Social Security, a pivotal federal program in the United States, was established with the goal of promoting economic protection and security for citizens. Initiated as part of President Franklin D. Roosevelt’s New Deal in 1935, it was designed to protect individuals and families from the economic challenges that come with retirement, disability, and death.
One of the primary functions of Social Security is to provide a source of income for individuals in their retirement years. The amount of benefits one receives depends on their lifetime earnings, the age at which they retire, and the number of years they have paid into the system. Generally, the more money you’ve earned and the more years you’ve worked, the higher your benefit will be.
Every year that you work, you pay Social Security taxes. That tax money goes into a trust fund. The trust is used to pay benefits to people who are already retired, those with disabilities, and surviving spouses.
To become eligible for retirement benefits, you must have at least 10 years of work history. Benefits are based on your highest 35 years of earnings.
When it’s time for you to retire, your benefit is calculated like this:
First, Social Security takes your highest 35 years of earnings and adjusts the number to account for changes in wages. This is called your average indexed monthly earnings (AIME).
Next, Social Security applies a formula to your monthly average to determine your primary insurance amount (PIA).
90% of the first $1,024 of your AIME + 32% of any amount over $1,024 (up to $6,172) + 15% of any amount over $6,172 = PIA
Remember, Social Security benefits are adjusted annually for inflation. And, while you are still working, your total PIA has the potential to go up (if your monthly wages increase).
You can start receiving your Social Security retirement benefits as early as age 62. However, if you start receiving benefits before your full retirement age, your benefit amount will be reduced. Your full retirement age depends on the year you were born, and it ranges from 65 to 67 years old. You can use the Social Security Administration’s online calculator to determine your full retirement age based on your birth year.
It’s recommended to file your application one or two months before the desired start date of your Social Security benefits. However, if you tend to worry, you can file up to three or four months in advance. This will allow enough time for processing and addressing any issues that may arise without delaying your starting date.
Another thing to keep in mind is that if you begin receiving Social Security retirement benefits before reaching age 65, you’ll be automatically enrolled in Medicare Part A and Part B. Your Medicare card will arrive about three months before your 65th birthday, along with instructions to return it if you have work coverage that qualifies you for late enrollment. On the other hand, if you choose to delay your retirement benefits, you’ll need to sign up for Medicare separately when you turn 65. You can do this online at SocialSecurity.gov or over the phone at 800-772-1213.
The easiest and most convenient way to apply for Social Security benefits online, visit the official Social Security Administration website at www.ssa.gov. From there, you can navigate to the “Apply for Benefits” section and follow the instructions to create or sign in to your personal my Social Security account. Once you have completed this step, you can begin the application process for retirement, disability, or Medicare benefits. The online application is designed to be simple and easy to use, with guided prompts and helpful information along the way. If you have any questions or encounter technical difficulties, you can contact the Social Security Administration for assistance.
Social Security also provides financial assistance to those who are unable to work due to a physical or mental disability that is expected to last at least a year or result in death. The Social Security Disability Insurance (SSDI) program pays benefits to those who are insured and certain family members. To be “insured,” you must have worked for a sufficient amount of time and paid Social Security taxes. The amount of benefits received under SSDI is based on your average lifetime earnings before your disability began, not on the severity of your disability or your current income
Supplemental Security Income (SSI) is funded by general tax revenues (not Social Security taxes). It helps adults over 65, those who are blind, or disabled people who have little or no income by providing cash for basic needs like food, clothing, and shelter. How much you receive from this program monthly depends on your income, living situation, and assets, and not your work history.
In the event of a worker’s death, Social Security may provide benefits to surviving spouses, children, and dependent parents. The amount of survivors benefits is determined by the deceased person’s earnings and the number of credits they had accumulated in the Social Security system.
In addition to the individual worker, certain family members might be eligible for benefits. Spouses, children, and in some cases, parents can receive a percentage of the worker’s retirement or disability benefit. If family members apply, their Social Security numbers and birth certificates are required. For a spouse, proof of marriage and dates of prior marriages might be needed.
Each eligible family member could potentially receive up to 50% of the disability benefit amount. However, there is a limit to the total amount that can be paid to a family. The collective amount received by a family, including the initial recipient, usually ranges from 150% to 180% of the disability benefit. The exact amount depends on the benefit amount and the number of qualifying family members.