Is Social Security an Annuity?
What Is an Annuity?
In order to answer the question of whether social security is an annuity we should first clarify what exactly an annuity is. In the simplest terms an annuity is an investment of sorts. It requires a series of payments made at equal intervals.
There are several good examples of an annuity including a savings account, home mortgage payments, monthly insurance and personal pension payments. You may make weekly, monthly, quarterly or annual payments into an annuity.
The basic concept then of an annuity is a regular payment into an account which leads to something of value that can be cashed out later. Paying a mortgage on your home will eventually lead to you fully owning the property and being able to sell it for ideally a large lump sum. Insurance is an annuity in that you pay into it so that in the event that something goes wrong you will be awarded funds to fix, compensate for or replace the damaged item.
What Is the Social Security Administration?
The Social Security Administration (SSA) is an independent government agency that administers social security. It is an insurance program that consists of retirement, disability and survivor benefits. In order to qualify for these benefits most workers pay into the system through social security taxes.
The head offices of the social security agency are located in Woodlawn, Maryland and are referred to as the Central Office. There are tens of thousands of workers employed by the social security agency and it is the largest government program in the United States.
It is estimated that by the end of the 2022 fiscal year the agency will have paid out $1.2 trillion in benefits to 66 million citizens and legal residents of the United States. An additional $61 billion is expected in SSI benefits and $7.5 million to low-income individuals.
This government agency is a vital part of the country's economy and without it millions of already struggling Americans would have nothing. It is a program that many have paid into for decades in preparation for retirement and as an insurance policy against sudden disability.
History of the Social Security Agency
On August 14th 1935, President Franklin D. Roosevelt signed the Social Security Act into law as part of his New Deal initiative. This led to the creation of the Social Security Board (SSB), a presidentially appointed group of three executives tasked with overseeing the social security program.
With zero budget, staff or even furniture the SSB finally obtained funding from the Federal Emergency Relief Administration. It was on October 14th 1936 that the first social security office opened its doors in Austin, Texas.
In January of 1937 social security taxes were first collected. Just a few years later the first social security check was issued to Ida Mary Fuller of Battleboro, Vermont. Ida’s check was dated January 31st 1940 and she received $22.54.
The SSB in 1939 merged with the U.S. Public Health Service, the Civilian Conservation Corp and other government agencies to become the Federal Security Agency. In 1846 under President Harry S. Truman the SSB was named the Social Security Administration SSA.
In 1953 the Federal Security Agency was dismantled and the SSA was placed under the banner of the Department of Health, Education and Welfare. Finally in 1994 President Bill Clinton made the Social Security Administration an independent body once again.
How Social Security Works
Every U.S. citizen or resident alien requires a social security card which comes with its own unique identity number. This number is used to withhold social security taxes from any earned wages of an individual which are then held as insurance for future events.
These funds are collected so that individuals will have a financial safety net if they become unable to work or to supply an income upon retirement. A social security number is a requirement for working any job in the United States.
All U.S. citizens have to apply for a social security number in order to be able to work and this is intended to be their number for the rest of their lives. There are however some circumstances which would require a new number to be issued.
A new number may be issued if:
- The number already belongs to another individual (rare but it can happen)
- You are a victim of domestic abuse and need to escape detection by your abuser
- Identity theft to the extent that your social security number is no longer safe to use
- If there is a valid religious objection to the number for example a Christian may object to a number that contained 666
- You may not get a new number to escape bankruptcy, extreme debt or consequences of illegal actions. People do try this and it is very much against the rules.
In order to get a social security number you need proof of identity such as a birth certificate or passport. If you are a non citizen you will need to prove you are legally in the country and that you are eligible to work.
Is Social Security an Annuity?
When we mentioned pensions as an annuity earlier we were alluding to private pension schemes that you may pay into personally or through a work based program. Essentially though what we pay in social security taxes is going into a fund that will supply us with coverage against unexpected disability, retirement and potentially take care of our dependents when we pass away.
Basically by its nature social security is essentially an annuity. A program into which funds are paid in this case through taxes which is designed to offer financial coverage later in our lives. Social Security then is a guaranteed lifetime income stream backed by the US government.
For many this may be one of the very few annuities that they pay into regularly as some may not be able to afford the extra cost of external pensions, purchasing a home or insuring things of value. In fact some may only be able to contribute to legally mandated annuities such as social security and car insurance.
Social security is described by some as the best inflation annuity on the planet. You may not enjoy losing some of your income to social security taxes each paycheck but this program started decades ago has helped people with disabilities, seniors who have retired and their dependents to survive when there was no longer any other income available.
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"Is Social Security an Annuity?". SSA Locator. Accessed on November 29, 2023. https://ssalocator.com/blog/is-social-security-an-annuity/.
"Is Social Security an Annuity?". SSA Locator, https://ssalocator.com/blog/is-social-security-an-annuity/. Accessed 29 November, 2023
Is Social Security an Annuity?. SSA Locator. Retrieved from https://ssalocator.com/blog/is-social-security-an-annuity/.