AARP Hearing Center
Not for you. The money you put into Social Security is a tax on earnings that helps pay for a national retirement and disability benefit. It’s not held in an account in your name, it doesn’t come back to you with interest when you retire, and unused contributions don’t revert to your family when you die (although they may be able to draw survivor benefits if you were receiving or eligible for Social Security payments).
Instead, Social Security operates as a pay-as-you-go system. Contributions from today’s workers cover benefits for current retirees and people with disabilities. Any money not needed to pay current beneficiaries remains in Social Security’s trust funds. Younger workers will pay the benefits of today’s wage earners when they retire.
Not like a retirement account
So while Social Security exists to support Americans financially in their later years, it isn’t a vehicle to save money for retirement, like an IRA or 401(k). It’s a guaranteed benefit more akin to insurance, something the government recognized in giving the program its formal name: Old Age, Survivors and Disability Insurance (or OASDI, as it appears on your paystub).
Like insurance premiums that go into a pool of money to pay fellow policyholders when they make a claim, the payroll and self-employment taxes that finance Social Security go toward benefit payments for today’s recipients. As with insurance, you or your family will draw payments from the pool when you qualify for them and file an application.
Social Security tax payments do earn interest collectively: They are invested in special Treasury bonds that are guaranteed by the federal government and pay a market-rate interest, which goes back into the pool that pays out benefits. But your contributions don’t go into a personal account that earns interest for you.
Benefits are progressive
Because of the way the program is structured, the amount you’ll get from Social Security is not limited to what you put in. Your retirement benefit amount is calculated from your career earnings, using an inflation-adjusted average of your monthly income in your 35 highest-earning years. And you’ll continue to receive it as long as you live.
