The American Association for Retired Persons (AARP) describes Social Security as a “pay-as-you-go” system , meaning that the contributions made by workers today are used to pay the benefits of retirees. When today’s workers retire, they’ll receive benefits based on what the next generation contributes. Any money that’s left over goes into one of two trust funds.
The amount each individual worker contributes to Social Security depends on their income. Employees who work for a traditional employer split the Social Security tax payment with their employer at 6.2% each and self-employed workers are responsible for the entire 12.4%.
Those employees become eligible for benefits when they reach 40 credits, which equals roughly 10 years, or full retirement age. For Americans born in 1960 or later, that’s 67 years old.
The odds of Social Security running out of money completely are low. Remember, Social Security is pay as you go with today’s workers paying in funds that are used to provide retirement benefits for today’s retirees.
While workers pay into Social Security, the program also has a surplus of trust funds that it can use to pay benefits, as described earlier. The program is scheduled to begin using those funds to pay some benefits in 2021, with payroll taxes continuing to pay the majority of benefits to retirees.
The idea is that those people might unfairly claim benefits they’re not entitled to, putting a burden on the system and reducing benefits for eligible workers.
A Social Security number or Individual Taxpayer Identification Number is required for the Social Security Administration to create a benefits record for a citizen or non-citizen who’s authorized to work in the U.S. Someone who has either could legally obtain benefits through Social Security since they’ve technically paid into the system.