn’t pay Social Security taxes on that income). This primarily impacted many teachers, firefighters, police officers, and federal employees covered by the Civil Service Retirement System.
  • Impact: Benefits for these individuals are now increasing. The Social Security Administration (SSA) began adjusting monthly payments in February 2025 (for January 2024 benefits onwards), and many affected beneficiaries started receiving their new monthly benefit amounts in April 2025. Retroactive lump-sum payments are also being issued.
• Cost-of-Living Adjustment (COLA) for 2025: Social Security and Supplemental Security Income (SSI) benefits increased by 2.5% in January 2025. This is based on inflation data and is designed to help benefits keep pace with the cost of living.

• Increased Earnings Limits:
  • For workers under full retirement age, the amount they can earn before benefits are reduced increased to $23,400 in 2025.
  • For those reaching full retirement age in 2025, the limit increased to $62,160 (until the month they reach FRA).
• Increased Social Security Credits Earning Threshold: In 2025, you need to earn $1,810 to get one Social Security credit, up from $1,730 in 2024.
• Changes to Full Retirement Age (FRA): The full retirement age continues its gradual increase. For those born in 1959, your FRA is 66 years and 10 months in 2025. For those born in 1960 or later, it will be 67.
• Identity Verification: The SSA is implementing stricter identity verification rules, including mandatory in-person identity proofing for certain services if you can’t use your “my Social Security” account online.

CHANGES TO THE SOCIAL SECURITY SYSTEM  UNDER DISCUSSION AND OFFING 

 In the Offing (Future Projections and Discussions):

• Trust Fund Depletion Projections: This is the most significant long-term concern. The Social Security Board of Trustees’ latest report (released in June 2025) projects that the combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds will be able to pay 100% of scheduled benefits until 2034. This is one year sooner than previously projected.
  • What happens then? If Congress does not act, Social Security would be able to pay only about 81% of scheduled benefits, relying solely on incoming payroll tax revenue. This would mean an automatic benefit cut for millions of Americans.
  • Reasons for earlier depletion: The repeal of WEP/GPO (which increased benefits for some workers) and a delayed expected recovery in fertility rates (meaning fewer future workers to contribute) are cited as factors contributing to the accelerated depletion date.

• Legislative Proposals: There are ongoing discussions and various proposals in Congress to address the long-term solvency of Social Security. These generally fall into two categories:
  • Increasing Revenue:
    • Raising the taxable maximum: Currently, earnings above a certain limit (which is $176,100 in 2025) are not subject to Social Security taxes. Raising or eliminating this cap would bring in more revenue.
    • Increasing the payroll tax rate: A small increase in the Social Security payroll tax for both employees and employers.
  • Reducing Benefits (or slowing their growth):
    • Increasing the full retirement age: Raising the age at which individuals can receive their full retirement benefits.
    • Modifying the COLA formula: Adjusting how the annual Cost-of-Living Adjustment is calculated, potentially leading to smaller increases.
    • Changing how benefits are calculated: For example, extending the number of years used to calculate average earnings.
• Political Challenges: Any changes to Social Security are highly political, as they involve either raising taxes or cutting benefits, both of which are unpopular. Bipartisan agreement is needed, and finding a solution that balances the program’s long-term financial health with the needs of beneficiaries is a continuous challenge.

In summary, while there have been some positive recent changes for certain groups of beneficiaries (like the repeal of WEP/GPO and annual COLA), the overarching issue facing Social Security is its long-term financial solvency, with projections indicating a need for legislative action within the next decade to avoid benefit reductions.

Conclusion:
While Social Security USA continues to provide a safety net for millions, its future depends on urgent legislative action. Reforms are critical to preserve benefits for future retirees without burdening current contributors.

IN OUR  NEXT ARTICLE, WE WILL COMPARE THE SOCIAL SECURITY SYSTEMS IN INDIA  & USA 

READ OUR ARTICLE “ UNIFIED PENSION SCHEME “    relating to India 

For more details, visit the official SSA page: https://www.ssa.gov/

Note : The information in the article is based  on answers we got from  AI apps and has been edited by us .