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What Is Social Security?

Copyright © 2012 AARP. All rights reserved.

Social Security is the foundation of long-term financial support for almost every American. If you’re like most people, you’ll depend on Social Security to help you survive in your later years (if not sooner). In fact, its protections are becoming even more important as an answer to growing insecurity in old age.

You can think of Social Security as a set of protections against things that threaten your ability to survive financially — things like getting older and retiring, or having a serious accident or illness that leaves you unable to work. When such things happen, family members who depend on you may not be able to pay for the basic necessities of life.

That’s why Social Security offers a range of benefits. These protections can provide crucial financial security for workers, their immediate family members, and even divorced spouses. For example, Social Security benefits may go to

  • People who retire and their dependents, typically spouses, but potentially children and grandchildren

  • People who are disabled and the immediate family members who depend on them

  • Spouses, children, and even the parents of breadwinners who die

Social Security’s guaranteed monthly payments, set by legal formulas, stand out in a world of vanishing pensions, risky financial markets, battered home values, and rising healthcare costs. Although the program faces a potential financial shortfall in the future, its most fundamental features are not expected to change.

Social Security combines other distinctive features that you usually don’t find all in one place. These traits are worth keeping in mind when you’re trying to get a handle on what the program is worth to you:

  • Benefits are earned. After you meet the requirements for eligibility — generally ten years of earnings for retirement, but less than that for certain protections such as disability — you’ve established your right to a guaranteed benefit, which also may extend to your dependents.

  • Benefits are portable. You can change jobs with no penalty, unlike traditional pensions. Your benefits reflect earnings in various places of employment during your working life. They aren’t typically reduced when you change jobs, because most jobs are covered. (Exceptions include most federal employees hired before 1984, various state and local government workers, and many railroad employees.)

  • Benefit levels are guaranteed. Unlike 401(k)s, for example, Social Security benefits are paid under legal formulas and don’t rise or fall based on your luck with investments, the fortunes of your employer, the direction of interest rates, or other forces over which you have no control.

  • Benefits are universal. Social Security covers the rich, the poor, and — most of all — the middle class. Social Security is a kind of social insurance for the benefit of individuals and society. This makes it very different from a welfare program.

  • Benefits are protected against inflation. Private pensions generally don’t have this feature. But without such protection, rising prices can take a huge toll on fixed income.

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