Basic Facts About Social Security|
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Social Security Branch Offices|
The U.S. Social Security Administration (SSA) is an independent U.S. government agency first established through the Social Security Act of 1935, which encompasses several social welfare and social insurance programs, intended to provide income for people who are retired, disabled, or unemployed. Medicare, which provides health insurance for retired persons, and Medicaid, which provides health insurance to needy people, are additional social welfare programs, but these are administered through the Department of Health and Human Services.
All of these programs are funded through payroll taxes, with the tax burden shared by employer and employee.
In order to qualify for Social Security retirement benefits, you need to accumulate forty Social Security “credits,” and you can accumulate a maximum of four credits per year. In order to receive one credit, you must earn $1,120 (as of 2011). According to an older formula, you would have had to have earned this amount in each of four annual quarters (i.e., January through March, April through June, and so on). However, this formula was adjusted; now, if you earn $4,480 in a single month, enough money to make up four Social Security credits, you don’t need to work the rest of the year to earn the maximum credits for the year.
For most people, 10 years of working thus qualifies them to eventually receive retirement benefits.
When You Can Collect Benefits
As you approach retirement, you have several choices regarding when to begin collecting your social security benefit checks. For most of us, beginning to draw these checks at “full retirement age” makes most sense: it is at this age that you can draw the maximum amount that you are entitled to. If you were born prior to 1938, your full retirement age is 65; for those born after 1938, the age slides upward, to the year 1960. If you were born in 1960 or later, your full retirement age is 67.
If you retire early, you have the option of drawing social security checks as early as the age of 62; however, your benefit will be reduced, based on a formula. For instance, if your full retirement age is 65 but you begin drawing checks at 62, your checks will only be 80 percent of the full amount to which you are otherwise entitled. If your full retirement age is 67 and you begin drawing at 62, you will only get 70 percent.
Conversely, if you delay applying for benefit checks until you turn 70, your monthly check will be bigger. For each year after your full retirement age that you delay applying for benefits, you can expect an 8 percent increase in those monthly benefits. For example, if you would be collecting $2,300 a month if you retired at a full retirement age of 66, you could collect about $3,100 a month by waiting four years. (There is absolutely no reason to delay beyond the age of 70.) You will need to determine your other sources of income, your income needs, and other variables before deciding on the best time to begin collecting checks.
The size of your benefit check is based on your lifetime earnings — during the 35 years in which you earned the most. The more you earned, the more you qualify for, up to a maximum amount that is adjusted depending on several factors. For instance, for someone who retires at age 66 in 2011, the maximum monthly payment regardless of preretirement income is $2,366. You can find on-line calculators at the SSA’s website that allow you to calculate your projected benefit; the SSA also mails out annual benefits statements, summarizing credits you’ve earned and projecting benefits.
Other than retirement benefits, the SSA administers a disability insurance program, providing benefits for people who cannot work because of a long-term illness or disability. Applying for disability benefits is considerably more complex than applying for retirement benefits, because an SSA case worker will need to examine your circumstances and make a determination that you are indeed eligible for benefits. The basic conditions for eligibility are that an applicant must suffer from a condition (either mental or physical) that prevents engagement in “substantial gainful activity”; that the condition is expected to last at least 12 months; that the applicant is under 65 years of age; and that the applicant has worked roughly five of the ten years prior to the onset of the disability. (For younger workers, this last condition is scaled back proportionately.)
Because of these requirements, it is essential that an applicant for disability insurance keep careful records of all medical testing and treatments; a written statement from a doctor confirming the disability is also important. SSA case workers follow a strict procedure in handling applications, and if an initial request is rejected, the applicant has recourse to an appeals process. This process can take a long time — sometimes years — and it may be worthwhile to seek legal assistance. There is a legal industry built around disability insurance cases, but legal fees are strictly controlled, and no legal fees can be charged if an applicant ultimately loses his or her case.
If successful, the eventual disability check is based on an applicant’s prior income, but is not intended to replace income; these checks are only meant to help a disabled worker tread water until he or she is able to rejoin the workforce. However, the size of one’s family is taken into consideration, and disability payments may be adjusted upward if the family’s sole source of income is lost.