Social Security: Understand the basics
Social Security: Understand the basics

Social Security: Understand the basics

Dmytro Zinkevych / iStock.com

It’s hard to imagine any government program affecting the lives of more Americans than social security. The basis for retirement for most of the country, social security paid monthly benefits to 65 million people by 2020, according to the Social Security Administration (SSA). Most, about 49 million, were retirees and their families, but the program also supports disabled workers, families losing a parent or spouse, and other vulnerable populations.

See: The biggest problems facing social security
Read more: Next year’s social security check could get the biggest COLA bump in 13 years

If you have not yet cashed checks, chances are good that you are kicking in the pot. About 180 million Americans pay for social security through their taxes. The program is actually so ubiquitous that the social security number that the SSA issues to you at birth will serve as your numerical identity for the rest of your life.

Read: 35 Mistakes in Retirement Planning That Waste Your Money

A very short story about social security

Before social security, retirement planning consisted mostly of having a lot of kids to take care of you when you were too old or sick to work. Governments had been experimenting with “poor laws” and other semi-organized efforts to care for the elderly and poor for centuries. But the business of financial support for the elderly, the poor, and others who could not support themselves was mostly left to families, communities, charities, and churches.

That all changed in 1935 when Franklin Roosevelt signed the Social Security Act. The result of decades of progressive activism by labor leaders and advocates of social welfare, gave the legislation:

  • A federal retirement program for seniors age 65 and older

  • An employer-financed unemployment insurance program

  • Financial support for widows with children and disabled workers

Taking care of the old and poor was now officially the responsibility of the federal government.

Basics of Social Security

Although the vast majority of recipients rely on social security for more than half of their income, social security was never intended to fully support people in retirement. On average, social security payments replace about 40% of early retirement income, according to AARP. The average monthly payment is around $ 1,400. There are very strict and specific rules for who can claim social benefits, when they can claim them and how much they will receive. In general:

  • You must work for at least 10 years to be eligible

  • Your benefits are based on your 35 highest earning years

  • Full retirement age is somewhere between 66 and 67, depending on when you were born

The payroll tax finances Social Security. Employers and employees share the bill, with both parties kicking in 6.2%. One exception is all too familiar to those who are in business for themselves. They must pay both as an employer and an employee. It is the dreaded self-tax, a bruised 12.4% surcharge, that is the cost of working for the person in the mirror.

There is a right way – and a whole lot of wrong ways – to claim benefits

If you are considering applying for social security but you are not sure when or how, do not do anything until you know what you are doing. There are many variables to consider and many options to consider. Your decisions determine the size of your monthly check. Your best bet is to talk to a professional, but if not, at least take the time to educate yourself.

Kiplinger, for example, put together a primer on things like calculating benefits, adjusting living costs, how benefits can grow, the longer you wait to claim them, and the formula for calculating spouse benefits.

More from GOBankingRates

This article is part of the GOBankingRates’ ‘Economy Explained’ series to help readers navigate the complexities of our financial system.

This article was originally published on GOBankingRates.com: Social Security: Understand the basics

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