Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Old Age Survivors and Disability Insurance Program (OASDI)

What it is:

The Old Age Survivors and Disability Insurance Program (OASDI), also known as Social Security, is a federal program that provides income and health insurance to retired people, the disabled, the poor and other groups. The program started in 1935 with the signing of the Social Security Act, which was an effort to provide a safety net for the millions of people who had suffered through the Great Depression.

How it works (Example):

The primary programs offered through OASDI:

Retirement benefits. The age at which a person qualifies for benefits depends on the year of birth, but generally a person can receive full benefits at around age 66. In many cases, beneficiaries can opt to begin receiving benefits at age 62, but at a reduced rate. The Social Security Administration generally increases the amount of benefits by 8% for every year that a beneficiary delays receiving benefits (up to age 70). In general, people need to work for at least 10 years in order to qualify for these benefits. Payments are based on earnings (thus, higher earnings mean higher benefits) and the age at which the beneficiary retires. In 2011, an average monthly benefit of $1,229 was paid to about 38.9 million people. As a result, the Congressional Budget Office expects the Social Security program to become insolvent by the year 2033.

Disability benefits.
People who have become disabled for at least five full months and may continue as long as the person’s medical condition has not improved and the person cannot work. Approximately 10.6 million people received an average monthly benefit under this program of $1,111 in 2011. People who receive disability benefits for 24 months are typically eligible for Medicare. Because applications increased dramatically during the Great Recession, the Congressional Budget Office estimates that this fund will become insolvent by 2017.
 
Survivors benefits. This program provides monthly payments to children and widows or widowers of Social Security beneficiaries. In 2011, 6.3 million people received an average of $1,185 per month under this program. Typically, survivors receive 75% to 100% of the beneficiary’s basic Social Security benefit. The limit that can be paid to a family as a whole generally equals 150% to 180% of the deceased’s benefits.

Supplemental Security Income (SSI). This program provides monthly payments to people at least 65 years old who are blind or disabled and have few financial resources (typically no more than $2,000, but this excludes the person’s personal residence, life insurance, car, burial plots, and $1,500 in burial funds).

Why it Matters:

OASDI and Medicare expenses constituted about 50% of the federal government’s outlays in 2011. The programs receive a substantial portion of their revenues through the collection of payroll taxes from workers and employers. The business model has come under considerable scrutiny in recent decades because the baby boomer generation is entering retirement and applying for benefits that cannot be sustained with payroll taxes from the younger  generations remaining in the workforce.

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