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The OASDI tax noted on your paycheck funds this comprehensive federal benefits program that provides benefits to retirees and disabled people—and to their spouses, children, and survivors.
The goal of the program is to partially replace income that is lost due to old age, death of a spouse, or qualifying ex-spouse, or disability. The U. Social Security calculates your average indexed monthly earnings AIME during the 35 years in which you earned the most. Roosevelt on August 14, , when the U. The program has grown massively over the decades, along with the U.
As of October , that number was nearly 70 million. In and , the Social Security tax rate is 6. These revenues are kept in two trust funds:. These trust funds pay out the benefits and invest the remainder of the revenue they collect.
There is a cap on annual earnings for which you pay Social Security tax. For old-age payments, money is paid to qualifying persons starting as early as age Full retirement age depends on birth date and is 67 for everyone born in or later. Qualifying persons who wait until age 70 but no later to begin collecting benefits can collect higher, maximum benefits due to delayed retirement credits.
Payments are calculated based upon people's wages earned while they were of working age. Survivors' payments are made to surviving spouses or eligible children of deceased workers or retired workers. Dependents and survivors were added by an amendment in , and disabled people were added in The OASDI program is funded through payroll taxes that employees, employers, and self-employed people pay. So for every dollar you put in, your employer is also chipping in a dollar. The tax works a little differently for those who are self-employed.
These individuals are both the employer and employee in the equation, so they have to pay both portions of the OASDI tax. There is a cap on how much money a retired person can receive in Social Security benefits. Keep in mind, by no means is anyone guaranteed that amount. As you can see, there is a benefit to waiting to retire. By holding out for an additional seven years, someone may have the potential to nearly double their monthly benefits.
Over a decade or more of retirement, the difference between those figures can add up. After all, retirement is years away. It might feel even more frustrating for those who believe they can save for their entire retirement on their own through an Individual Retirement Account or a k.
OASDI provides an important safety net for those individuals to survive in their golden years. This retirement benefit is particularly important for women.
According to the Social Security Administration , women live longer than men by three years on average , make less money over their lifetimes, and retire with fewer assets.
Additionally, while most Social Security beneficiaries are retirees, others benefit too. Social Security also covers people who are disabled and unable to work, as well as the children and spouses of disabled, retired, or deceased people.
Their minor children and surviving spouse would be able to collect a monthly benefit based on a percentage of what the deceased individual was receiving. The individual continues to receive benefits until he or she can work again or reaches retirement age, at which point the benefits convert to retirement benefits in the same amount. Created 30 years later, Medicare is designed to provide health insurance to people over Like Social Security, Medicare is funded through payroll taxes.
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