Introduction to Social Security

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Social Security is simply a national benefits programme successful the United States that was founded successful 1935. While the programme encompasses disability income, veterans' pensions, and nationalist housing, it is astir commonly associated with monthly status benefits paid retired until death.

The Social Security strategy is funded done payroll taxes. The Federal Insurance Contributions Act (FICA) mandates a 12.4% levy connected the archetypal $142,800 (in 2021) of each individual's earned income each year. The leader pays 6.2%, and the worker pays 6.2%, portion the self-employed wage 12.4%.

Key Takeaways

  • Payroll taxes money the Social Security system, with employers and employees each paying 6.2% successful taxes connected the archetypal $142,800 (in 2021) of income annually.
  • Individuals are eligible for Social Security benefits if they person earned astatine slightest 40 credits ($1,470 per credit) implicit 10 years.
  • A worker's payment is calculated by averaging the net from their 35 highest income-generating years.
  • Full (or normal) status property is 66 for anyone calved betwixt 1943 and 1954 and gradually increases to 67 for those calved successful 1960 oregon later.
  • It's important to supplement your Social Security payment with different status income from a 401(k), pension, IRA, and/or different savings.

Contrary to fashionable belief, this wealth is not enactment successful spot for the idiosyncratic employees who are paying into the strategy but is pooled and utilized to wage existing retirees. The Social Security Trust Fund invests successful peculiar contented securities disposable lone to the fund, though successful the past it has held U.S. Treasury bonds that are disposable to the public.

Social Security Credits

Eligibility for Social Security benefits is accrued implicit time. Prior to 1978, workers were required to gain $50 successful a three-month 4th successful bid to person 1 Social Security credit. The accomplishment of 40 credits, accrued implicit 10 years of working, provided eligibility. 

On Friday, July 9, President Biden fired Social Security Commissioner Andrew Saul and appointed the existent lawman commissioner for status and disablement policy, Kilolo Kijakazi, arsenic acting commissioner. Saul has been criticized for efforts to trim entree to disablement benefits, hold providing accusation needed to contented stimulus payments, terminate the agency’s telework argumentation and clash with worker unions implicit information readying successful the pandemic. The Social Security Administration is an autarkic bureau and Saul was appointed until Jan. 2025. But 2 Supreme Court rulings, 1 connected June 29, 2020, determining that President Trump was escaped to occurrence the caput of the Consumer Financial Protection Bureau—and a 2nd connected June 23, 2021, authorizing President Biden to region the main of the Federal Housing Agency—have fixed presidents this authority. Biden besides cited a July 8 Justice Dept. memo. Saul and Congressional Republicans vowed to combat this action.

Employers present study net erstwhile per twelvemonth alternatively of quarterly, and credits are accrued based connected your earnings, not based connected a acceptable clip frame, truthful it is imaginable to gain each 4 credits even if you lone enactment a abbreviated play each year. As of 2021, workers are required to gain $1,470 per recognition (up from $1,410 successful 2020).

Collecting Benefits

The magnitude of your Social Security payment is calculated by averaging the net from your 35 highest income-generating years. The maximum monthly Social Security cheque that you tin gain is $3,148 per period successful 2021.

You tin usage 1 of the calculators astatine the Social Security website to estimation successful beforehand what your payment volition be. To motion up for Social Security benefits, it is recommended that you use 3 months anterior to your status date.

To assistance warrant a creaseless modulation from enactment to retirement, use for your Social Security payment astatine slightest 3 months earlier your intended status date.

You tin usage various strategies to marque definite you person the highest payment possible. Even if you ne'er contributed to Social Security, you inactive whitethorn beryllium eligible to person status benefits based connected your spouse's earning history—even if you are divorced (if your matrimony lasted astatine slightest 10 years), oregon your spouse is deceased. 

Social Security Eligibility

While past generations reached afloat eligibility for Social Security astatine property 65, everyone calved aft 1937 indispensable adhere to the pursuing eligibility requirements:

Year of Birth Full (normal) Retirement Age
1937 oregon earlier 65
1938 65 and 2 months
1939 65 and 4 months
1940 65 and 6 months
1941 65 and 8 months
1942 65 and 10 months
1943-1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 and later 67

Plan for Your Retirement

According to the Social Security Administration (SSA), Social Security was ne'er designed to service arsenic the sole root of a retiree's income. The SSA notes that "Most fiscal advisors accidental you'll request astir 70% of your pre-retirement net to comfortably support your pre-retirement modular of living. If you person mean earnings, your Social Security status benefits volition regenerate lone astir 40%."

The champion mode to execute a unafraid status is to instrumentality matters into your ain hands. This means making definite to instrumentality vantage of a 401(k) oregon akin tax-advantaged status plan, if your leader offers one, arsenic good arsenic investing successful an IRA oregon different vehicle. A abstracted non-retirement concern relationship oregon different investments, specified arsenic existent estate, are besides useful.

Another astute crushed to prevention for your retirement: In their 2019 report, the trustees that negociate the Old-Age and Survivors Insurance (OASI) Trust Fund task that the status reserves volition go depleted successful 2035, arsenic the youngest babe boomers statesman to cod Social Security.

The trustees forecast the status spot money is drying up successful 2034 and the Disability Insurance Trust Fund successful 2052. When the reserves for each money are depleted, the taxes coming successful from progressive workers volition beryllium capable to wage astir 77% of the benefits to retirees and 91% of the benefits to disablement beneficiaries.

The Bottom Line

While Social Security is built arsenic a supplement to status income, 1 happening is certain: Planning for further ways to fund your retirement is simply a bully idea. If you scope status and different sources of income, specified arsenic Social Security and defined-contribution plans, are capable to supply capable income, your idiosyncratic savings volition adhd to the mix, and you'll person much wealth than you need.

If you scope status and those different sources of income are not enough, you'll besides beryllium capable to trust connected the nest egg you've built.

Investopedia requires writers to usage superior sources to enactment their work. These see achromatic papers, authorities data, archetypal reporting, and interviews with manufacture experts. We besides notation archetypal probe from different reputable publishers wherever appropriate. You tin larn much astir the standards we travel successful producing accurate, unbiased contented successful our editorial policy.

  1. Social Security Administration. "Historical Background And Development Of Social Security." Accessed Feb. 18, 2020.

  2. Social Security Administration. "Fact Sheet: Social Security." Page 1. Accessed Oct. 15, 2020.

  3. Social Security Administration. "Special Issue Securities: Trust funds and types of investments." Accessed Feb. 18, 2020.

  4. Social Security Administration. "Quarter of Coverage." Accessed Oct. 15, 2020.

  5. Social Security Administration. "Social Security Credits." Accessed Feb. 18, 2020.

  6. Supreme Court.gov. "Seila Law LLC v. Consumer Financial Protection Bureau." Accessed July 12, 2021.

  7. Supreme Court.gov. "Collins,et al. vs. Yellen, Secretary of the Treasury, et al." Accessed July 12, 2021.

  8. Justice.gov. "Constitutionality of the Commissioner of Social Security's Tenure Protection." Accessed July 12, 2021.

  9. Social Security Administration. "Your Retirement Benefit: How It's Figured." Page 1. Accessed Feb. 18, 2020.

  10. Social Security Administration. "Fact Sheet: Social Security." Page 2. Accessed Oct. 15, 2020.

  11. Social Security Administration. "Benefits For Your Spouse." Accessed Feb. 18, 2020.

  12. Social Security Administration. "If You Are Divorced." Accessed Feb. 18, 2020.

  13. Social Security Administration. "Full Retirement Age." Accessed Feb. 18, 2020.

  14. Social Security Administration. "Understanding the Benefits." Page 1. Accessed Feb. 18, 2020.

  15. Social Security Administration. "Learn About Social Security Programs." Accessed Feb. 18, 2020.

  16. Social Security Administration. "The 2019 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds." Pages 3 and 5. Accessed Feb. 18, 2020.

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