Get the benefits you've earned Social Security For Dummies is the one guide you need to navigate the often-complex world of Social Security retirement benefits. This updated edition offers clear guidance on when to claim benefits, how much you can expect to receive, where to find Social Security calculators, and so much more. Since its inception in the 1930s, workers across the United States have set aside a portion of their wages to fund the Social Security Administration. For many, Social Security forms the foundation for their retirement funds. Social Security For Dummies provides you with all the information you need to take charge of your retirement, maximize your financial well-being, and successfully navigate the U.S. Social Security Administration. You'll get up-to-date information to: * Make your way around the Social Security website * Know your Social Security options--including retirement, survivor, spousal, and disability benefits * Find resources when you're stumped * Get answers to common questions Retirement is meant to be enjoyed, and Social Security For Dummies makes it easier.
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Table of Contents
About This Book
Icons Used in This Book
Beyond the Book
Where to Go from Here
Part 1: Getting Started with Social Security
Chapter 1: What Social Security Is and Why You Need It
Understanding What Social Security Means for You
Appraising the Value of Social Security
Understanding How You Pay for Social Security
Getting the Most Out of Your Social Security Benefits
Getting in Touch with the Social Security Administration
Chapter 2: A Breakdown of Benefits
Bringing Security to Old Age: Retirement Benefits
Surviving the Loss of a Breadwinner
Paying Your Bills When You Can’t Work: Disability Benefits
When the Need Is Great: Supplemental Security Income
Chapter 3: Deciding When to Start Collecting Retirement Benefits
Paying Attention to Your Full Retirement Age
Looking at Life Expectancy When You Claim Benefits
Considering Your Spouse When You Claim Social Security
Recognizing the Potential Payoff of Working Later in Life
Putting It All Together: The Right Time to Begin Collecting Benefits
Chapter 4: Protecting Your Number and Securing Your Card
Getting a Social Security Number
Managing Your Social Security Card
Protecting Yourself by Protecting Your Number
Part 2: Taking the Plunge: Filing for Social Security
Chapter 5: Signing Up for Benefits
When to Apply for Social Security Benefits
Where to Apply for Social Security Benefits
How to Apply for Social Security Benefits
How You Get Your Money: The Check Is Not in the Mail
Chapter 6: Determining How Much You’ve Earned
Your Social Security Statement
Social Security Calculators
Chapter 7: Navigating the System
Being a Smart Consumer of Social Security
Getting the Answers and Help You Need
Life Happens: Keeping the Social Security Administration in the Loop
Setting the (Earnings) Record Straight
Halting Your Retirement Benefits
Recovering a Lost or Stolen Social Security Check
Getting Dinged for an Overpayment
Getting Social Security in a Global Economy
Registering a Complaint with the Social Security Administration
Chapter 8: When You and Social Security Disagree: The Appeals Process
Reconsideration: Taking Your First Step
Going to an Administrative Law Judge to Solve Your Problem
Knowing What to Expect from the Appeals Council
Taking Your Claim to Federal Court
Part 3: Who Benefits and When
Chapter 9: Spousal Benefits: Watching Out for Each Other
Who Qualifies and Who Doesn’t
How Much You Can Expect to Get
How to Maximize Your Benefits
Chapter 10: Family Benefits: Who Gets What
Defining Who’s in the Family
Identifying the Benefits Family Members Are Eligible For
Looking at How Having a “Child in Care” May Affect Your Own Benefits
Understanding the Family Maximum
Counting on Kids’ Benefits When Parents Live Apart
Managing Benefits on Behalf of a Child
Chapter 11: When You Can’t Work: Social Security Disability Benefits
The Two Types of Disability Benefits
How Social Security Defines Disability
How to Make Your Case
What to Do If You Get Turned Down
What Happens to Your Benefit If You Can Go Back to Work
Part 4: Social Security and Your Future
Chapter 12: Enrolling in Medicare
Understanding the ABCs (and D) of Medicare
Qualifying for Medicare
Signing Up for Medicare
Getting Hit with Late Fees
Buying Extra Insurance: Medigap
Getting Financial Help If You Need It
Chapter 13: Working in “Retirement”
The Pros and Cons of Not Retiring at Retirement Age
The Earnings Test: How Your Payments Are Calculated When You Work
When You Go Back to Work after Retirement
Special Considerations for the Self-Employed
Uncle Sam Giveth and Taketh Away: How Benefits Are Taxed
Chapter 14: Shaping a Financial Future You Can Live With
Envisioning Your Life with Social Security
Preparing for Life on Social Security
Part 5: The Part of Tens
Chapter 15: Ten Myths about Social Security
Myth: Social Security Is a Ponzi Scheme
Myth: Your Social Security Number Has a Racial Code in It
Myth: Members of Congress Don’t Pay into the System
Myth: Social Security Is Going Broke
Myth: The Social Security Trust Funds Are Worthless
Myth: You’d Be Better Off Investing in Stocks
Myth: Undocumented Immigrants Barrage Social Security with Illegal Claims
Myth: When Social Security Started, People Didn’t Even Live to 65
Myth: Congress Keeps Pushing Benefits Higher Than Intended
Myth: Older Americans Are Greedy Geezers Who Don’t Need All Their Social Security
Chapter 16: Ten Reasons Young People Should Care about Social Security
If You’re Lucky, You’ll Be Old Someday
Your Parents Will Be Old Even Sooner
You’re Paying into the System Now
You Benefit When Social Security Keeps People Out of Poverty
You May Need Benefits Sooner Than You Think
Social Security Ensures That Time Doesn’t Eat Away at Your Benefit
Social Security Benefits Are One Thing You Can Hang Your Hat On
The System Works
The Alternatives Are Worse
Life Is Risky
Chapter 17: Ten Choices Facing the Country about the Future of Social Security
Whether to Increase the Earnings Base
Whether to Cover More Workers
Whether to Raise Taxes
Whether to Cut Benefits
Whether to Modify the Inflation Formula
Whether to Raise the Full Retirement Age
How to Treat Women More Fairly
Whether to Divert People’s Taxes to Private Accounts
Whether to Create a Minimum Benefit
Whether to Give a Bonus for Longevity
Part 6: Appendixes
Appendix A: Glossary
Appendix B: Resources
Appendix C: Strengthening Social Security
About the Author
Connect with Dummies
End User License Agreement
Table of Contents
You’re reading this book, so you’re probably thinking about the future — for yourself or for your loved ones. You probably want to know more about the Social Security benefits that could go to you and your family one day and how that money will meet your needs. You may also be thinking about the next phase of your life. Will it be financially comfortable? Will it be a struggle? If you’re like many people, you wonder whether you’re going to outlive your savings. Will Social Security keep you afloat? Can you count on your Social Security benefits? What should you know about the program? How can you find the information you need?
Despite its significance in modern life, Social Security is rarely explained clearly in one place. Not in a way that lays out the program and explains how you fit in, all the protections Social Security offers, and what they mean for you and your loved ones. Not in a way that empowers you to plan right and face the bureaucracy with your eyes open. Not in a way that tells you what you need to know about the rules that affect benefit amounts and eligibility. But understanding this stuff is important — for you and for those who depend on you.
That’s why I wrote this book: to explain the important protections of Social Security in a way that makes sense to the people who earn them and pay for them. (That means you!)
Social Security is big, and it can be confusing. It has an endless assortment of rules, variations on the rules, exceptions to the rules, and exceptions to the exceptions to the rules. The fine print is a big deal. Decisions you make about retirement benefits can have a financial impact for many years, in ways you may not recognize today. Certain areas, such as disability, are especially complicated. No wonder you may be uncertain. It’s not like they teach you this stuff in school.
Everybody has questions about Social Security — questions like these:
What’s the best age for me to start claiming benefits?
Can I work and also collect Social Security?
How does my divorce affect my eligibility for benefits?
Will it help my spouse if I wait until 70 to start collecting Social Security?
Is the retirement age changing?
What’s the best way to contact Social Security?
What kind of benefits can go to a spouse or child?
Can I solve my problem online?
What should I bring with me when I apply for benefits?
Will Social Security be there when I need it?
You deserve helpful answers to these important questions and many others — answers that are clear and accurate. After all, Social Security is your program. You own it through the taxes you pay and the benefits you earn. You should know how your personal finances and your work history affect the benefits that land in your bank account. You should know what to expect from the bureaucracy and how to deal with it effectively. And you can find the answers in these pages.
Social Security For Dummies walks you through the basics of this critical program: what Social Security is, how you qualify, when to file, how much you’ll get, how much goes to your dependents, and how to contact the Social Security Administration (SSA) to get the information you need. And it does all this in easy-to-understand plain English.
Above all, this book is a reference, which means that you don’t have to read it from beginning to end, nor do you have to read every word, every chapter, or every part. Keep this book on your desk or kitchen counter and pull it out when you need an answer to a specific question. Feel free to skip anything marked with the Technical Stuff icon and anything in a shaded box (called a sidebar); that information is interesting but not essential to understanding Social Security.
This edition makes use of the latest statistics available at the time of writing in 2017 and includes updated information on claiming strategies for married couples, as well as Social Security policy on same-sex marriages and details on personal “my Social Security” accounts.
Within this book, you may note that some web addresses break across two lines of text. If you’re reading this book in print and want to visit one of these web pages, simply key in the web address exactly as it’s noted in the text, pretending as though the line break doesn’t exist. If you’re reading this as an e-book, you’ve got it easy — just click the web address to be taken directly to the web page.
This book makes a few assumptions about you, the reader:
You probably don’t know a whole lot about Social Security. You’ve been busy living your life, and you haven’t had time to dig into the details yet. (Don’t worry: If you already have a solid knowledge base, you’ll still find lots to chew on in these pages.)
You may be starting to plan for retirement and want a better idea of how Social Security fits into the picture. Or maybe you already are receiving Social Security but want a better understanding of your benefits.
You may be trying to help an older parent or other relative navigate the Social Security system.
Throughout this book, I use the following icons to draw your attention to certain kinds of information.
The Tip icon draws your attention to information that can save you time and money, or just make your life easier as you navigate the Social Security system.
You don’t have to commit this book to memory, but when you see the Remember icon, you want to pay attention because it flags information that’s so important, it’s worth remembering.
The Warning icon signals important information that helps you avoid potentially costly or time-consuming pitfalls.
I use the Technical Stuff icon when I veer into highly technical information — information that adds insight but isn’t critical to your understanding of the topic at hand.
In addition to the material in the print or e-book you’re reading right now, this book comes with some bonus information on the web that you can access from anywhere. If you want some answers quickly on some of the most basic parts of Social Security, you can go to the Social Security For Dummies Cheat Sheet. To view this book’s Cheat Sheet, simply go to www.dummies.com and enter “Social Security For Dummies Cheat Sheet” in the Search box.
You can skip around this book any way you want. If you’re the sort who reads every word of every book, you can start with Chapter 1 and read all the way through to the end. If you’re looking for information on a particular topic, use the table of contents and index to find what you need. For example, if you’re not sure when you should start collecting Social Security retirement benefits, turn to Chapter 3. If you’re disabled and need information on Social Security Disability Insurance, turn to Chapter 11. Or if you want to know what the future may hold for Social Security, turn to Chapter 17. No matter where you dive in, this book has you covered.
You’ve earned your Social Security benefits. Knowing what you have is always a good idea, and this book provides the information you need.
IN THIS PART …
Get an overview of the Social Security program and the protections that go to practically everyone: retirees and their dependents, surviving family members, and disabled workers, as well as those who rely on them financially.
Take note, in simple terms, of what you need to know to file for various kinds of benefits.
Discover details on what to consider when deciding to claim benefits.
Find guidance on protecting your Social Security card and number from identity thieves.
IN THIS CHAPTER
Knowing what Social Security means for you
Looking at the value of Social Security
Considering where your contributions go
Getting all you can out of Social Security
Contacting the Social Security Administration
Social Security is the foundation of long-term financial support for almost every American. If you’re like most people, you’ll depend on Social Security to help you survive in your later years (if not sooner). In fact, its protections are becoming even more important as an answer to growing insecurity in old age.
Look around you. If you’re in the workforce, you know that good jobs are hard to come by. If you’re an older worker who loses a job, you may also know it can take a long time to get a new one. Have you been able to set aside money for the future? Saving is essential, but many Americans save little, if anything. Maybe you contribute to a 401(k) at work, if your employer offers one, but who knows how much your investments will be worth next week or next month, let alone many years in the future?
Some of the people who read this book will live to be 100. Maybe you’re one of them. Many people will make it into their 80s and even their 90s. Those years cost money. In a future of risks and unknowns, Social Security is one thing you can count on. Your benefit is guaranteed by law and protected against inflation. But that doesn’t mean it takes care of itself or that you should be a passive participant in Social Security. You have decisions to make, and you can make them better if you have some working knowledge of the benefits you’ve earned. You may also have actions to perform, such as informing the Social Security Administration (SSA) about things that could affect your benefits.
This chapter provides an overview of Social Security and a broad-brush description of benefits. Here, I explain why Social Security was created and why those reasons are highly relevant to Americans today.
So, what is this U.S. institution that — sooner or later — plays a role in virtually all our lives?
You can think of Social Security as a set of protections against things that threaten your ability to survive financially — things like getting older and retiring, or having a serious accident or illness that leaves you unable to work. When such things happen, family members who depend on you may not be able to pay for the basic necessities of life.
That’s why Social Security offers a range of benefits. These protections can provide crucial financial security for workers, their immediate family members, and even divorced spouses. For example, Social Security benefits may go to
People who retire and their dependents, typically spouses, but potentially children and grandchildren
People who are disabled and the immediate family members who depend on them
Spouses, children, and even the parents of breadwinners who die
Social Security’s guaranteed monthly payments, set by legal formulas, stand out in a world of vanishing pensions, risky financial markets, rising healthcare costs, and increasing longevity. Although the program faces a potential financial shortfall in the future, its most fundamental features enjoy broad public support.
In the following sections, I look at specific groups of people who benefit from Social Security.
More than 43 million retirees and their spouses get retirement benefits every month. These benefits help millions of people stand on their own two feet instead of relying on their kids or charity or scrambling every month to pay the bills. For about one-third of older beneficiaries, Social Security provides at least 90 percent of their income. But even for people who don’t rely so heavily on Social Security, it provides a solid floor of income in later life.
Although Social Security benefits are generally modest, they help keep 15 million seniors above the poverty line, including many hardworking, middle-class Americans who otherwise would have little to fall back on.
Social Security isn’t intended to be your sole source of income. Instead, it gives you a foundation to build on with personal savings and other income.
If you’re already retired (and not rich), you understand the role these payments play in your monthly budget. If you’re still in the workforce but thinking about that next phase of life, here are a few things to reflect on:
Social Security is reliable.
Its payments don’t rise and fall with the markets on Wall Street or depend on how your company is faring or how well you selected investments. Social Security income lasts a lifetime.
Social Security is accessible.
Almost all workers are covered. To put this in perspective, just half of workers are covered by an employer retirement plan, and many of these workers do not even participate.
Social Security is protected against inflation, a crucial safeguard.
Rising prices can slash the value of fixed income over time, driving down your standard of living in retirement.
Social Security is especially important for older women.
Women tend to live longer than men do, and they have less income to draw on in old age. Elderly widows are exceptionally vulnerable to poverty.
Social Security gives a boost to the least affluent.
That’s because the benefit is progressive. Poorer individuals get back a larger share of earnings than their higher-paid peers. Social Security benefits replace about 40 percent of the earnings of an average worker.
You may think of Social Security as part of life in the United States, but it wasn’t always this way. Social Security was a foreign idea — literally. Americans by and large never expected their national government to rescue them in hard times. This was a country shaped by pioneer culture, a society that expected people to pull themselves up by their own bootstraps. Back on the farm, extended families took care of their own and struggled together. But as more Americans migrated to cities for work, traditional supports of family and close-knit communities began to unravel.
The Great Depression of the 1930s transformed attitudes. Unemployment rocketed to 25 percent. People’s life savings vanished in a tsunami of bank failures. More than half of older Americans were poor. In desperation, people turned to Washington for help, and Washington looked overseas for ideas. President Franklin D. Roosevelt and his advisors, including Labor Secretary Frances Perkins, considered an idea known as social insurance, which had gained popularity in Europe. The idea was that governments could adapt insurance principles to protect their populations from economic risks. Unlike private insurance arrangements, which are supposed to protect individuals, social insurance programs are supposed to help all of society.
In 1889, German Chancellor Otto von Bismarck pioneered the idea with a system of old-age insurance that required contributions from workers and employers. By the time of the Great Depression, dozens of nations had launched some sort of social insurance effort. U.S. leaders, eager to ease the economic pain engulfing the nation, took a more serious look at social insurance from Europe. Others viewed social insurance as radical and un-American.
After a lengthy debate, Congress passed the Social Security Act, and President Roosevelt signed it into law on August 14, 1935. The law provided unemployment insurance as well as help for seniors and needy children. Title II of the act, “Federal Old-Age Benefits,” created the retirement benefits that many people now see as the essence of Social Security.
“We can never insure 100 percent of the population against 100 percent of the hazards and vicissitudes of life,” Roosevelt said at the bill signing, “but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.”
Social Security pays more benefits to children than any other government program. More than 4 million children qualify for their own benefits, as dependents of workers who have retired, died, or become disabled. About 6 million children live in households where someone gets Social Security.
The program’s definition of eligible children may include stepchildren and, in some cases, grandchildren and step-grandchildren. Typically, children who qualify may be covered until age 18 — or 19, if they haven’t yet graduated from high school and aren’t married.
The death of a family breadwinner hits everyone under the same roof. That’s why Social Security provides benefits for dependent survivors. Not to overwhelm you with statistics, but this is a significant program with more than 6 million beneficiaries, including children, widows, and widowers. These dependents qualify for benefits if the deceased worker or retiree met certain basic requirements of Social Security. In Chapter 2, I cover the rules, including technicalities that affect widows and widowers.
Almost 11 million Americans get Social Security’s disability benefits, a protection that extends to almost 2 million dependent family members. Social Security’s disability program is complicated, and it can be difficult to meet the standards required for benefits. I devote Chapter 11 to examining the program, as well as Supplemental Security Income (SSI) benefits for beneficiaries with the least income.
Many applicants for Social Security disability benefits are turned down, but these decisions may be reversed in the appeals process. In Chapter 8, I go over your options if Social Security makes a decision you disagree with.
You may not like to think about the risks you take walking out the door, but they may be higher than you realize. Almost four in ten men entering the labor force will become disabled or die before reaching retirement age; the same fate awaits more than three out of ten women.
Table 1-1 provides probabilities of death or disability for young workers (people born in 1996, in this example).
TABLE 1-1 Probabilities of Death or Disability
Probability of …
Death or disability before retirement
Death before retirement (excluding disability)
Disability before retirement (excluding death)
Source: Social Security Administration
The amount you get in Social Security retirement benefits is based on your earnings history and when you start to collect, factors I examine closely in Chapters 2 and 3. The average retirement benefit is currently about $16,200 per year, and the maximum benefit is more than $32,000 if you claim benefits at full retirement age. You can increase your benefits by taking them after your full retirement age, up to 70, and you reduce them by taking them earlier (typically, as early as 62).
The survivor’s benefit of Social Security is really a life-insurance policy that has been valued at $476,000 for a 30-year-old worker who’s married with two children and has a median salary. The long-term disability protections are valued at $329,000 in coverage for that same family.
Social Security combines other distinctive features that you usually don’t find all in one place. These traits are worth keeping in mind when you’re trying to get a handle on what the program is worth to you:
Benefits are earned.
After you meet the requirements for eligibility — generally ten years of earnings for retirement, but less than that for certain protections such as disability — you’ve established your right to a guaranteed benefit, which may also extend to your dependents.
Benefits are portable.
You can change jobs with no penalty, unlike traditional pensions. Your benefits reflect earnings in various places of employment during your working life. They aren’t typically reduced when you change jobs, because most jobs are covered. (Exceptions include most federal employees hired before 1984, various state and local government workers, and many railroad employees.)
Benefit levels are guaranteed.
Unlike 401(k)s, for example, Social Security benefits are paid under legal formulas and don’t rise or fall based on your luck with investments, the fortunes of your employer, the direction of interest rates, or other forces over which you have no control.
Benefits are universal.
Social Security covers the rich, the poor, and — most of all — the middle class. Social Security is a kind of social insurance for the benefit of individuals
society. This makes it very different from a welfare program.
Benefits are protected against inflation.
Private pensions generally don’t have this feature. But without such protection, rising prices can take a huge toll on fixed income, one that adds up the longer you live.
Since President Franklin D. Roosevelt signed Social Security into law in 1935, the program has evolved. Here are some key milestones:1939: Congress added benefits for retirees’ spouses and minor children, as well as dependents of workers who die.1950: Coverage was extended to farm workers, domestic workers (such as housekeepers and gardeners), employees of nonprofits, and self-employed nonprofessionals.1954: Coverage was extended to self-employed farmers and certain professionals, such as accountants, architects, and engineers.1956: Benefits were added for disabled workers ages 50 to 64 and adult disabled children of workers who earned benefits. Social Security introduced early retirement benefits for women only.1960: Benefits were added for dependents of disabled workers.1961: Men were given the option of early retirement benefits, five years after this choice was granted to women.1965: Congress approved Medicare, a program of federal health insurance for people 65 and older, long sought by advocates of Social Security and social insurance.1972: Congress approved annual cost-of-living increases for Social Security, linked to the rise in consumer prices. (It had previously approved some benefit hikes on an ad hoc basis.)1977: Congress approved wage indexing, which adjusts retirement benefits upward to make sure that they reflect the long-term increase in wages that took place during a worker’s lifetime.1983: Congress agreed to gradually raise the age for full retirement benefits from its traditional level of 65 to 67. That increase is still being phased in. The full retirement age has reached 66 for people born between 1943 and 1954 and will gradually move up to 67 for people born 1960 or later. The 1983 law also introduced taxation of Social Security benefits for higher-income retirees, a shift that is causing growing numbers of people to pay income taxes on part of their Social Security income.2014: The Social Security Administration began to process and approve some claims for benefits related to same-sex marriage, including claims for spousal and survivor benefits in states that recognize such unions as legal. The new policy followed a Supreme Court ruling in 2013 that Section 3 of the Defense of Marriage Act was unconstitutional.
Social Security is paid for through taxes. (No surprise there.) But you’re not the only one paying into the Social Security pot: Your employer also pays a portion of your Social Security tax. All that money that’s taken out of your paycheck today goes to pay the benefits for today’s retirees.
For the lowdown on how much you pay into Social Security and where it goes, read on.
If you’re a wage earner, you pay into the Social Security system straight out of your paycheck. This payroll tax is dubbed “FICA,” which stands for the Federal Insurance Contributions Act. The Social Security portion of your payroll tax is typically 6.2 percent of earnings up to a certain amount, which is adjusted annually (for 2017, the cap was set at $127,200). Employers also pay 6.2 percent for each employee. In addition, workers and their employers each pay 1.45 percent of all earnings for Medicare’s Hospital Insurance Trust Fund. As of January 2013, individuals who earn more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9% in Medicare taxes.
If you’re self-employed, you’re on the hook for both the employee and employer share, which usually adds up to 12.4 percent for Social Security and 2.9 percent for Medicare. This tax is dubbed “SECA,” for the Self-Employed Contributions Act.
Politicians have been increasingly willing to ease the payroll-tax burden in response to economic conditions. In 2011, Congress approved a “payroll-tax holiday” to boost the economy; it lowered the worker’s tax rate to 4.2 percent instead of the usual 6.2 percent. Employers still paid the usual 6.2 percent. The self-employed paid an overall rate of 10.4 percent. (The payroll-tax holiday expired at the end of 2012. And chances of this holiday being reinstated in the near future aren’t good.)
Most workers pay Social Security taxes on all their earnings, because most workers don’t earn above the cap for Social Security payroll taxes. Well more than half — maybe three-quarters — of U.S. households pay more in Social Security taxes than in federal income taxes. Although no one enjoys paying taxes, people tend to accept the Social Security tax because it enables them to earn important benefits.
The taxes you pay in your working years pay for the benefits for retirees and other beneficiaries who no longer are working. This approach is called “pay as you go.” Think of it as a pipeline that goes from current workers to current beneficiaries.
What the government does with your payroll tax contributions has long been a source of rumor, misunderstanding, and strongly held views. Here are the facts: The Social Security payroll tax deducted from your wages goes into two U.S. Treasury accounts, where it’s used to pay for benefits. Most of the money — about 81 percent — goes into the Old-Age and Survivors Insurance Trust Fund; the remainder goes into the Disability Insurance Trust Fund. These combined trust funds are quite large, with assets of almost $2.8 trillion at the end of 2015.
Tax revenues above and beyond what’s needed to pay benefits are invested in special Treasury securities. These bonds have historically provided extra income for Social Security. Some critics argue that the trust funds could go belly up if the Treasury doesn’t make good on its borrowing. But these bonds are backed by the full faith and credit of the U.S. government, which is still considered a safe investment by investors all over the world.
Although Social Security gets most of its income from payroll taxes, a smaller share comes from interest and some income tax revenues paid by the affluent on their Social Security benefits. (See Chapter 13 for a discussion of income taxes and Social Security.)
Large as the trust funds are, they’re going to shrink rapidly in the future. Today, more than 47 million Americans are age 65 and older. Does that sound like a lot of older people? Just wait. That number will soar beyond 80 million in the coming decades, bringing vastly higher demand for Social Security benefits. Today, there are 2.8 workers for each person getting Social Security. But by 2034 just 2.2 workers will support each beneficiary, and revenue no longer will be sufficient to fully pay for promised benefits, meaning that revenue won’t be able to keep up with benefits. The pay-as-you-go approach will come under increasing pressure, with proportionately fewer workers to support a great many beneficiaries. The trust funds are forecast to run out of money at about that time.
Although that’s a problem that must be addressed, it’s not as grim as it may sound. The SSA gets most of its revenue from payroll taxes. Even if the trust funds were somehow allowed to dry up, an extremely large amount of money would continue to flow through the system, paying most of what is currently promised.
Keep that in mind, especially if you wonder whether Social Security will be there for you down the road. Social Security should be able to pay three-quarters of promised benefits, even when it no longer has a surplus and if no action is taken. (That’s according to the Social Security trustees, who report annually on the system’s long-term outlook.)
If you’re like most people, you probably believe that the system requires long-term financial stability. But the idea that the SSA can cover three-fourths of promised benefits far into the future gives at least some perspective. With enough political will, lawmakers can put their heads together and come up with a fair and reasonable plan to shore up Social Security for the long term. (In Chapter 17, you can look at the most common proposals to accomplish this goal.)
Today’s workers will need all the retirement security they can muster in old age, and for most people Social Security is the centerpiece. Here are some things you can do today to get the most out of Social Security tomorrow:
Educate yourself about the program.
By reading this book, you’re taking a big step in the right direction. In
, I connect you with a broader range of resources to further inform you on Social Security and other retirement concerns.
Think about when you should claim benefits.
It often makes sense to hold off, which will enable your benefit to grow. I go into that important issue in
. For an overview from the SSA, go to
Consider Social Security’s guaranteed benefit the foundation in a larger strategy for retirement security.
Add up your assets. Look hard at your spending habits. Younger people have more time to plan, but older workers may also be able to take steps to improve their finances. If you need more money for the future, think about holding off retirement and working longer, even part time, as a way to stretch out your assets.
Whatever you expect to get from Social Security, it’s a pretty safe bet you won’t fare as well as Aunt Ida. A retired legal secretary in Vermont, Ida May Fuller, known to friends as “Aunt Ida,” earned her place in Social Security history by receiving the first recurring monthly check — for $22.54 on January 31, 1940. (It wasn’t the first Social Security payment. That distinction goes to a Cleveland streetcar driver named Ernest Ackerman, who got a “lump sum” of 17¢ three years earlier.)
Aunt Ida’s experience can teach today’s retirees (and workers who will join them one day) a couple of lessons:You could be depending on Social Security for a very long time. Aunt Ida lived to 100. She collected benefits for 35 years, starting at age 65.The inflation protection provided by Social Security is critical. In the course of Aunt Ida’s life, her monthly benefit nearly doubled, from $22.54 to $41.30. That increase enabled her purchasing power to hold up, even as the cost of living soared. (Congress added regular inflation increases to the program toward the end of Aunt Ida’s life.)
The SSA has one overriding goal (which may be hard to recognize amid all the rules and complexities): to make sure you end up with the correct benefit amount you’re entitled to under the law. Sometimes reaching that goal may not be simple (though it typically is). But whatever the particulars of your case, you may well end up having to contact the SSA to get what you want.
The SSA runs not only the basic Social Security protections for retirement, survivors, and disability, but also SSI for the poor. The SSA also handles applications for Medicare and the deductions in benefits that pay for Medicare premiums. (SSA doesn’t run the Medicare program itself, however. That job is handled by the Centers for Medicare and Medicaid Services.)
That’s a lot of territory to navigate — many rules, many technicalities, and many areas that can be confusing. But knowledge is power when it comes to bureaucracy. Understanding the rules for your particular situation helps. (I go over filing for benefits in Chapter 5, and I hit the high points of maneuvering through the Social Security bureaucracy in Chapter 7.)
Contacting the SSA isn’t difficult. You can go to a local field office, call a toll-free number, or go online:
SSA offices are located all over the country — at last count, there were about 1,200 field offices. To find the nearest SSA office, just go to
, click on “SEARCH,” and put in “find an office”; click on the first result and enter your zip code, and the address of your nearest office will appear, along with the hours it’s open to the public. If you don’t have Internet access, you can find the address of your local SSA office in your local phone book, where all the U.S. government offices are listed, or you can call the SSA (see the next bullet) to inquire.
You can contact an SSA representative toll free at 800-772-1213 (TTY 800-325-0778). Both numbers are staffed Monday through Friday, 7 a.m. to 7 p.m.
The SSA website (
) has a great deal of information on benefits and rules that affect you. You can also find forms you may need and begin applications for certain benefits, including retirement.
Budget cutbacks have reduced the hours of Social Security field offices and in some cases have led to long lines, as well as longer waiting times on the telephone. As of this writing, field offices are open to the public just 31 hours a week. The general schedule in 2017 is 9 a.m. to 4 p.m. on Monday, Tuesday, Thursday, and Friday, and 9 a.m. to noon on Wednesday.
If you’re stretched for time and need to deal with the SSA, it helps to keep a couple of things in mind:
Waiting times on the phone and in offices tend to be longer early in the month and early in the week.
You can call the toll-free number to make an appointment with a local field office and save time when you arrive.
IN THIS CHAPTER
Getting Social Security retirement benefits
Surviving the death of a loved one with help from Social Security
Relying on Social Security when you can’t work
Seeing how Social Security protects the poorest of the poor
When you hear about Social Security in the news, it seems like the talk is always about politics. Of course, that matters, but the squabbling in Washington can sound pretty far removed from what really links you to Social Security — the benefits for you and your loved ones. The truth is, many people don’t know all they’re paying for when it comes to Social Security.
In this chapter, I provide a detailed description of the main Social Security benefits: coverage for retirement and a retiree’s dependent family members, protections for surviving family members when a loved one dies, and coverage for disability and a disabled worker’s dependents. In addition, I go over the program of Supplemental Security Income (SSI) for individuals with extremely little income, which is also administered by the Social Security Administration (SSA).
Social Security’s various benefits are meant to address different situations, but they share a common goal: to help individuals and their families meet the fundamental needs of survival. This chapter explains what that means for you.
Retirement benefits were created to help older Americans live in dignity and independence after a lifetime of work. To qualify for these benefits, you have to meet certain earnings requirements. The good news is that these requirements are in relatively easy reach for most healthy people who’ve worked for a number of years. However, interruptions in earnings — such as for child rearing, caregiving, or long-term unemployment — may leave you with a smaller benefit.
Benefit levels were established to replace just a portion of the income earned by you or the breadwinner you depend on. This is in keeping with Social Security’s goal of providing a foundation for you to build on with personal savings, investments, and other income.
In this section, I fill you in on who qualifies for Social Security retirement benefits and when, how you qualify (through work credits), why you may not qualify, and how much you can expect to get.
Retirees may qualify for benefits starting at age 62. Technically, you become eligible on the first full month after your 62nd birthday. Say you turn 62 on July 19. That means you become eligible for benefits on August 1. The August payment arrives in September, however, because Social Security pays with a one-month delay.
You don’t have to take your benefit when you turn 62. The longer you wait, the higher your monthly payment will be, until you reach 70. At that point, there’s no payoff in further delay.
If you qualify for retirement benefits, Social Security may also provide benefits to other family members under certain conditions without reducing the benefits that go to you. Eligible dependents may include
A spouse age 62 or older:
When you begin collecting retirement benefits, a spouse who has reached 62 may also qualify for a benefit.
A spouse of any age who cares for your dependent child: Spouses may get benefits based on your work record if they’re caring for a child who is dependent on you and younger than 16 or disabled.
The SSA tends to follow state guidelines in terms of recognizing common-law marriages, although the rules leave some wiggle room for interpretation. In addition, as of this writing, the SSA has begun to give spousal benefits to partners in same-sex unions who, at the time of their application, live in states that recognize same-sex marriage as legal and who were married in states that deemed the union to be valid.
Note: Social Security now recognizes same-sex marriages if the initial claim for benefits was filed on or after June 26, 2015, or pending a final determination at that time — regardless of the state where the marriage occurred.
Children: In certain cases, your children can get benefits if you’re collecting retirement or disability benefits. To qualify, children must fall into one of the following categories:
Younger than 18 and unmarried
Full-time students up to age 19 who haven’t yet completed high school and are unmarried
Age 18 or older and severely disabled with a disability that began before age 22
The SSA’s definitions of parent and child are generally inclusive but sometimes a cause of dispute. It recognizes that you may have an adopted child or a stepchild. (See Chapter 10 for some of the technicalities.)
If the grandchild depends on you financially and the grandchild’s parents provide no support (for example, because of death or disability), the grandchild may qualify for Social Security benefits on your work record.
A former spouse: Your ex may get benefits if the following apply:
You were married for at least ten years.
You’ve been divorced for at least two years.
He or she is 62 or older, not remarried, and not eligible for a bigger benefit on anyone else’s work record. (If a former spouse remarries before turning 60 but that marriage ends, the former spouse may again qualify for benefits on the record of the original partner.)
Note: If your former spouse collects Social Security benefits based on your work record, this doesn’t reduce the amount of benefits that go to you or your current spouse. The same is true even if you have more than one ex-spouse who qualifies under the rules.
Under the rules, you get credits toward eligibility by earning certain amounts of money. Most workers pick up the necessary credits without even thinking about it. Generally, 40 credits — which you can pick up in ten years of covered employment — does the trick. By covered employment, I mean a job in which you and your employer pay Social Security taxes. (If you’re in business for yourself, you have to pay both the employer and employee shares.) These days, almost all jobs are covered. (For information on which jobs aren’t covered, see the nearby sidebar “Which jobs aren’t covered.”)
People born before 1929 need fewer than 40 credits to qualify.
In 2017, Social Security awarded you one credit for every $1,300 in earnings, and you could get up to a maximum of four credits per year. (The dollar amount typically rises each year to reflect growth in wages.) For example, say you earned $5,200, in 2017. That means you earned a total of four credits (). Now, say you earned $100,000 in 2017. You still earn a total of four credits, because four credits is the yearly maximum no matter how much money you make.
Most work is covered by Social Security today, but that wasn’t always the case. When Social Security was launched in the 1930s, roughly half the economy wasn’t part of it. Largely excluded were fields associated with African Americans, women, and low pay (including agriculture, domestic service, and many jobs in education and social work). Critics said the exclusions reflected bias in favor of white, male breadwinners. (The self-employed, professionals [such as doctors and lawyers], and most jobs in government and the nonprofit sector were also initially left out.) Today, 96 percent of American jobs are covered by Social Security. Categories of workers who may still not be covered include the following:Most federal employees hired before 1984Railroad workers with more than ten years of experience or who have worked at least five years with the railroads since 1995Some state and local government employees
If you fall into one of these categories, it is possible you will get no Social Security benefits or reduced amounts. (Many people who spend part of their working lives in uncovered employment end up with reduced benefits because of the Windfall Elimination provision and Government Pension Offset provision, which I explain later in this chapter.)
Although you have to tote up 40 credits to qualify for benefits, that doesn’t determine the size of the payment that goes to you or your dependents. The SSA bases the amount of your benefit on your lifetime earnings — specifically (for workers born after 1928), the 35 highest-paid years in which you paid Social Security taxes. Your 35 highest years don’t have to be consecutive, and they don’t have to be the most recent 35 years, but 35 is an important number. If you have fewer than 35 years of earnings, the SSA adds zeros to reach 35. The impact of those zeros varies depending on your earnings history.
As you may expect, more career earnings means a bigger benefit. Highly paid workers who contributed more taxes throughout their working careers end up with bigger Social Security payments (although the benefit formula is skewed to provide low earners a larger share of their working wages in retirement than high earners receive).
Social Security benefits rise because of cost-of-living increases that are meant to help retirees keep up with inflation. Congress may debate whether to modify the cost-of-living formula to save money or even to increase payouts, but the importance of inflation protection is widely recognized, and it remains one of the most popular features of Social Security.
Other things affect your benefit amount as well, including the following:
How old you are when you start collecting benefits:
You can start receiving Social Security as early as age 62, but your payment will be larger the longer you wait to claim, potentially to age 70. (See
for a discussion of when to begin receiving retirement benefits.)
If you worked in any jobs that weren’t covered by Social Security:
Your full benefit may be reduced by any periods of your working career in which your job wasn’t covered by Social Security, a reality for many government workers. (See the earlier sidebar “
Which jobs aren’t covered
If you’re working while drawing benefits:
Social Security may withhold a portion of your retirement benefits if you earn above a certain amount while receiving benefits and you haven’t yet reached the full retirement age, which is currently 66. (See
for a detailed explanation of how benefits may be affected by earnings.)
Social Security also takes money off the top of your retirement benefit to pay for Medicare coverage if you’ve reached 65 and you’re enrolled in Medicare. The monthly premium for Medicare Part B, supplementary medical insurance (doctors’ and some other services), is deducted automatically if you’ve reached 65 and entered Medicare. The standard Part B premium paid by most Medicare enrollees was set at $134 for 2017. Premiums — and the Medicare deduction — generally rise with inflation.
In the following sections, I cover how to estimate your benefit, and how much your spouse and children can expect to receive based on your work history.
The average monthly retirement benefit is about $1,360 (in early 2017), but the amounts vary. Higher-paid workers who start benefits at full retirement age and have paid the maximum taxable amounts for their entire careers receive almost twice that amount ($2,687). If you wait beyond full retirement age, you can get a lot more.
So, what’s your number? If there were a quick and easy way to do the math yourself, I’d tell you right here. But there isn’t. Fortunately, Social Security makes it easy to get a ballpark estimate by using one of its online tools: the Social Security Quick Calculator (www.ssa.gov/oact/quickcalc) or the Retirement Estimator (www.ssa.gov/estimator). (See Chapter 6 for more discussion about Social Security calculators, including a helpful tool from AARP.)
Make sure that your employer’s records match up with Social Security. Every year your employer sends a copy of your W-2 to Social Security, which relies on the name and number on that form to put credits on your earnings record. That record determines whether you qualify for benefits and how much you’ll get. If your employer and Social Security are using different names or numbers, it could cost you money, so it’s smart to pay attention. It’s also your responsibility to correct mistakes. If you’re incorrectly identified on your work records or if your income is reported incorrectly, let your employer know. You can contact the SSA (see Chapter 1) to correct an error in the name on your Social Security card.
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