Social Insurance: What it is, How it Works
Social insurance might be an unfamiliar term, but most people are familiar with its programs. Citizen-funded, government-administered programs that support the community in times of financial instability, whether due to financial hardship, disability, or age, are considered social insurance.
Social insurance programs are funded by the people who use them. Look at an average paycheck and you’ll see deductions for Social Security, Medicare, and unemployment. Those deductions feed the pool of benefits that create a safety net for retirement or in case of hardship or illness.
Most people don’t think of Social Security payments, unemployment benefits, or workers’ compensation as insurance, but that’s precisely what they are: a system that provides a cushion to shield participants from financial harm.
Examples of federal social insurance programs include:
Social Security, which provides a basic income to those in their later years.
Unemployment insurance, which offers income replacement after a job loss.
Medicare. which provides low-cost health insurance to those over the age of 65.
Workers’ compensation, which replaces lost wages after an employee has been injured on the job and funds vocational rehabilitation.
Social Security Disability insurance, which provides income for those unable to work because of illnesses, injuries, pregnancy, or childbirth.
Government Oversight of Social Insurance
Since social insurance programs are all administered by either the federal or state government, they can occasionally be altered to increase the benefits beyond what is funded by individual citizens. One such example was the introduction of unemployment benefits for contract workers as provided by the CARES Act of 2020.9 The Social Security Administration also regularly reassesses payments based on the cost of living, ensuring that benefit amounts keep pace with common expenses.
How much is Social Security in the U.S.?
The amount that an individual receives in Social Security retirement benefits depends on the age at which they begin collecting, as well as the amount they’ve earned in their work history. The absolute maximum benefit one can receive in 2023 is $4,555 per month—and this applies only to those who not only waited until 70 to receive benefits, but also earned the maximum taxable income for 35 years.
At what age do you get 100% of your Social Security?
To receive 100% of your Social Security benefits, you must wait until you reach full retirement age (FRA) to file. FRA depends on year of birth. FRA is 66 years and two months for people born in 1955 and gradually rises to 67 for those born in 1960 or later.
Who is eligible for Social Security pension in USA?
To be eligible for Social Security benefits, you must be aged 62 or older and have worked and paid Social Security taxes for 10 years or more.
The Bottom Line
The need for societies to provide financial assistance for people whose incomes are below the federal poverty threshold, older adults, and the disabled is not new. The colonies created assistance programs modeled on the British Elizabethan Poor Laws of the early 17th century.1 The United States established a more formal system, recognizable to most people today, when President Franklin D. Roosevelt signed the Social Security Act of 1935, establishing a federal safety net for older, unemployed, and disabled Americans.4 Since then, the country has added to social insurance programs for the needs of various populations, such as healthcare for children and assistance for injured workers. The beneficiaries of social insurance programs have already paid into the funding sources, one factor that distinguishes them from public assistance.