Social Security is actually several related programs rolled into one and financed by a flat-rate tax on all employment earnings, up to specified limits. The taxes go into a trust fund and are intended, over the long term, to be used to pay for promised benefits. The main programs within Social Security are:

1. A retirement annuity. Social Security provides a monthly income to retired workers (and their spouses) based on their period of employment and earnings. It works like an annuity in that the beneficiary receives a fixed monthly payment and the total received depends on how long the beneficiary lives. It does not work like a regular retirement savings plan that pays the beneficiary a lump sum upon retirement based on how much he or she contributed. Monthly Social Security payments are adjusted annually for inflation (through a cost-of-living adjustment, or COLA). Individuals can claim full benefits if they retire at age 65 (under current law, the retirement age will rise gradually to 67 for those born in 1960) or a reduced level of benefits if they retire at age 62. If individuals engage in paid work after retirement, their benefits will be reduced, and a portion of their benefits may be subject to income tax.

2. A spousal and survivors benefit. Benefits are available for dependents and survivors of an insured worker. A spouse is eligible for a benefit equal to half the retired worker's benefits when that spouse reaches 65. When a worker dies, a widowed spouse receives a benefit equal to the worker's benefit. Surviving dependent children are eligible for benefits, as are widowed spouses of any age who care for children under the age of 16.

3. Disability insurance. Social Security provides earnings-related pension benefits to workers who are disabled below the normal retirement age, and to their dependents.