Social Security is the largest source of retirement income for American workers and their families. The program has a number of different benefits, and the amount of money that each beneficiary receives will depend on a variety of factors, including age, marital status, and history of wage employment.
The Social Security system was established in 1935 by President Franklin D. Roosevelt as a way to secure Americans “against the hazards and vicissitudes of life.” Today, the program covers an estimated 65 million Americans and is run by a federal government agency known as the Social Security Administration (SSA).
Even though social security can provide you with a secure retirement, not everyone understands how it all works or what the system has to offer. This article explains everything you need to know about social security, how it works, and other questions you may want to ask.
But before we dive into the main formalities, let’s understand what social security is.
What is Social Security?
Social Security is a retirement, survivor, and disability benefit program provided by the U.S. government that is financed through a combination of federal taxes and payroll taxes paid by workers and employers.
The program is funded by an administrative fee collected by employers from their employees and paid to the government on their behalf. Self-employed individuals pay theirs when they file their annual federal tax return.
How Does Social Security Work?
Americans who pay into the social security system are eligible to receive retirement benefits. As a primary requirement when working, both you and your employer must pay 6.2% of earnings in social security taxes, while the self-employed will pay 12.4% of their earnings while filling out the federal annual tax return.
You’re only eligible to pay social security taxes on earnings below $147,000 (as of 2022), and you’re eligible to get 1 social security credit for every $1,510 you earn. You can receive up to four credits per year, and you may need 40 credits in total to be eligible for retirement benefits.
What are the Types of Social Security Benefits?
There are three major types of social security benefits available for retirees, their survivors, and the disabled.
Retirement Benefits
Retirement benefits are only available to people who have earned at least 40 social security credits or have paid into the system for a minimum of 10 years. This gives them the leverage of being eligible to get early retirement benefits as early as age 62, although they could wait until their full retirement age, which is 65 to 67, to receive higher monthly benefits.
Survivors Benefit
This benefit is for eligible relatives of a deceased worker, and the benefits are calculated based on the worker’s earning records while alive. The beneficiary must be a widower or widow; a surviving spouse; or a child or parents of the deceased.
For a spouse to be eligible, he or she has to be 60 or older, and in the case of a spouse who has become disabled, they should be 50 or older, provided they have not remarried. A surviving spouse with a child younger than 16 or disabled may also be eligible for the benefits.
For the children or parents of the deceased to receive the benefits, the children would have to be younger than 18 or disabled, while the parents would have to be over 62 or older.
Disability Benefits
Certain earnings requirements are needed to be eligible for this benefit. This benefit is available to people who can no longer work due to a disability that is expected to last a year or lead to death. The relatives of a disabled worker may also be eligible for this benefit.
When Can You Start Collecting Social Security?
You can start collecting social security benefits as early as age 62, as long as you have paid into the system at least one-eighth of your income for at least 10 years. In other words, you must have “phased-in” at least 40 social security credits to be able to enjoy your benefits.
You can also wait until you are eligible for full benefits. The full benefits come when you’ve reached your full retirement age of 66 if you were born in 1955 and gradually increase to 67 for individuals born in 1960 and after. According to Samuel Dixon of Oxford Advisory Group, if you wish to increase the amount of your retirement benefits you can choose to delay your benefits till you’re 70.
What is the Benefit of Social Security?
Social security provides workers with a secure life insurance policy and gives them a system to plan their retirement. Another major benefit of Social Security is that it provides valuable social insurance protection to workers who may become disabled and to their families on the occasion that they pass away. Some of the other benefits of Social Security are that it provides protection for your spouse, kids, and even your parents.
However, it is important to remember that these benefits are not gifts from the government. Social Security benefits are based on a person’s earnings history and the amount of money they have generated through employment during their lifetime. Furthermore, you must have accrued a minimum of 40 social security credits or have paid into the system for at least 10 years to be entitled to its benefits.
Wrapping up
Social security is a vital safety net for retirees, survivors, and disabled people. While you’re working now, it’s important to know all you can about social security and use this knowledge to plan for your retirement. Planning your retirement is the best way to support yourself and your family when you stop working.
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