What is Social Security?
Social Security reaches almost every family, and at some point, touches the lives of nearly all Americans. Social Security helps older Americans, workers who become disabled, and families in which a spouse or parent dies. Today, about 168 million people work and pay Social Security taxes and about 60 million people receive monthly Social Security benefits. Most of our beneficiaries are retirees and their families — about 42 million people. But Social Security was never meant to be the only source of income for people when they retire. Social Security replaces about 40 percent of an average wage earner’s income after retiring, and most financial advisors say retirees will need 70 percent or more of pre-retirement earnings to live comfortably. To have a comfortable retirement, Americans need more than Social Security. They also need private pensions, savings, and investments.
How is social Security paid for?
Social Security taxes paid by you and other workers pay into the system to pay Social Security benefits. You pay Social Security taxes based on your earnings, up to a certain amount. In 2016, that amount is $118,500. Generally, you and your employer each pay 6.2% in Social Security tax and 1.45% in Medicare tax. If you are self-employed you will pay 12.4% and 2.9% respectively. Workers pay an additional 0.9 percent Medicare tax on income exceeding certain thresholds. The following chart shows the threshold amounts based on tax filing status:
The majority of this tax revenue goes to paying monthly benefits. Some also helps pay the costs of managing social security which is one of the most efficient agencies in the federal government.
What benefits does Social Security give?
Social Security benefits only replace some of your earnings when you retire, become disabled, or die. We base your benefit payment on how much you earned during your working career. Higher lifetime earnings result in higher benefits. If there were some years when you didn’t work, or had low earnings, your benefit amount may be lower than if you worked steadily. If you were born from 1943 to 1960, the age at which full retirement benefits are payable increases gradually to age 67. If your birth year is 1948 or earlier, you already are eligible for your full Social Security benefit. Use the following chart to find out your full retirement age.
If you choose to delay receiving benefits beyond your full retirement age, your benefits will increase by a certain percentage, depending on the year of your birth. The increase will automatically be added each month from the time you reach full retirement age, until you start taking benefits or reach age 70, whichever comes first.
You may start receiving benefits as early as age 62. Your benefits are reduced by about one-half of 1 percent for each month you start your Social Security before your full retirement age. For example, if your full retirement age is 66, and you sign up for Social Security when you’re 62, you would only get 75 percent of your full benefit.
It is also possible to work and still collect benefits but this can reduce your benefits if you earn too much.
If you’re receiving widow’s or widower’s benefits, you can switch to your own retirement benefits as early as age 62, assuming your retirement benefit is more than the amount you receive on your deceased spouse’s earnings. Often, you can begin receiving one benefit at a reduced rate and then switch to the other benefit at the full rate when you reach full retirement age.
Some people who get Social Security will have to pay taxes on their benefits. About 40 percent of our current beneficiaries pay taxes on their benefits. You’ll have to pay taxes on your benefits if you file a federal tax return as an “individual” and your total income is more than $25,000. If you file a joint return, you’ll have to pay taxes if you and your spouse have a total income that is more than $32,000.
Applying for Benefits
You should apply for benefits about three months before the date you want your benefits to start. If you aren’t ready to retire, but are thinking about doing so later, you should visit www.socialsecurity.gov/retire to use the informative retirement planner. To file for disability or survivors benefits, you should apply as soon as you’re eligible.
When you apply for benefits, we will ask you to provide certain documents. The documents you’ll need depend on the type of benefits you file for. Providing these documents to us quickly will help us pay your benefits faster. You must present original documents or copies certified by the issuing office — we can’t accept photocopies. Don’t delay filing an application just because you don’t have all the documents you need. We’ll help you get them. Some documents you may need when you sign up for Social Security are:
- Your Social Security card (or a record of your number);
- Your birth certificate;
- Your children’s birth certificates and Social Security numbers (if you’re applying for them);
- Proof of U.S. citizenship or lawful immigration status if you (or a child) weren’t born in the United States;
- Your spouse’s birth certificate and Social Security number if he or she is applying for benefits based on your earnings; 17
- Your marriage certificate (if signing up on a spouse’s earnings or if your spouse is signing up on your earnings);
- Your military discharge papers if you had military service; and
- Your most recent W-2 form, or your tax return, if you’re self-employed.
We will let you know if you need other documents when you apply. How we pay benefits You must receive your Social Security payments electronically. One of the ways you can choose to receive your benefits is through direct deposit to your account at a financial institution. Direct deposit is a simple and secure way to receive your payments. Be sure to have your checkbook or account statement with you when you apply. We will need that information, as well as your financial institution’s routing number, to make sure your monthly benefit deposit goes into the right account. If you don’t have an account with a financial institution, or if you prefer to receive your benefits on a prepaid debit card, you can sign up for the Direct Express® card program. With Direct Express®, payments go straight to the card account. Another payment choice you can consider is an electronic transfer account. This low-cost federally insured account lets you enjoy the security and convenience of automatic payments.
Images sourced from Photos.com and SSA.gov