How Social Security Works: A Complete Guide to Benefits and Eligibility

Social Security is the backbone of economic security for millions of Americans, providing retirement, survivor, and disability benefits. It is administered by the Social Security Administration (SSA), which is a federally run program. Social Security ensures that essential income support reaches the retirees, the disabled, and the families of deceased workers.

How Social Security Works

Social Security is an insurance program paid for by payroll taxes under the Federal Insurance Contributions Act (FICA). Employees pay a part of their income, and self-employed persons pay Social Security taxes when they file federal returns. The contributions are used to fund two major trust funds:

• Old-Age and Survivors Insurance (OASI) Trust Fund – Pays benefits to retirees and their survivors.
• Disability Insurance (DI) Trust Fund – Offers benefits to disabled workers and their families.

Funds collected are utilized to compensate current beneficiaries, with any excess being kept in the trust funds. Financial operations are overseen by a board of trustees that consists of principal government officials and public representatives.

Who is Eligible for Social Security Benefits?

Retirement Benefits

People who have been working for 10 years or more and accumulating sufficient credits qualify for Social Security retirement income. Although retirement at age 62 is possible, the longer one waits until reaching full retirement age (FRA), the greater the payments will be each month. FRA differs by birth year from 66 to 67 years of age. Postponing benefits to age 70 gets the highest payments but beyond that doesn't improve them further.

Spouses may receive benefits on the basis of their earnings record or their spouse's record. Divorced persons are also eligible if the marriage was for 10 years or more. Children of retirees can be paid benefits under specified circumstances.

How Much Can You Get?

The amount of a benefit varies with the worker's average indexed monthly earnings (AIME) for their 35 best years. Through June 2024:

• Average retirement benefit: $1,869.77 monthly.
• Maximum at 62: $2,710 a month ($32,350 a year).
• Maximum at 70: $4,873 a month ($58,476 a year).

Retirement after FRA earns an additional 8% yearly up to age 70. The Social Security Administration also offers online calculators to estimate personal benefits.

Disability Benefits

Workers who cannot work a significant amount due to physical or mental impairments that have persisted for at least one year may be eligible for Social Security Disability Insurance (SSDI). Certain family members, such as spouses and children, are also eligible for assistance.

• Average SSDI Benefits (June 2024)
• Disabled workers: $1,537.70 per month.
• Spouses of disabled workers: $420.74 per month.
• Children of disabled workers: $493.19 per month.

Survivor Benefits

Social Security offers monetary benefits to families following a worker's passing. Survivors consist of:

• Widows or widowers 60+ (or 50+ if disabled).
• Spouses with a dependent child under age 16 or a disabled child.
• Children younger than 18 (or older if disabled or full-time students).
• Parents 62+ who relied on the deceased worker for income.
• Average Survivor Benefits (June 2024)
• Children of deceased workers: $1,105.32 monthly.
• Widowed mothers and fathers: $1,279.53 monthly.
• Non-disabled widows/widowers: $1,784.09 per month.
• Disabled widows/widowers: $927.89 per month.

Surviving spouses and children may also be eligible for a lump-sum payment of $255.

A Brief History of Social Security

Founded on August 14, 1935, by President Franklin D. Roosevelt, Social Security originally focused on offering retirement income to elderly Americans. The initial monthly check in 1940 was sent to Ida M. Fuller for $22.54. Through the years, Social Security has grown to incorporate disability and survivor benefits, ranking as one of the largest social programs in the world.

The Future of Social Security

One major concern is the long-term viability of the program. According to the Social Security Board of Trustees' 2024 annual report, reserves in the OASI Trust Fund are expected to be exhausted by 2033, with payroll taxes covering just 79% of scheduled benefits. In like manner, Medicare Part A's Hospital Insurance Trust Fund can cover only until 2036.

To preserve Social Security benefits, Congress could have to explore possibilities like increasing payroll taxes, reforming retirement ages, or altering benefit structures.

Social Security and Supplemental Security Income (SSI)

It's critical to differentiate between Social Security and Supplemental Security Income (SSI):

• Social Security benefits depend on work history and wages.
• SSI gives financial aid to low-income individuals who are aged, blind, or disabled, independent of work history.

Why Social Security Ought Not to be Your Sole Retirement Plan

Although Social Security is an important safety net, it must not be your only retirement plan. The average benefit of approximately $20,000 per year could not support a comfortable lifestyle. To augment Social Security, one needs to consider:

• Employer-sponsored retirement savings plans (e.g., 401(k), 403(b)).
• Individual Retirement Accounts (IRAs).
• Personal savings and investments.

Final Thoughts

Social Security is still a vital program serving millions of retirees, disabled workers, and survivors. As the program continues to change, however, individuals must take affirmative action to secure their finances in retirement. By learning about Social Security's place and supplementing it with other strategies for saving, individuals can build a more secure and stable future.

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#retirementincome Allsup True Potential LLP

Originally Published By TYCOONSTORY MEDIA