Although Social Security is an important element of most people’s retirement plans, the programme itself accomplishes much more.
In a nutshell, Social Security is intended to help disabled and retired individuals, as well as their families, by providing a guaranteed source of income for those who meet certain criteria.
Here’s a closer look at how the system works, the many sorts of Social Security benefits that are available, and what to expect when it’s time to file a claim.
The Workings of Social Security
Social Security is a federal programme that collects taxes from working Americans and distributes that money to financially secure handicapped workers, retirees, and their families.
To qualify for Social Security, a worker must normally earn 40 credits, though if they die or become incapacitated while still young, they may be able to qualify with fewer credits. In 2022, a credit equals $1,470 in earned income, with a maximum of four credits per year.
If you’ve worked long enough, you may be eligible for Social Security payments based on your own work record, or spousal benefits based on your current or ex-work spouse’s record if the amount is greater than what you’re entitled to on your own.
In some cases, dependent children and other family members may also be eligible for family benefits.
When you’re ready to apply for Social Security, you can do it either online or in-person at a Social Security Administration office near you.
If you qualify, a government representative will verify the details in your application, and you will begin receiving monthly checks.
Social Security benefits come in a variety of shapes and sizes.
Social Security payouts are divided into three categories:
- Benefits from retirement
- Benefits for people with disabilities
- Benefits for Survivors
Benefits from retirement
Workers 62 and older who have worked for at least 40 credits are eligible for Social Security retirement benefits. The size of your benefit checks is determined by your AIME (average indexed monthly earnings) over your 35 highest-earning years, as well as the age at which you begin receiving benefits.
To get your basic pension based on your AIME, you must wait until you reach full retirement age (FRA). If you were born between 1943 and 1954, your FRA is 66; after that, it rises by two months per year until it reaches 67 for those born in 1960 or after.
If you start claiming at the age of 62, you’ll only get 70% of your basic benefit if your FRA is 67, or 75% of your FRA is 66. Every month that you delay benefits, your checks will grow somewhat larger until you achieve the maximum benefit at the age of 70.
If your FRA is 67, this is 124 per cent of your regular benefit; if your FRA is 66, it is 132 per cent.
If your income is high enough, receiving Social Security payments under your FRA may result in you losing some of that money to the government.
If you will be under your FRA for the entire year, the Social Security Earnings Test will deduct $1 from your checks for every $2 you earn above $19,560 in 2022.
If you achieve your FRA in 2022, it will cost you $1 for every $3 you make in excess of $51,960 if you do so before your FRA. The government recalculates your benefit once you’ve passed your FRA to include the amount that is withheld.
If claiming benefits on your job record will offer them more money than they’re qualified for on their own employment record, certain family members can do so. Members of the following families are eligible:
- Ex-spouses who have not remarried after a marriage of at least ten years
- Children under the age of 18, or up to 19 if still in high school
- Children of any age who were disabled before the age of 22 — that is, children who did not earn more than $1,260 per month in 2020 and who had a medical condition that caused serious functional limits and was projected to endure 12 months or longer or result in death.
To claim benefits, spouses and ex-spouses must be at least 62 years old, and spouses and children must wait for the worker to start claiming benefits before claiming family benefits on their record.
Benefits for people with disabilities
Adults 18 and older who are unable to work due to a physical or mental disability that is expected to continue at least 12 months or result in death are eligible for Social Security disability benefits.
Depending on your age at the time of your condition, you may still be eligible even if you haven’t acquired 40 credits. Individuals who earned more while working will receive higher disability benefits, as your compensation is decided by your average lifetime earnings.
When you apply, you must supply the government with information about your job history and medical condition, as well as any supporting documentation.
Your case will be reviewed by the Social Security Administration to see if you are eligible. If the court finds it in your favour, you’ll get disability payments for the rest of your life or as long as your handicap lasts, whichever comes first.
If the decision isn’t in your favour, you can ask for a reversal or file an appeal with an administrative law judge.
If you are a family member of a disabled worker, you may be able to claim benefits based on his or her work record if you are:
- A spouse who is 62 years old or older, or any age if caring for a disabled worker’s disabled kid or a child who is 16 years old or younger.
- Ex-spouses who have not remarried and have been married to the disabled worker for at least 10 years if they meet the same conditions as their spouses.
- Unmarried minors up to the age of 18, or 19 if still in high school
- Disabled children of any age who were born before the age of 22
Benefits for Survivors
Survivors benefits are payments made to the family members of dead Social Security recipients.
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Survivor benefits are available to surviving spouses who are 60 years old or older (50 years old if disabled), as well as surviving spouses of any age who are caring for the deceased worker’s kid who is under the age of 16 or disabled.
Ex-spouses are subject to the same restrictions as spouses who have been married to the dead worker for at least 10 years and have not remarried.
Benefits are available to the deceased worker’s children under the age of 18, or up to 19 if still in high school, as well as disabled children of any age who were disabled before the age of 22.
If the deceased worker was providing 50% or more of their financial support before they died, the parents of the deceased worker may be eligible for benefits as well.
A one-time death payment of $255 may be available to the surviving spouse or children in addition to these benefits.
Social Security’s Brief History
The Social Security Act, signed into law by President Franklin D. Roosevelt in 1935, established the programme. In 1940, the first checks were issued.
Originally, it only gave benefits to workers aged 65 and over, but in the 1970s, the government changed it to allow workers as young as 62 to apply for benefits.
Annual cost-of-living adjustments (COLAs) were also implemented to help Social Security keep up with inflation.
Although the programme has performed admirably thus far, many people are concerned about the future, when there will be fewer workers to support an increasing number of Social Security users.
According to the most recent Social Security Trustees’ Report, the program’s trust assets will be drained by 2034, after which it will only be able to pay out roughly 76 per cent of retiree benefits and 92 per cent of benefits to disabled employees.
The government has recommended numerous options for assuring the program’s long-term viability, but no plans have been made as of yet.
The programme is unlikely to be phased down in the next decade or two, but future payments may not be as generous as they are now.
That is why today’s workers must make their retirement savings a top priority so that they can handle the majority of their expenses on their own.