Understanding Social Security: Your Guide to Benefits and Eligibility
What is Social Security?
Social Security is a government program designed to provide financial support to individuals during retirement, as well as to the survivors of deceased workers and those with disabilities. Funded primarily through payroll taxes under the Federal Insurance Contributions Act (FICA), Social Security is a program that most workers pay into during their careers.
As we navigate our working years, planning for retirement becomes increasingly crucial. Among the various components of a robust retirement strategy, Social Security stands out as a cornerstone, offering financial assistance to retirees, survivors, and individuals with disabilities. Understanding how Social Security works can help you make informed decisions about your financial future.
Here’s a concise overview of its main elements:
Funding Social Security
Payroll Taxes: Social Security is primarily funded through payroll taxes collected under the Federal Insurance Contributions Act (FICA). Workers and employers both contribute a percentage of earnings to the Social Security Trust Fund.
Eligibility: How Do You Qualify?
Work Credits: To qualify for Social Security retirement benefits, individuals need to earn a minimum of 40 work credits—equivalent to about 10 years of work. In 2024, you earn one credit for every $1,640 in earnings, up to four credits per year. These credits do not need to be earned consecutively, making it accessible for those with varied career paths.
Calculating Benefits: What Can You Expect?
Benefits are determined based on your Average Indexed Monthly Earnings (AIME), which considers your 35 highest-earning years, adjusted for inflation. The Social Security Administration employs a progressive benefit formula, ensuring that lower lifetime earners receive a higher percentage of their pre-retirement income than higher earners. This structure aims to provide a safety net for those who may have fewer resources in retirement.
Claiming Benefits
Age to Claim: So long as you aren’t claiming earlier due to a disability, you can start receiving retiree benefits as early as age 62, but doing so will result in reduced monthly payments.
- Full retirement age (FRA) varies based on your birth year. If you were born between 1943-1954, full retirement age is 66. If you were born after 1955, full retirement age is 67.
- Once you reach full retirement age, you can work and keep all your social security benefits, no matter how much you earn.
- Delaying benefits past your FRA can increase your monthly payments up to age 70, when you must take your social security benefits.
Cost-of-Living Adjustments: Keeping Pace with Inflation
One significant advantage of Social Security is its annual cost-of-living adjustments (COLA). These adjustments are made based on changes in the Consumer Price Index (CPI) to help maintain your purchasing power over time, ensuring that your benefits can keep pace with inflation.
Benefits
Monthly Payments: Once you start receiving benefits, you’ll receive a monthly payment based on the calculations mentioned. As of 2024, the average monthly benefit is just under $1,800, but it varies widely based on individual earnings history. The maximum monthly social security benefit in 2024 is $4,873 for those who delayed claiming benefits until age 70.
Overall, Social Security serves as a crucial part of retirement planning, providing a foundation of income for retirees. However, most people cannot survive on social security alone, especially considering the astronomical costs of long-term care, so saving for retirement remains an essential part of wealth building in the United States.
As you consider your retirement strategy, make sure to evaluate your personal savings and investment options alongside your anticipated Social Security benefits. With a comprehensive plan in place, you can look forward to a financially stable future. At SAMUELS WOOD PLLC, we can help with planning for your retirement. Contact at us (561) 864-3371 or go to www.samuelswood.com.
