Chapter One
Social Security:
The Basics A. History of Social Security 1/2 1. The Beginning of Social Security 1/3 2. Current Threats to the System 1/3 3. What You Can Do 1/4
B. Social Security Defined 1/4 1. Retirement Benefits 1/4 2. Disability Benefits 1/5 3. Dependents Benefits 1/5 4. Survivors Benefits 1/5
C. Eligibility for Benefits 1/5 1. Earning Work Credits 1/6 2. Coverage for Specific Workers 1/7
D. Earning Work Credits 1/10
E. Determining Your Benefit Amount 1/12 1. How Your Earnings Average Is Computed 1/12 2. Benefit Formula 1/13 3. Taxes on Your Benefits 1/13
F. Your Social Security Record 1/13 1. Checking Earnings Record and Estimated Benefits 1/14 2. Completing the Request Form 1/15
G. Reading Your Earnings Record 1/15
H. Correcting Your Earnings and Benefit Statement 1/20
Social Security is the general term that describes a number of related programs-retirement, disability, dependents and survivors benefits. These programs operate together to provide workers and their families with some monthly income when their normal flow of income shrinks because of the retirement, disability or death of the person who earned that income.
The Social Security system was initially intended to provide financial security for older Americans. It was meant to help compensate for limited job opportunities available to older people in our society. And it was intended to help bridge the financial gaps created by the disappearance of the multi-generational family household-a break-up caused in large measure by the need for American workers to move around the country to find decent employment.
Unfortunately, this goal of providing financial security is today increasingly remote. The combination of rapidly rising living costs, stagnation of benefit amounts and penalties for older people who continue to work have made the amount of support offered by Social Security less adequate with each passing year. This shrinking of the Social Security safety net makes it that much more important that you get the maximum benefits to which you are entitled.
This chapter explains how Social Security programs operate in general. It is helpful to know how the whole system works before determining whether you qualify for a particular benefit program and how much your benefits will be. Once you understand the basic premises of Social Security, you will be better equipped to get the fullest benefits possible from all Social Security programs for which you might qualify. (See Chapters 2, 3 and 5.)
A. History of Social Security
Public images of our society generally render invisible many millions of economically hard-pressed older Americans. The older person with little income and assets is left out of the standard media pictures of two-car, two-kid suburbanites and of wealthy retired couples in gated luxury communities. Modern Western capitalism produces expendable workers. And the most vulnerable, such as people over 65, are the most easily expended.
In the most advanced of modern industrial nations, the United States, the position of expendable workers is the worst. The richest 1% of U.S. households controls 40% of the nation's wealth, and the poorest 20% of the population earns just 5.7% of total after-tax income. These figures for the distribution of wealth are twice as large as those of Great Britain, a society commonly thought to have a wide divide separating rich and poor.
During periods of extreme economic retrenching, the number of people cast off by the economy spills over the normal barriers of invisibility. And with so many people during these crises sharing their complaints about economic injustice, it is sometimes difficult to keep them all under control. One such period of extreme economic dislocation was the Depression of the 1930s. Many millions of people were displaced-not only from job, home and family, but from any hope for a place in the economy.
1. The Beginning of Social Security
Faced with this crisis and with the possibility of massive social upheaval, Franklin Roosevelt and Congress decided to act. Whether motivated more by an abiding concern for the common man or woman or by fear of social revolution, Roosevelt pushed through a number of programs of national financial assistance-one of which was a system of retirement benefits called Social Security, enacted into law in 1935.
When benefits began, Social Security retirement cushioned slightly the crushing effects of the Depression. But the new retirement program established no real or lasting security. Retirement benefits were set at levels that were never enough to guarantee a standard of living above the poverty line. In 1939, Social Security benefits were extended to a retired worker's spouse and minor children; in 1956, to severely disabled workers. These extensions helped cover more people in need, but neither new program deviated from the basic premise of Social Security: provide just enough to keep starvation from the door, but not enough to guarantee a decent standard of living.
2. Current Threats to the System
The United States is presently in the throes of yet another economic upheaval, one that rivals the Depression. Millions of older people find it increasingly difficult to get by on their meager pensions, their low-paying part-time jobs and their Social Security benefits.
More than 30 million people receive Social Security retirement benefits, which average about $900 per month. Another six million widows and widowers receive survivors benefits, averaging about $850 per month. Over five million disabled workers receive Social Security disability benefits, on average about $800 per month. And some six million spouses and children of retired or disabled workers receive dependents benefits, which average around $500 per month per person. Although these add up to a hefty federal outlay, the average figures show how thinly the benefits are being spread. Recipients' monthly checks are usually not enough to maintain a decent standard of living. And there are plenty of people receiving less than the average amount, whose financial situation may be truly dire.
Despite these low averages, the system is coming under pressure to pay out even lower amounts. This pressure is being set off by a steady increase in the number of retirees who collect Social Security benefits. The total benefits they collect is catching up with the total taxes that younger workers pay into the system. If this keeps up, in 15 or 20 years-depending on whose estimate you believe-the scales will have completely tipped, and there won't be enough young workers to support the demand for Social Security benefits. There is a temporary backup source of cash-the Social Security Trust Fund-but even this is projected to run dry, most say in the year 2038.
Clearly, the system requires some adjustment. But this need is providing camouflage for certain interests-particularly on Wall Street-to get their hands on the vast Social Security investment funds and divert them into the stock market. A more sensible approach might be to apply the Social Security tax to high-income earnings. However, national politicians and their wealthy supporters are less than interested in this. Another approach might be to reduce benefits to persons over retirement age who continue to earn a high income from work or investments. Yet another option would be to slightly raise the age at which full benefits are available. In combination, just a few of these changes could stabilize Social Security far into the future and keep the Wall Street folks from skimming a share off the top.
3. What You Can Do
In response to this deteriorating situation, anyone facing retirement should take two important steps.
First, understand the rules regarding Social Security benefits. (See Chapters 1 through 5.) That will enable you to plan wisely for your retirement years, including answering the basic questions of when to claim your benefits and how much you can work after claiming them.
And second, become aware and active concerning proposed moves by Congress regarding the Social Security and Medicare programs. Local senior centers and national seniors organizations such as the National Council on Senior Citizens in Washington, D.C., are good sources of current information.
If you are even beginning to think about your retirement, it is not too early to begin trying to safeguard it.
B. Social Security Defined
Social Security is a series of connected programs, each with its own set of rules and payment schedules. All of the programs have one thing in common: benefits are paid-to a retired or disabled worker, or to the worker's dependent or surviving family-based on the worker's average wages, salary or self-employment income in work covered by Social Security.
The amount of benefits to which you are entitled under any Social Security program is not related to need, but is based on the income you have earned through years of working. In most jobs, both you and your employer have paid Social Security taxes on the amounts you earned. Since 1951, Social Security taxes have also been paid on reported self-employment income. Social Security keeps a record of these earnings over your working lifetime, and pays benefits based upon the average amount earned. However, the only income considered is that on which Social Security tax was paid. Income such as interest, dividends, sale of a business or investments and unreported income is not counted in calculating Social Security benefits.
Four basic categories of Social Security benefits are paid based upon this record of your earnings: retirement, disability, dependents and survivors benefits.
1. Retirement Benefits
You may choose to begin receiving Social Security retirement benefits as early as age 62. But the amount of your benefits permanently increases for each year you wait, until age 70. The amount of your retirement benefits will be between 20% of your average income (if your income is high) and 50% (if your income is low). For a 65-year-old single person first claiming retirement benefits in 2002, the average monthly benefit is about $950; $1,500 for a couple. The highest earners claiming their benefits in 2002 would receive about $1,650 per month; $2,200 for a couple. These benefits increase yearly with the cost of living. (See Chapter 2.)
2. Disability Benefits
If you are under 65 but have met the work requirements and are considered disabled under the Social Security program's medical guidelines, you can receive benefits roughly equal to what your retirement benefits would be. (See Chapter 3.)
3. Dependents Benefits
If you are the spouse of a retired or disabled worker who qualifies for Social Security retirement or disability benefits, you and your minor or disabled children may be entitled to benefits based on the worker's earning record. This is true whether or not you actually depend on your spouse for your support. Married recipients must determine whether they will receive a greater sum from one Social Security benefit and one dependent benefit or from two Social Security retirement benefits, if both partners are entitled to one. They may be awarded retirement or dependent benefits, but not both. (See Chapter 4.)
4. Survivors Benefits
If you are the surviving spouse of a worker who qualified for Social Security retirement or disability benefits, you and your minor or disabled children may be entitled to benefits based on your deceased spouse's earnings record. (See Chapter 5.)
| Getting Benefits From More Than One Program You may qualify for more than one type of Social Security benefit. For example, you might be eligible for both retirement and disability, or you might be entitled to benefits based on your own retirement as well as on that of your retired spouse. You can collect whichever one of these benefits is higher, but not both. |
C. Eligibility for Benefits
The specific requirements vary for qualifying to receive retirement, disability, dependents and survivors benefits. The requirements also vary depending on the age of the person filing the claim and, if you are claiming as a dependent or survivor, on the age of the worker. However, there is a general requirement that everyone must meet to receive one of these Social Security benefits. The worker on whose earnings record the benefit is to be paid must have worked in "covered employment" for a sufficient number of years by the time he or she claims retirement benefits, becomes disabled, or dies.
1. Earning Work Credits
All work on which Social Security taxes are reported is considered covered employment. About 95% of all American workers-about 160 million people-work in covered employment. For each year you work in covered employment you receive up to four Social Security work credits, depending on the amount of money you have earned. Once you have accumulated enough work credits over your lifetime, you, your spouse and your minor or disabled children can qualify for Social Security benefits.
The amounts of work credits you need to qualify for specific programs is discussed in Chapter 2 (retirement benefits), Chapter 3 (disability benefits), Chapter 4 (dependents benefits) and Chapter 5 (survivors benefits).
The Social Security Administration keeps track of your work record through the Social Security taxes paid by your employer and by you through FICA taxes. The self-employed-people who take a draw from a self-owned or partnership business, or who receive pay from others without taxes being withheld-earn Social Security credits by reporting income and paying tax for the net profit from that income on IRS Schedule SE. Income that is not reported will not be recorded on your earnings record.
Continues...
Excerpted from Social Security, Medicare & Government Pensions by Joseph L. Matthews with Dorothy Matthews Berman Copyright © 2002 by Joseph L. Matthews
Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
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