Social Security is a program that Americans rely on for retirement security. It’s an important part of financial planning for many, yet not everyone fully understands how and why it works. Let’s take a closer look at Social Security to better understand this important program.
by David Stone
What is Social Security?
Social Security is a program funded by payroll taxes collected from the paychecks of American workers. After you pay into the system, you are eligible to receive benefits when you reach retirement age.
The Social Security Administration estimates that over 60 million people currently receive monthly Social Security benefits. 90% of those beneficiaries being retired workers or their dependents.
Why Do So Many Americans Rely on It?
The primary reason so many Americans rely on Social Security is that it provides essential income during retirement years.
Benefits are based on your earnings during working years and, as such, provide a form of insurance against outliving one’s savings or other investment income during retirement years.
Additionally, these benefits can protect against inflation, which erodes purchasing power over time
Cost-of-living adjustments (COLAs) ensure that beneficiaries maintain their purchasing power even if prices increase significantly in the future.
Furthermore, survivors and disability benefits are also available through this program which helps families and individuals remain financially secure in times of crisis or hardship.
How Does the Program Work?
In order to be eligible for Social Security benefits, you must have worked in covered employment for at least 10 years prior to retiring and have accumulated enough credits based on your earnings history (typically 40 credits).
Your monthly benefit amount is determined by your career average earnings over 35 high-income earning years up until your full retirement age (FRA).
The FRA depends upon when you were born but generally ranges between 65-67 years old depending upon the year of birth. For anyone born after 1960, the FRA will be 67 years old.
Your benefit amount will increase 8% annually if you wait until after reaching your FRA before collecting payments; however, payments may be taken as early as 62 with reduced amounts due to earlier eligibility ages (depending upon the year of birth).
It’s important to note that there are limits placed on how much money may be earned each year without reducing one’s benefits eligibility—so it’s worth considering any work plans carefully before making decisions about when to collect benefits or how much extra income will be generated by working after claiming them.
Social Security Is Really That Simple
Social security plays an important role in helping keep millions of Americans financially secure during their later years; it provides them with an essential source of income as well as protecting against inflation and offering additional protection should they become disabled or die prematurely while receiving benefits.
Understanding how social security works and its associated rules is important so that individuals can make informed decisions about their financial future – given the right circumstances taking advantage of the programs offered could significantly improve financial outcomes down the road.
