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Social security is one of those things that most know about, but very few actually understand.
Social security isn’t necessarily overly complicated, but there are little details and different rules and regulations that aren’t common knowledge.
In this article we’ll take a closer look at social security: What it is, how it works, and frequently asked questions people have about it.
What is Social Security?
Social security is a government program that was created in 1935 as a part of President Franklin Roosevelt’s New Deal plan.
It was designed to offer retirement income to workers over 65 years old.
Over the years it expanded its reach to also provide income for people unable to work due to a mental or physical condition, spouses and family members of beneficiaries, and survivors of beneficiaries.
Advantages of Social Security
- Provides continuing income to retired workers
- Provides income to those unable to work
- Provides a social safety net and helps guard against poverty
- Allows recipients a choice of when they begin to receive benefits
Disadvantages of Social Security
- As of 2022, the system will not be fully funded as more people will be receiving benefits than paying into the system
- People without a steady work history are unlikely to pay enough into the system to receive benefits
How Does Social Security Work?
Social security is funded through two sources of dedicated tax revenues.
The far greater part (96%) is received through payroll tax over a person’s working life.
The remaining share is gathered from income tax on benefits.
These revenues are put into two social security funds:
- the OASI trust fund
- the DI trust fund
These funds then pay out benefits to qualified recipients.
Types of Social Security Benefits
In this section, we’ll take a closer look at the different types of social security benefits.
These include the following:
Retirement benefits are available to individuals at least 62 years old, who have earned enough social security credits (this is based on lifetime earnings).
On average, recipients will receive around 40% of their pre-retirement income.
Social security should be just one part of a person’s retirement plan.
There are two different disability programs that are paid out through the Social Security Administration.
Social Security Disability Insurance
Social Security Disability Insurance pays benefits to an individual and members of their family, as long as they worked long enough and paid into the Social Security program (through taxes).
The Supplemental Security Income
The Supplemental Security Income pays benefits to an individual based on financial need.
Benefits are paid to widows and widowers, as well as dependents of eligible workers.
Family members may receive benefits when an individual dies if they have paid into the program and based on their earnings.
How to Apply for Social Security
You can apply for social security in just three simple steps.
Step #1: Determine Eligibility
First, determine that you are both eligible and that you are making the right decision about when you apply.
If you take benefits early, you’ll lose a substantial amount as you are penalized with deductions from your payout.
Conversely, every year that you defer after age 67 you’ll receive a larger amount.
Step #2: Gather Documentation
Next, gather all required documents. This includes:
- Date and place of birth
- Social Security Number
- Name of the current spouse as well as prior spouses
- Spouse’s social security number and date of birth, as well as beginning and ending date of marriage or marriages
- Details of current employer and any other employers you’ve had in the past 2 years. (Names as well as employment start and end dates)
- Bank account type and number, as well as routing number if you are going to opt for direct deposit
Step #3: Apply
You can apply online, by phone, or at your local social security office.
If you are doing it in-office, make sure that you call to make an appointment first.
Once the application has been submitted, you will be able to check the status of your application online.
Social Security and Taxes
Taxes are what fund social security.
This is why not everyone is eligible for social security.
An individual is required to earn a certain amount over their lifetime to qualify for social security benefits.
Some individuals will need to pay taxes on social security benefits.
Depending on income, this could be:
You may also have to pay if your social security benefits bump you up into a higher tax bracket.
Social Security FAQs
In this section, we’ll take a look at some commonly asked questions about social security.
Q. How Much Social Security Will I Get?
How much social security you receive depends on several factors.
Those who earned more money over their lifetime will receive more money (up to a point).
It also depends on when you apply.
It’s possible to receive benefits early, but if you don’t wait until full retirement age, you will be penalized.
You will also earn more the longer you defer your payments.
Other factors may include cost of living adjustments, and whether you continue to work after receiving benefits.
Though the only way to know for sure is to apply, there are also calculators available online that can give you an estimate based on these factors.
Q. How do I check my Social Security account?
Visit SSA.gov and create an account. You may then log in and check it at any time.
Q. How can I check my social security status?
SSA.gov has all the information you need to check your social security status.
Q. When will social security run out?
Unless Congress raises taxes or cuts benefits, the Social Security trust fund will run out of money in 2034.
Q. When Can You Collect Social Security?
62 is the earliest age you can begin receiving benefits, though you will be financially penalized for this.
Age 66 is the current full retirement age, and this is when you can start receiving benefits in full.
Age 70 is the latest you’ll want to apply because this is when they stop increasing payments based on deferment.
The Bottom Line: Social Security
Social security is an important benefit to fight poverty, especially for those too old to work. And while there are a lot of pieces to understand, it’s all pretty straightforward.
A visit to the SSA.gov website will take you through the steps needed to apply, and offer helpful tips on the best way to maximize your social security benefits.