What Is the Old-Age, Survivors, and Disability Insurance (OASDI) Program?
The federal Old-Age, Survivors, and Disability Insurance (OASDI) program is the official name for Social Security in the United States. The OASDI tax noted on your paycheck funds this comprehensive federal benefits program that provides benefits to retirees and disabled people—and to their spouses, children, and survivors. The goal of the program is to partially replace income that is lost due to old age, death of a spouse, or qualifying ex-spouse, or disability.
- The federal OASDI program is the official name for Social Security.
- It provides benefits to retirees and disabled people.
- OASDI taxes, also known as FICA payroll taxes, fund the program.
- The amount of an individual’s monthly payment is based on their earnings during their working years.
Understanding the Old-Age, Survivors, and Disability Insurance (OASDI) Program
The U.S. Social Security program is the largest such system in the world and is also the biggest expenditure in the federal budget, projected to cost $1.2 trillion in 2021. Nearly nine out of 10 individuals age 65 and older receive Social Security benefits, according to the Social Security Administration (SSA). Social Security calculates your average indexed monthly earnings (AIME) during the 35 years in which you earned the most.
The program was ushered in through the Social Security Act, signed by President Franklin D. Roosevelt on August 14, 1935, when the U.S. economy was in the depths of the Great Depression. The program has grown massively over the decades, along with the U.S. population and economy. In 1940, about 222,000 people received an average monthly benefit of $22.60. As of October 2021, that number was nearly 70 million. For 2021, the average monthly benefit is $1,543 (the estimated average monthly benefit in 2022 is $1,657).
OASDI Payroll Tax
Payments to qualifying persons are funded through OASDI taxes, which are payroll taxes collected by the government that are known as FICA taxes (short for Federal Insurance Contributions Act) and SECA taxes (short for Self-Employed Contributions Act). In 2021 and 2022, the Social Security tax rate is 6.2% for employees and 12.4% for the self-employed.
These revenues are kept in two trust funds:
- The Old-Age and Survivors Insurance (ASI) Trust Fund for retirement
- The Disability Insurance (DI) Trust Fund for disability
These trust funds pay out the benefits and invest the remainder of the revenue they collect.
There is a cap on annual earnings for which you pay Social Security tax. In 2022, the maximum earnings subject to the tax is $147,000. In 2021, the maximum earnings subject to the tax is $142,800.
OASDI Program Criteria
The OASDI program provides payments to people who meet certain criteria. For old-age payments, money is paid to qualifying persons starting as early as age 62. Full retirement age depends on birth date and is 67 for everyone born in 1960 or later. Qualifying persons who wait until age 70 (but no later) to begin collecting benefits can collect higher, maximum benefits due to delayed retirement credits.
Payments are calculated based upon people's wages earned while they were of working age. Survivors' payments are made to surviving spouses or eligible children of deceased workers or retired workers. Disability payments are made to eligible persons who are no longer able to participate in a substantially gainful activity and who meet additional criteria.
To qualify for retirement benefits, a worker must be fully insured. A worker can become fully insured by accumulating credits (also called quarters) of coverage. Credits or quarters are accumulated based on covered wages earned for a particular period. In 2021, one-quarter of coverage is awarded to a worker for every $1,470 earned. The dollar amount is indexed every few years for inflation. A worker can earn up to four credits or quarters of coverage per year, and 40 credits are needed to qualify for benefits.