WTF is Social Security?

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If you’re American, or work in America, you have a Social Security number. If you do have an SSN, you probably have it memorized— and you likely know that the number has something to do with the Social Security checks that you’ll receive in retirement. But do you know how the heck it works?

Let’s take a step back and answer the question: WTF is social security?

You’ve probably noticed on your paycheck that some of your income goes to OASDI. We should all get into the habit of looking up anything we don’t understand on our paychecks (because, hello! Paychecks are important!), but if you’ve never looked it up, OASDI is basically the line-item for your Social Security contributions. It stands for the Social Security's Administration’s Old-Age, Survivors, and Disability Insurance program.

You may think that Social Security works like a 401(k) and that the money taken from your paycheck goes into an OASDI account with your name on it, and just sits and waits until you retire. Nope! That is false. Your Social Security contributions go to people who are claiming social security benefits now. To date, 7.4 trillion dollars has been paid out to qualifying Americans.

How much of that 7.4 trillion dollars is from you? In 2022, the amount each American contributes to Social Security is 12.4 percent of their paycheck, up to a certain limit. However, if you are employed by a company, you only get 6.2 percent taken out of your paycheck, and your employer pays the other 6.2 percent. If you’re self-employed, you have to pay the whole 12.4 percent. This year, if you’re not self employed, the maximum that you’ll contribute to Social Security is a little over $9,000.

Social Security has become a bit of a political issue. Some people think: "I worked hard for this money! No one else should get it but me!" Listen—I get it. But at the same time, it’s easy to say that federal aid is overrated if you’re not depending on it. I know it stings to lose money under any circumstances, but Social Security does good work. The misconceptions are harsh, but I’m going to put them out here because you’ve probably heard them before: a common assumption is that Social Security goes to lazy Americans who fake disability because they don’t want to work. That's not a helpful assumption. Because what a lot of people don’t know is that Social Security pays more benefits to children than any other government program. In 2021, of every Social Security tax dollar you paid, 85 cents went to current retirees and survivors (like children) of workers who have died. Only 15 cents went to folks on disability.

Plus—your Social Security good karma does come back to you when you retire. When you are able to opt into Social Security retirement benefits, how much you’ll receive will differ depending on how long you’ve been working and how much moolah you earned in the workforce. The thinking there is that if you’ve worked for a long time and you’ve made a lot of money, you’ve also contributed a lot of money, and should be rewarded for your contributions.

Because don’t forget—the whole point of this program is to benefit you, too. Sure, your exact contributions from your individual paychecks don’t come back to you… but when you’re in retirement, you’ll be collecting Social Security payments that are funded by the contributions of someone else. It’s the financial circle of life.

And when will you be able to get those Social Security checks? If you were born after 1960, you’ll likely want to start claiming your benefits at age 67. You can claim your benefits earlier or later—but whatever age you choose comes with consequences for your payout. Unless you’re a beneficiary or qualify to collect Social Security because of a disability, the earliest you can collect Social Security benefits is 62. But, you will receive less benefits if you do so. On the flip side, you get some perks if you claim your benefits between the age of 67 and 70.

Ultimately, it's up to you to decide when you should say...

xo,

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