What Is OASDI? Funding, Benefits, and Eligibility

Old-Age, Survivors, and Disability Insurance (OASDI) is the official name for the federal Social Security program in the United States. This program provides financial protection to millions of Americans by partially replacing income lost due to retirement, disability, or the death of a worker.

How OASDI is Funded

OASDI is primarily funded through dedicated payroll taxes, specifically earmarked for the Social Security trust funds. These taxes are collected under the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA).

FICA taxes apply to most employees and their employers. For 2025, the Social Security (OASDI) portion of FICA tax is 6.2% for employees and a matching 6.2% for employers, totaling 12.4%. This tax applies up to a wage base limit of $176,100 for 2025.

Self-employed individuals pay SECA taxes, which encompass both the employer and employee portions of the Social Security tax. They contribute the full 12.4% on their net earnings from self-employment, up to the annual wage base limit. Collected taxes are deposited into two distinct trust funds: the Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund, which are used to pay benefits and cover program expenses.

Types of OASDI Benefits

OASDI provides financial support through three categories of benefits. Old-Age, or retirement, benefits are paid to eligible retired workers and their qualifying family members. These payments provide income to individuals who have reached retirement age and have contributed sufficiently to the system. The amount received is based on the worker’s lifetime earnings.

Survivors benefits are provided to the family members of a deceased worker who earned enough Social Security credits. Eligible survivors can include a deceased worker’s spouse, unmarried children under 18, and in some cases, dependent parents.

Disability benefits are paid to workers with a severe medical condition preventing them from engaging in substantial gainful activity, and who meet Social Security disability criteria. These benefits also extend to eligible family members of the disabled worker. The condition must be expected to last for at least 12 months or result in death.

Qualifying for OASDI Benefits

Eligibility for all OASDI benefits hinges on “work credits,” also known as Social Security credits or quarters of coverage. Individuals earn these credits through their covered earnings, with a maximum of four credits obtainable per year. For 2025, one work credit is earned for every $1,810 in wages or self-employment income, meaning $7,240 in annual earnings secures the maximum four credits.

For retirement benefits, workers need 40 credits, which translates to 10 years of work. These credits do not need to be earned consecutively; they remain on an individual’s Social Security record.

The number of credits required for disability benefits varies based on the worker’s age at the onset of their disability and includes a “recent work” test. Workers under age 24 may qualify with as few as 6 credits earned in the three years before their disability began. Older workers need at least 20 credits earned in the 10 years immediately preceding their disability.

Eligibility for survivors benefits depends on the deceased worker’s credits, which can be fewer than 40 for younger workers. A special rule allows benefits for a spouse caring for children, or for children, if the deceased worker had 6 credits in the three years just prior to death. No one needs more than 40 credits for their family to be eligible for survivors benefits.

How OASDI Benefits are Calculated

The determination of an individual’s OASDI benefit amount involves a methodology centered on lifetime earnings. The first step involves calculating the Average Indexed Monthly Earnings (AIME). This figure is derived from a worker’s highest 35 years of earnings, with past earnings adjusted, or “indexed,” to account for changes in general wage levels over time.

Indexing ensures that prior earnings reflect their approximate value in relation to current wage levels. The AIME is then used to compute the Primary Insurance Amount (PIA), which represents the basic benefit an individual is entitled to at their full retirement age.

The PIA calculation employs a progressive formula that uses “bend points.” For 2025, these bend points are $1,226 and $7,391, meaning different percentages of AIME are used for earnings below the first bend point, between the two bend points, and above the second. This progressive structure ensures lower earners receive a higher percentage of their average earnings in benefits.