While the market economy implies that people provide for their needs themselves, there are many cases when additional assistance is required. Many countries have created social security programs aimed to offer help to the most vulnerable populations (such as older people, unemployed, or disabled). The Social Security program of the US, while being one of the costliest items in government expenditure, has numerous advantages for ordinary citizens lifting many above the poverty line.
The development of the social welfare structure of the US is closely connected to the country’s economic and social transformations. The first steps were taken at the beginning of the 20th century due to the risks related to the increasing industrialization of the economy (Social Security Administration, 1997). It started with workers compensation, retirement programs for government employees, and several benefits to persons serving in the Armed Forces (Social Security Administration, 1997). Yet, at that time, there was no established legal framework for a social security program – all efforts were decentralized and relied heavily on the private sector (Social Security Administration, 1997). However, the dramatic consequences of the Great Depression of the 1930s called for a more structuralized and efficient approach to help millions of people in need.
Naturally, the program started with offering assistance to the unemployed and old age persons who could not provide for themselves and their families. The Social Security Act passed in 1935, established two national-scale programs: a system of old-age benefits for retired workers and a system of unemployment insurance (Social Security Administration, 1997). Later amendments also introduced Disability Insurance (1956) and guaranteed stable replacement rates (1977) (Social Security Administration, 1997). The range of professions the programs cover has been increasing throughout the 20th century.
These days, the Social Security program of the US provides assistance to American citizens who have lost their source of income due to disability, retirement, or the death of a family member. There are two trust fonds responsible for these operations – Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) (Social Security Administration, n.d.a). There are also other benefits that can be received through Social Security program, such as Medicare payments (a medical insurance program for citizens older than 65) and Supplemental Security Income (offered to disabled or non-disabled adults and children with limited income) (Social Security Administration, n.d.c). The programs are mainly financed through payroll taxes and contributions, though there are other income sources, such as interests on investment.
The calculation of benefits starts with indexing a worker’s earnings to reflect the change in average wage levels and the increase in the standard of living (Social Security Administration, n.d.b). Then, the sum of the 35 years’ highest earnings is divided by the number of months in these years (Social Security Administration, n.d.b). The resulting number represents average index monthly earnings (AIME), which is used to determine a person’s Primary Insurance Amounts (PIA). PIA is the sum of three separate percentages of portions of the AIME which, in turn, depend on the year when the benefits are requested (Social Security Administration, n.d.b). The amount of money which is actually paid may be less or more than PIA: payments can be reduced or increased depending on whether the person retires before or after the normal retirement age (Social Security Administration, n.d.b). Thus, the benefit amount a person receives is based on several factors, though an individuals earning history is a major determinant.
These days there are many concerns raised regarding the future of the US Social Security program. These issues include the expected increase in the number of beneficiaries due to the retirement of the baby-boom generation, as well as the consequences of the COVID-19 pandemic (Social Security Administration, 2018; Shin & He, 2020). However, it is essential to support the existing system so as to help those in need.
References
Shin, S. & He, Y. (2020). The impact of coronavirus pandemic on social security finances. University of Pennsylvania’s Wharton School of Business. Web.
Social Security Administration (1997). Social security in the United States. Social Security Administration Office of Research, Evaluation and Statistics.
Social Security Administration (2018). The annual report of the board of trustees of the federal old-age and survivors insurance and federal disability insurance trust funds. Web.
Social Security Administration (n.d.a). Social security program data. Web.
Social Security Administration (n.d.b). Social security benefits amounts. Web.
Social Security Administration (n.d.c). Benefits. Web.