Social Security - Contributing & Receiving Benefits
In a nutshell, Social Security is a program of the United States federal government that provides retirement income, health care for the aged, and disability coverage for eligible workers and their dependents.
The Social Security Act was signed by President Franklin Roosevelt in 1935. Taxes were collected for the first time in January 1937 with regular ongoing monthly benefits beginning in January 1940.
The original Social Security Act of 1935 established two social insurance programs: a federal-state program of unemployment compensation and a federal program of old-age retirement insurance. It also provided for federal grants to assist states with programs for the disabled, the aged, child welfare services, public health services and vocational rehabilitation. But since then, several major amendments have increased the categories of persons eligible for benefits. Over the years amendments have been made to the original Social Security Act to provide benefits to: the dependents and survivors of workers, full-time farm and domestic workers, employees of state and local governments, employees of nonprofit organizations, members of the armed forces, self-employed professionals and insured workers 50 years of age and older who became permanently and totally disabled. Congress also enacted the Medicare program, providing medical benefits for persons over the age of 65 and the Medicaid program for the indigent regardless of age. The age of eligibility for retirement benefits was lowered from 65 to 62, but with lower benefits for persons retiring before 65. Ongoing amendments are continually re-writing how we contribute and receive benefits from Social Security.
During your working years, earnings covered by social security are posted to your Social Security record, and you earn credits based on those earnings. Everyone born in 1929 or later needs 40 Social Security credits to be eligible for retirement benefits. You can earn up to four credits per year, so you will need at least 10 years to become eligible for retirement benefits. Each year the amount of earnings needed for a credit rises as average earnings levels rise. In 2005, you receive one credit for each $920 of earnings, up to the maximum of four credits per year. For 2006, you receive one credit for each $970 of earnings. How it works is that actual earnings are first adjusted or "indexed" to account for changes in average wages since the year the earnings were received. Then they calculate your average monthly indexed earnings during the 35 years in which you earned the most. Then they apply a formula to these earnings and arrive at your basic benefit, or "primary insurance amount" (PIA). This is the amount you would receive at your full retirement age, for most people, age 65.
Unfortunately, your PIA is unlikely to be enough to completely support yourself after retirement. With the problems that currently plague the Social Security system, it is necessary to plan for your retirement years with additional financial investments and estate planning.
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