OASDI: What Is This Program, and Why Do We Need It?

May 30, 2019

OASDI is Old Age, Survivors and Disability Insurance. Learn how it fits into FICA, where the money comes from, and why it's an important program!

OASDI Blog Cover

Botox, chemical peels, and microblading are just a few things we do as a desperate attempt to prolong the appearance of our youth.  Nevertheless, our efforts are in vain because old age is inevitable. It doesn’t care how stretched, taught, and dewy our skin appears.

Phone with an image of a child on the camera, pointed at an old man.  Inferring the old man looks younger on the phone's camera

The government recognizes this. They know even if we hold onto our youth on the outside, nothing can stop the years from coming. So, they prepare to help us transition a little more smoothly into that new chapter of life.  Besides old age, the government also recognizes that life tends to throw us a curveball when we least expect it. For this reason, they aim to provide assistance in other times of need as well.

That’s where OASDI comes in—this is the federal benefits program providing assistance to us in our old age, as survivors of employees who have passed away, and in the case of becoming disabled.  This program replaces a portion of lost income for the previous circumstances.

While the name almost says it all, (Old Age, Survivors and Disability Insurance) there’s more about this program that we should know.  So let’s dive in, and stay as fresh on this topic as our faces look using the hottest nighttime regimen.

Where does the money come from for this program?

Now, it might sound awfully generous of the government to pay us benefits in our time of need. But, don’t give them too much credit—these payments stem from your own blood, sweat, and tears!  Just like most social services in the United States, OASDI receives money through payroll taxes—specifically, FICA.  FICA is an acronym for Federal Income Contributions Act. 

The OASDI portion of FICA used to be called ‘Social Security.’  Employers must withhold 6.2% from their employees’ paychecks for OASDI.  Employers themselves are also required to pay 6.2% to OASDI.  The maximum taxable earnings for Social Security in 2019 is $132,900.  You might remember that the other part of FICA is called Medicare, and employees are taxed at 1.45%, which employers must pay as well.  Self-employed workers must pay the entire 15.3% of the FICA tax. 

Can someone be exempt from this tax?

There are very few situations where a worker is exempt from paying FICA. The reason being, the government wants to make sure this program lasts as long as possible.  In other words, this is the tax employers rarely remove from someone’s paycheck.

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An employee may be exempt from paying a portion of FICA including civilian federal government employees (who still must pay the Medicare portion), government employees with a pension plan, and certain employment for college students on campus.  So, even if an employee contributes to a 401k or has other pre-tax withholdings, employers continue withholding FICA from an employee’s paycheck. 

Furthermore, if FICA was miscalculated on an employee’s paycheck, and too little was withheld, the employer is responsible for making up the difference. This would be done when making the payment to the IRS (so that the total amount paid for FICA is a combined 15.3% for employee and employer).

Now, there is something else to know about the funding of this program.  After the government collects the taxes through FICA, a portion of the funds go to the OASI Trust Fund, while the other portion are funneled to the DI Trust Fund.  The benefits are paid out as needed, and the remainder is invested.

How do they disperse OASDI payments?

Each month, the government disperses OASDI  benefits to beneficiaries.  A beneficiary is someone who qualifies for part of the  OASDI program.

Cornell Law’s Social Security Bulletin lists the four permissible criteria for disbursing OASDI trust funds:

  1. Monthly benefits for workers and their families.
  2. Vocational rehabilitation services for disabled beneficiaries.
  3. Administrative costs (currently less than 1 percent of expenditures).
  4. The lump-sum death payment to eligible survivors.

Other than this, the government does not allow disbursements from OASDI trust funds to protect the integrity of the program.

What is each component of OASDI?

62nd birthday cake - the age you're eligible for OASDI for Old Age.
  • Old Age – For a worker to qualify for the Old Age (OA) portion of OASDI, they must be at least 62 years old. These workers qualify for partial benefits if they elect to start receiving benefits at age 62.  Workers can receive full benefits between the ages of 65 and 67, depending on birth year.  Those born before 1950 are eligible to receive full benefits at the age of 65.  Workers born between 1950 and 1960 can start receiving benefits at 66. Finally, those born after 1960 are eligible to receive benefits at 67.  Another aspect worth noting, spouses who don’t work may be eligible to receive up to half of the working spouse’s benefit.  Overall, the age at which a worker is eligible to receive benefits is largely dependent upon the funds available in the OASDI reserve. 
  • Survivors – Beneficiaries of the Survivors portion of OASDI are eligible to receive benefits upon the passing of a working spouse or parent, on whom they are dependent.  The amount depends upon the length of employment for the worker, which contributed to funding the OASDI account. 
  • Disability – Disability benefits are the one portion of the OASDI program that it is possible to receive prior to becoming old or dying.  To qualify for Disability Insurance (DI), workers must prove they are disabled. Their disability must prevent their ability to perform work to support themselves or their families. 
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As ol’ Benny Franklin said…

Benjamin Franklin said it well, “in this world nothing can be said to be certain, except death and taxes.” While the Botox, chemical peels, and microblading are our own way of keeping the old age-inducing panic at bay, you can think of OASDI as the government’s way of helping us.  However, remember we have our own responsibility funding OASDI, so it’s available to us in our time of need.  This means we must remain part of our strong workforce for as many years as possible to receive the full benefits of the program. Take a penny, leave a penny – right?

We tend to be pretty critical of the government, but when you think about it, the OASDI program is a considerate thing to do for American citizens.  Having the program in place takes a lot of the stress out of the inevitable things that can come our way quicker than the crow’s feet that show up overnight.  So, the next time you hear about OASDI or Social Security, rest easy knowing you’re doing your part to contribute to American society. 

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