Practically every working American adult pays into the United States Social Security program. Unfortunately, the vast majority of Americans don’t have a clue about their benefits, what they qualify for, when those benefits will be available and what their contributions go towards. Adding to the confusion this year will be the fact that the federal government is no longer going to be sending paper statements out to Social Security recipients. The information will be available online of course but, for people used to getting a paper statement that explained everything to them in black and white, it will take a little bit of getting used to.
At its most basic, you pay 6.2% of your income to Social Security and your employer pays a matching 6.2% for you also. The cap on this in 2013 is $113,700. If you’re self-employed then you’ll be paying both halves and 12.4% of your annual income. When it comes to payments, they are calculated using the 35 highest earning years that you were in the workforce, adjusted for inflation. If, for whatever reason, you did not work 35 years then a zero will be averaged in for any years that you didn’t pay into the Social Security program.
When it comes time to start collecting your Social Security there are a number of terms that you need to know. One of them is your full retirement age, which is the time at which you can collect the full amount of your Social Security benefits. People born before 1937 had a full retirement age of 65 but, since then, it’s been gradually increasing. Today, anyone born in 1960 or later will have a full retirement age of 67. The reason that this is a vital number is that, if you decide to start collecting your Social Security benefits before your full retirement age, you will receive reduced payments for the rest of your life once you hit your specific full retirement age number.
Similar to waiting until you reach your full retirement age, delaying your retirement benefits even longer will ensure that you receive bigger checks on down the road. For example, a person born in 1943 or later who delays claiming their Social Security benefits after their full retirement age has been reached, will gain 8% on whatever they have in their Social Security account every single year until they reach the age of 70.
Simply put, the longer that you can wait to start receiving Social Security, the more you’re going to get. Since the risk of running out of money before you run out of life is real, most financial experts urge people to put off collecting their Social Security benefits as long as possible.
Most people don’t realize that there are additional options open to married couples. For example, married couples can claim their Social Security benefits based on either the work that they have done or the work that their spouse has done, but only up to 50% of what their spouse made. If, for example, a woman worked part-time during her life but her husband was a very big earner, she could claim his benefits rather than hers and would most likely receive more money.
Also, when one spouse dies the other will receive their benefits based on whichever of the two was the highest breadwinner. Interestingly enough, if your marriage lasted 10 years you could actually claim Social Security benefits from your ex-spouse.
For married couples who reach their full retirement age together, spousal payment claims can be made and then switched back to payments based on their own work record, allowing those benefits to increase due to their delay in claiming them. For example, the spouse who is making more money can file and then suspend his payments while the other would receive 50% of those benefits for up to four years.
Social Security benefits are adjusted for inflation and have been since 1975. In 2010 and 2011 they were actually zero (ouch!) but in 1980 they were 14.3%. Social Security funds can also can be used to cover a person who has become disabled and is no longer able to work as well as to pay a spouse and his or her children when a contributing worker passes away suddenly.
As we mentioned above, Social Security checks will not be getting sent out in paper form any longer. In order to view your earnings history, the amount of taxes that you paid into the system and also to get a personalized estimate of what your payments should be, you’ll need to go online to Social Security and create an account. Once that’s done deal be able to access your yearly statement when it is released, change your personal information, have your payments directly deposited into your bank account and other services.
One last note; if you don’t have access to your own computer, laptop or tablet, you can access all of your information at your local Social Security office for free.