The Old-Age, Survivors, and Disability Insurance (OASDI) Program

The Old-Age, Survivors, and Disability Insurance (OASDI) Program is a federal social security program in the US, providing the qualifying citizens with benefits, compensating by some degree for the lost possibility to earn money.

The system is overarching and fully sponsored by the government, being funded by taxes. Such a tax for the workers is usually paid by their employers, and it is marked as an OASDI tax in the paycheck a worker receives, while the self-employed individuals have it as a part of filing the federal tax return. Those taxes are alternatively called a FICA payroll tax and a SECA tax. There are a number of terms, conditions and requirements in the program, and it’s important to review its aspects more closely.

OASDI Program history brief review

The first similar system in the US was founded in 1935, when the lengthy Social Security Act was signed by Franklin Delano Roosevelt. The Act was filed to legally regulate numerous issues concerning unemployment, welfare of children, and support of the elderly, with the last group of legal regulations gradually evolved into the modern social security set of procedures, also known as the Old-Age, Survivors, and Disability Insurance (OASDI) program.

Over the years, it was developed and enhanced, as the government has been taking into consideration the altering of life patterns and adjusting the legislation to meet the needs of its citizens. In 1949 already, about 3 million people were provided with the regular social payments, with an average monthly amount of $26.

Nowadays, the US Old-Age, Survivors, and Disability Insurance (OASDI) program covers more than 65 million beneficiaries, and an average monthly benefit extends beyond one and a half thousand dollars, which makes the US organization of these processes the largest and one of the most comprehensive programs of such type in the world. About 90% of retired people are provided with monthly payments, and about a trillion dollars is expected to be spent for the same goal in the following year.

OASDI Program funding

As the US OASDI program is a huge, complex system, it requires a large volume of funding, being provided constantly and without pauses.

The program is funded by payroll taxes, represented by two types:

• A FICA tax, which is charged on the income of employees and employers.
• A SECA tax, which is charged on the income of self-employed citizens and is higher than a FICA tax, as it includes both contributions which is divided between an employee and an employer when paying the FICA tax. Although, a tax for the self-employed is specially deducted to make it reasonable.

The funds raised through those taxes are then stores in two funds, with the first one being reserved for the retirement benefits and the second one for disability payments. After the distribution of the benefits between the beneficiaries, the rest of the funds is used for investments.

How OASDI Program works

The benefits of the Old-Age, Survivors, and Disability Insurance (OASDI) program are available to several groups of citizens who fall under a specific set of conditions.

As the name of the program indicates, it is aimed at the following categories of population:

• Retired people. For qualifying workers, it’s possible to retire at the age of 62, though the benefits would be smaller in that case. The retirement age varies, but for the most of the population is usually 67. For those who retire after 70, higher benefits are provided.
• Disabled workers, whose health condition reduces their ability to be employed. Such condition, or disability, must be medically verified.
• Dependents of the abovementioned groups of people, including spouses and offsprings.
• Survivors of workers covered by insurance.

To determine a monthly payment for each individual beneficiary, an average amount of a person’s income during his or her working period is estimated, and the decision is made based upon those calculations.

The social payments of the OASDI program for the retired are available for fully insured citizens. To become fully insured, an individual needs to acquire quarters of coverage (also called credits), with the qualifying number of which must be forty or more. A quarter of coverage is a period of three months during which a worker is occupied and earns a salary or a wage of a certain amount (in 2022 it is $1,510). The sum is indexed annually, and it’s also possible to gain it during a shorter period of time, but an individual can’t accumulate more than 4 credits per year. Usually, a minimum amount of working years needed to provide a person with a right to social payments is 10 years. Although if an individual stops working, his or her credits of coverage which are already gained won’t disappear, and it’s possible to continue accumulating them after returning to work.

The size of a monthly payment an individual would receive after retirement doesn't depend on credits, they are measured for verifying a person's right to receive social payments. What actually effects a monthly sum of the payment is an average salary size. The time at which a person decides to retire also affects the amount of money that person would receive, with the main principle of that being the later an individual retires, the higher the social payments are. More precisely, there is a reduction for those who retire at 62, and the monthly payment is the largest if a person retires at the age of 70, and after 70 no additional increase is supposed.

Concerning disability benefits, a similar system is used. As it’s necessary to determine that a disabled person is allowed to participate in the OASDI program, quarters of coverage are calculated, and for each age category there’s a certain amount needed for qualification. The minimum amount of 6 credits gained during a period of 3 years is set for individuals younger than 24, who developed a condition that limits their employment ability. For citizens who develop a disability at an age between 24 and 31, it’s necessary to have quarters of coverage for half of the time since a person reached the age of 21, and after 31 the minimum amount is 20.