Understanding Social Security
Over 57 million people today receive some form of Social Security benefits, including 87 percent of individuals over age 65. (Source: Fast Facts & Figures About Social Security, 2010) But Social Security is more than just a retirement program. Its scope has expanded to include other benefits as well, such as disability, family, and survivor's benefits.
How does Social Security work?
The Social Security system is based
on a simple premise: Throughout your career, you pay a portion of your
earnings into a trust fund by paying Social Security or self-employment
taxes. Your employer, if any, contributes an equal amount. In return,
you receive certain benefits that can provide income to you when you
need it most--at retirement or when you become disabled, for instance.
Your family members can receive benefits based on your earnings record,
too. The amount of benefits that you and your family members receive
depends on several factors, including your average lifetime earnings,
your date of birth, and the type of benefit that you're applying for.
Your earnings and the taxes you pay
are reported to the Social Security Administration (SSA) by your employer,
or if you are self-employed, by the Internal Revenue Service. The SSA
uses your Social Security number to track your earnings and your benefits.
Finding out what earnings have been
reported to the SSA and what benefits you can expect to receive is easy.
Just check out your Social Security Statement, mailed by the SSA annually
to anyone age 25 or older who is not already receiving Social Security
benefits. You'll receive this statement each year about three months
before your birthday. It summarizes your earnings record and estimates
the retirement, disability, and survivor's benefits that you and your
family members may be eligible to receive. You can also order a statement
at the SSA website, at your local SSA office, or by calling (800) 772-1213.
Social Security eligibility
When you work and pay Social Security
taxes, you earn credits that enable you to qualify for Social Security
benefits. You can earn up to 4 credits per year, depending on the amount
of income that you have. Most people must build up 40 credits (10 years
of work) to be eligible for Social Security retirement benefits, but
need fewer credits to be eligible for disability benefits or for their
family members to be eligible for survivor's benefits.
Your retirement benefits
Your Social Security retirement benefit
is based on your average earnings over your working career. Your age
at the time you start receiving Social Security retirement benefits
also affects your benefit amount. If you were born between 1943 and
1954, your full retirement age is 66. Full retirement age increases
in two-month increments thereafter, until it reaches age 67 for anyone
born in 1960 or later.
But you don't have to wait until
full retirement age to begin receiving benefits. No matter what your
full retirement age, you can begin receiving early retirement benefits
at age 62. Doing so is sometimes advantageous: Although you'll receive
a reduced benefit if you retire early, you'll receive benefits for a
longer period than someone who retires at full retirement age.
You can also choose to delay receiving
retirement benefits past full retirement age. If you delay retirement,
the Social Security benefit that you eventually receive will be as much
as 6 to 8 percent higher. That's because you'll receive a delayed retirement
credit for each month that you delay receiving retirement benefits,
up to age 70. The amount of this credit varies, depending on your year
of birth.
Disability benefits
If you become disabled, you may be
eligible for Social Security disability benefits. The SSA defines disability
as a physical or mental condition severe enough to prevent a person
from performing substantial work of any kind for at least a year. This
is a strict definition of disability, so if you're only temporarily
disabled, don't expect to receive Social Security disability benefits--benefits
won't begin until the sixth full month after the onset of your disability.
And because processing your claim may take some time, apply for disability
benefits as soon as you realize that your disability will be long term.
Family benefits
If you begin receiving retirement
or disability benefits, your family members might also be eligible to
receive benefits based on your earnings record. Eligible family members
may include:
- Your spouse age 62 or older, if married at least 1 year
- Your former spouse age 62 or older, if you were married at least 10 years
- Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled
- Your children under age 18, if unmarried
- Your children under age 19, if full-time students (through grade 12) or disabled
- Your children older than 18, if severely disabled
Each family member may receive a
benefit that is as much as 50 percent of your benefit. However, the
amount that can be paid each month to a family is limited. The total
benefit that your family can receive based on your earnings record is
about 150 to 180 percent of your full retirement benefit amount. If
the total family benefit exceeds this limit, each family member's benefit
will be reduced proportionately. Your benefit won't be affected.
Survivor's benefits
When you die, your family members
may qualify for survivor's benefits based on your earnings record. These
family members include:
- Your widow(er) or ex-spouse age 60 or older (or age 50 or older if disabled)
- Your widow(er) or ex-spouse at any age, if caring for your child who is under 16 or disabled
- Your children under 18, if unmarried
- Your children under age 19, if full-time students (through grade 12) or disabled
- Your children older than 18, if severely disabled
- Your parents, if they depended on you for at least half of their support
Your widow(er) or children may also
receive a one-time $255 death benefit immediately after you die.
Applying for Social Security benefits
You can apply for Social Security
benefits in person at your local Social Security office. You can also
begin the process by calling (800) 772-1213 or by filling out an on-line
application on the Social Security website. The SSA suggests that you
contact its representative the year before the year you plan to retire,
to determine when you should apply and begin receiving benefits. If
you're applying for disability or survivor's benefits, apply as soon
as you are eligible.
Depending on the type of Social Security
benefits that you are applying for, you will be asked to furnish certain
records, such as a birth certificate, W-2 forms, and verification of
your Social Security number and citizenship. The documents must be original
or certified copies. If any of your family members are applying for
benefits, they will be expected to submit similar documentation. The
SSA representative will let you know which documents you need and help
you get any documents you don't already have.