What is Social Security?
Social Security is the nation’s federally funded pension plan for retirees and the disabled. The program provides a monthly payout to beneficiaries based on their work history, income and average income. Social Security is a broad term that is usually applied to retirement, survivors and disability benefits. The Social Security Administration also administers, funds or is involved with programs like Medicare and Supplemental Security Income.
Who is eligible for Social Security?
Generally the term Social Security is applied to retirement and survivors benefits, generated from a person’s work history over at least 40 quarters of coverage in a Social Security covered industry. Partial benefits may be available for those with at least six quarters of coverage, but less than 40. Certain dependent survivors of a worker may be entitled to benefits upon the worker’s death. Survivors can include widows, dependent children under 18, dependent parents over 62, permanently disabled children or in certain circumstances, divorcees. Benefits paid to disabled persons fall under the category of Social Security Disability Insurance (SSDI), and are not covered under this section.
Full retirement benefits are payable to those who are 65-67 years of age (depending on their birth year). Social Security is currently stepping up the retirement age for beneficiaries, so those born before 1938 can retire at 65, while those born in 1960 or after can retire at 67. For individuals born between 1938 and 1960, there is a escalating scale (you can check here for specific years). In addition, reduced benefits are available to individuals starting at age 62. The lifetime benefits are not reduced, but the monthly payout will be correspondingly reduced by a percentage (less than 1% though variable based on age) for every month that benefits are claimed prior to reaching normal retirement age.
What are Social Security Benefits?
Social Security benefits can be calculated by a variety of different methods, depending on when a person started paying into the Social Security system, when he/she reached retirement age and the maximum average income an individual received. The Social Security Administration maintains a benefit calculator in order to estimate specific payouts.
In general the most important determinant for Social Security is the highest 35 years of a worker’s covered earnings. Social Security taxes are only applied to wages below a base income ($118,500 in 2016) and this amount is the maximum that Social Security benefits will be calculated on for a given year. These earning are referred to as being ‘covered’. They will be averaged and then, depending on the year of birth, one of several computation methods will be applied and a benefit amount determined. To check on your situation, please refer to the benefit calculator above.
Social Security benefits are re-evaluated annually, usually through a cost-of-living adjustment (COLA). This is determined from the Consumer Price Index (for Urban Wage-Earners and Clerical Workers).
Other auxiliary benefits may be available based on widow(er) status, dependency status and other criteria.
The Social Security Administration has recently launched an expanded tool to help Americans manage their Social Security benefits. The ‘my Social Security’ system allows both current beneficiaries and future Social Security recipients to create accounts that will track their Social Security contributions, payouts (including expected payouts) and eligibility. This service is also available to individuals receiving Supplemental Security Income and Social Security Disability Insurance. Any individual 18 years of age and older, with a US Social Security number, mailing address and e-mail address can sign-up for a ‘my Social Security’ account. Simply go to the mySocialSecurity page and register for an account to get started.