Applying for a driver's license, college, insurance, and a bank account all require an “SSN number” to validate one’s identity. How did a number used to receive retirement benefits become the main identification of a U.S. Citizen?
Social Security, officially known as the Old-age, Survivors, and Disability Insurance (OASDI) program, is an insurance program in which the population pays a payroll tax to Social Security trust funds (A payroll tax has employers withholding a percentage of an employee’s earnings who then matches and pays it to the government on the employee's behalf). These trust funds then pay out benefits to the elderly and the disabled through the Old-Age and Survivors Insurance Trust Fund (OASI) and the Disability Insurance Trust Fund (DI) respectively. This program acts similarly to many other retirement benefit plans as workers pay into the system based on a payroll tax, which funds the benefits of current retirees. When the current workers retire, they will be given an amount of money proportional to the taxes they paid and the age at which they started taking money; this money will be gathered from the taxes of the future population. This cycle, most commonly referred to as a “pay-as-you-go system”, benefits the government as they do not need to hold a large reserve just to pre-fund the benefits, but also shows the risk that Social Security may not be able to fully pay out the workers what they were expected to get.
"....a law that will take care of human needs and at the same time provide for the United States an economic structure of vastly greater soundness." - Franklin D. Roosevelt, August 14, 1935
Eligibility for Social Security is based on the number of “Social Security Credits” someone has. One can earn a credit from covered earnings; in 2021, one credit would come from $1,470 in covered earnings. Covered earnings The annual limit is 4 credits per year, and to qualify, one must get 40 credits. Excess credits have no value. Disability benefits eligibility is based on how many years a person worked before they became disabled.
In order to finance Social Security, both employees and employers pay around 6.2 percent of wages to a dedicated payroll tax; this has a taxable maximum of $142,800, which is subject to change each year as the average wage increases. This comes from the Federal Insurance Contributions Act (FICA) tax and the Self Employed Contributions Act (SECA) tax. FICA is a deduction from a paycheck that matches the contribution from employers to the Social Security Trust Fund. SECA is for self-employed business owners who pay both parts, employee and employer, to the Fund. The Social Security Administration reported that in 2020, $1.001 trillion of the total OASI came from payroll taxes, which amounted to 89.6% of the income that year. The remainder came from interest earnings and external taxes.
The amount of money that people can get from Social Security is mainly based on 2 things: the average indexed monthly earnings (AIME) from their 35 highest-earning years, and the age at which they begin pulling money out of the fund. Social Security determines the full retirement age to be 67, which means when someone turns 67, they are entitled to full benefits offered by Social Security. However, people can choose to take out from Social Security as early as 62, or as late as 70; for each year early that one starts receiving welfare, their benefits are reduced by 6%, while waiting to take it out later equates to around an 8% increase per year.
Social security is not the same as a retirement saving account since the government does not store each person’s payroll tax contributions in their own personal account. The benefit is based on one’s earnings, not their contribution. On average, social security provides around 40 percent of the beneficiary’s pre-retirement earnings.
Previously, there was a surplus in the Social Security Funds due to the baby boomer generation collectively providing much more than what was required from the silent generation. Now as the populous boomer generation stops paying into Social Security and instead starts taking out, this comfortable stash of money has been decreasing; the 2021 report estimates that the surplus from OASI will be depleted by 2343. Likewise, the DI is projected to retain its surplus until 2065.
Social Security in Society
When it’s required:
Originally, a social security number would be used for, quite simply, your social security payments. It was never meant to be so widely used to identify an individual. Now, you are required to input your SSN number for applying for a job, a loan, a passport, a driver’s license, and on taxes so that the government can identify people for their income, interest, credit, and loans.
Because of its prevalence, society has become accustomed to using one’s SSN as proof of identification, However, most businesses don’t even require this number. For example, most medical providers will ask for an SSN, but often enough it isn’t questioned if the line is left blank.
The problem with overusing an SSN is that it becomes susceptible to getting stolen. With someone else’s SSN, thieves can use it to apply for credit, take out loans, or even get healthcare in someone else’s name. Where can they get it from? Simply by having an unencrypted PDF file of your tax returns on your computer, or by luring gullible people to fill out fake online surveys. Just by connecting to the coffee shop wifi, you could put yourself at risk of having your SSN be stolen. In general, this number should be used sparingly and kept protected from the risk of identity theft.