Social Security

What is Social Security?

The Social Security Administration (SSA) has created the Social Security Program formally called OASDI (ie: Old Age, Survivors and Disability Insurance) which is a US Government based program, enacted in 1935 that offers a basic “floor of protection” to eligible working Americans.

There is a lot of misinformation around Social Security benefits for one’s financial future. This confusion has led to unrealistic expectations because the program is intended to only provide a “floor of protection” and does not replace a good Medicare Insurance Plan. Social Security is not a welfare program. It is actually an entitlement program meant to supplement an existing insurance plan. Americans must meet basic eligibility requirements in order to receive program benefits.

Many senior Americans, expect Social Security to provide for all their financial needs. Sadly, when it’s too late, they come to find out that the income is insufficient for their basic needs.

2020 Social Security Benefits Chart

How does Social Security work?

Every employed or self-employed American (with few exceptions), are extended Social Security coverage. The program is funded by a payroll tax named Federal Insurance Contributions Act or FICA for short. In order to receive benefits, a person must have contributed to the program during their working years.

However, there is a difference between being “covered” and being “eligible” for social security benefits. For example, if you are actively paying taxes into FICA, then you are covered but that doesn’t mean you are eligible for benefits. The “insured status” is a key phrase which denoted a person as either being fully insured or currently insured. A fully insured status, provides a worker and his/her family with full retirement and death benefits (ie: survivor benefits) while a currently insured status, receives partial or a limited amount of benefits. This is determined by a rating system known as “quarters of coverage”. Each year a person can earn up to 4 credits. Sound confusing? Basically, you need to work at least 10 years (40 credits) to obtain the full benefit.

How do I apply for Social Security?

To apply for Social Security it depends on three things;

1. Must be 65 years and older OR
2. Declared disabled.

Learn what documents you need then, apply for Social Security. To order a replacement card complete this replacement application.

What are my Social Security benefits?

Social Security benefits are based on workers earnings over their working years. There is an inverse relationship between how much taxes are paid, to the benefits earned, which is assessed by a “maximum taxable wage base”. If a person earned more in a lifetime above the wage base, the fewer benefits received. A person who earned less lifetime income would receive more benefits. Interestingly, Medicare is not subject to the maximum wage base (wage cap) which in 2019 was $132,900 and 6.20% ($8,239.80) for an employer’s share. No matter what you earn, you will always pay into Medicare because it’s mandated by the U.S Federal Government.

How much Social Security income do I have?

In order to determine how much Social Security income you have, you would need to obtain a benefit verification letter that details your monthly benefit amount to date. This is normally mailed but you can sign up for Social Security online.

How do Social Security taxes work?

The Social Security program is a pay-as-you-go system. Taxes today fund benefits today and any extra funds are held in a future account. A portion of the tax pays for OASDI (old age, survivor and disability) benefits. The other portion funds Medicare.

Visit a Social Security office near you, for more information on death benefits, retirement benefits, and disability benefits for workers, spouses, & children.

Message for you

Social Security is paid by every working American in the form of tax dollars today to fund benefits today. In order to obtain a full insurable status, one must work 40 credits or 10 years. One of the offices that Social Security funds is Medicare. You should not rely on Social Security for retirement. Sadly many misconceptions have caused a stable reliance on the program making it difficult for millions of Americans to retire sufficiently..