Basic Facts About Social Security|
Social Security Payment|
Social Security Branch Offices|
Social Security was first instituted by the U.S. federal government in 1935, and the original Act has been amended. The overall Act encompasses several programs that provide benefits for unemployment, disability, temporary assistance, health care (Medicare for the aged and disabled, and Medicaid for low-income families), and other situations, but when people refer to “Social Security,” they are generally referring to federal retirement benefits.
Social Security payments to retirees are funded by payroll taxes as a percentage of wages, half of the assessed amount coming from the wage earner and half from the employer. These taxes are paid into the Social Security Trust Fund, which is administered by the U.S. Treasury. The stability of this trust fund is often a hot-button issue during elections, and as the number of retirees drawing from the fund grows larger relative to the number of workers paying in, especially as baby boomers begin retiring, some pundits make alarming statements that the fund will soon run out of money and call for a massive overhaul. However, there have been many years of surplus, and objective assessments conclude that the trust fund will have sufficient assets to pay retirees until at least the middle of this century — leaving plenty of time to make adjustments ensuring that the system will remain solvent well beyond that time. So, in all likelihood, we will all be able to enjoy our Social Security benefits when we become eligible for them, regardless of our current age.
Who is Eligible?
To be eligible for Social Security benefits, you must earn “social security credits” by earning wages and paying payroll taxes that are deducted from those wages. One year of employment can earn as many as four credits, and, as of the year 2011, you must earn $1,120 to earn a single credit, or four times that amount ($4,480) to earn the maximum four credits for that year. These earnings do not need to be broken down into three-month quarters, as the system worked originally; you can earn $4,480 in a single month of work and not work at all during the remaining eleven months, and still receive the maximum four credits for the year.
Forty credits — ten years of work — is all you need to be eligible to receive Social Security benefits. People born before 1929 require even fewer credits.
How Are Benefits Calculated?
The amount of your benefit 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 income is $2,366. The SSA’s website provides on-line calculators that allow you to estimate your benefit payments. You can also request paper benefits statements from the SSA; these statements are generated annually, and you can elect to receive them automatically.
At What Age Can You Collect Benefits?
The earliest age at which a retiree may begin collecting Social Security benefits is 62, though this is not considered full retirement age by the Social Security Administration (SSA), and those who choose to begin drawing at this age will see reduced monthly benefits, perhaps only 80 percent of the amount they would receive if they elect to wait. Full retirement benefits depend on the year in which the retiree was born. For instance, anyone born before the year 1938 has a normal retirement age of 65. From that year onward, adjustments are made upward, to a maximum age of 67. Those retirees who wait until their full retirement age to begin collecting Social Security checks will enjoy full benefits.
A retiree may also elect to delay initiating benefit payments until he or she turns 70. Monthly payments at this point will include a credit amount for the retirement years in which benefits were not paid — so the checks will be bigger. If you have other means of income, either through investment income, pension plans, or wages, it may make sense to delay Social Security payments and get the bigger checks.
Working In Retirement
Can you continue to work and still receive social security checks? Yes, but benefits may be reduced. Generally, if you begin collecting social security before your full retirement age — say, when you turn 62 — and continue to work, your checks will be smaller. Also, if you earn above a certain amount, your benefit checks may be reduced further. But when you reach full retirement age — say, when you turn 65 — your checks will be increased, to make up for the amounts withheld in the previous three years. These calculations may be complex, and it’s best to study them thoroughly and work through different scenarios before deciding what to do.
Upon Your Death What Happens to Your Benefits?
If you were the wage earner and you predecease your spouse, your surviving spouse will continue to receive your benefit checks. Even a surviving ex-wife or ex-husband can receive your benefits, provided that your marriage lasted at least ten years. Children under the age of 18, as well as surviving dependent parents older than 62, also may be eligible to receive your benefits.
Applying for Social Security Benefits
Applying for social security benefits is a relatively straightforward process. You will need to present certain documents: your social security card, an original birth certificate, proof of U.S. citizenship or legal alien status, and either a W-2 form or self-employment tax return for the previous year. If you are missing any of these documents, you can apply for benefits anyway and provide the documents at a later time.
In planning for retirement, you must remember that Social Security may not be sufficient to meet all your retirement needs. Many retirees count on their monthly government checks as only part of their retirement income. You must plan carefully to ensure that you don’t run short.