How Does Social Security Pay for Long Term Disabilities?

Social Security benefits, whether they are widows, survivors, and retirement or disability benefits is an insurance program.  Every employed person pays their premium through the social security taxes that are taken out of their paychecks.  Additionally employers are required to contribute to the Social Security system and pay social security taxes on the income that they pay to their employees.

This does not mean that you have a personal account within Social security from which you can draw funds as you would from a pension account or an IRA.  The money you pay into the system now is paying people who are currently receiving benefits.  When you become eligible for benefits your benefits will be paid out of the social security taxes of those people who are currently working.  

What you receive are work credits and Social Security keeps track of your earnings from year to year.  Social Security sends you an earning statement every year within three months of your birthday.  You earn four work credits a year. At the time of your application for disability benefits, Social security will make a determination of whether you meet the medical and non-medical criteria to receive payments.  Non-medical requirements involve the number of work credits you have earned and the length of time you have worked.  

The amount of your monthly benefits depends upon how much you have earned during the course of your working life.  The more income you have received the higher your payment will be as your benefit is an average of your lifetime earnings.  In other words, a person who has made only minimum wage all their working life will receive less social security disability benefits than a person who has made a six-figure income for most of their working life.  If you become disabled shortly after, you begin working that can also affect the amount of your monthly benefit.