Simplifying Social Security

Do you ever look at your paycheck? Statistics say that not a lot of Americans do in detail. Most people just look at the dollar amount and put it in the bank or cash it (or, because more and more of us receive Direct Deposit, just look at the amount and toss it aside). If you ever were, there are some interesting things being taken out. Have you ever wondered what that $15 that is taken out for Social Security is actually used for? I did, and now I’m going to share with you how the whole thing works.

Social Security was put into place by Franklin Roosevelt as part of the New Deal in 1935. The elderly and disabled had been taken care of by their families financially until this was put into place. Roosevelt made it clear that he wanted people to be taken care monetarily of during times of their lives that could be otherwise stressful (old age, becoming disabled, losing a spouse or parent).

The numbers I’m using are prior to the Social Security Cut that President Obama is initiating in 2011, which I’ll talk about at the end of this article. Basically, for every dollar you paid in Social Security (until 2011)…

-          69 cents goes to a trust fund for retirees and their families

-          19 cents goes to a trust fund for Medicare

-          12 cents goes to a trust fund for people with disabilities.

Only about a penny of every dollar is for administrative costs. But, the government can dip into those trusts and borrow money in order to pay the above benefits, especially when those benefits cost more than what is projected. In summer of 2010, Social Security said that it had a $2.5 trillion dollar trust fund (truth was, the government just owes Social Security a lot of money).

Here’s a breakdown of how Social Security Benefits work:

In short, the number of years that you work give you what are called “credits.” As of 2011, you get one credit for every $1,120 you make, and you can get up to 4 credits a year.

For retired persons: The “normal retirement age” varies by your birth year. If you were born before 1938, normal retirement is 65. It increases in 2 month increments until those who were born in 1943, where it changes to 66 and stays there until the birth year of 1955. If you were born in 1960 or later, retirement age now changes to 67.  You can get reduced benefits at age 62. You can also delay retirement until age 70 and get increased benefits. In order to get retirement benefits, you need the equivalent of 10 years of work (40 credits).
For disabled persons:
Long story short, filing for disability is difficult. The severity of the disability, whether it’s temporary or permanent, and how long you get benefits for is based upon applications and physicals. These following numbers are if you become disabled as an adult (different rules apply if you were born disabled):

-If you are 24 or younger, you need 1 ½ years of work (6 credits).
-If you are 24-30 you need credits for half the time between age 21 and when you were disabled. (If you’re 26, you need 2.5 years or 10 credits)
- 31 or older, you need at least 20 credits in 10 years immediately before you became disabled. The Social Security Administration has a table on this at

For widows/widowers and their children: Called “survivor’s benefits, they are as follows:

  • Widow/widower- full benefits at retirement age, reduced at age 60, if they’re disabled it can be as early as 50, and at any age if they’re taking care of a child that’s 16 or under or disabled.
  • Divorced spouses (this is a big, long, complicated thing that I won’t get into here)
  • Unmarried children under 18 unless they’re still in high school until age 19. Stepchildren, grandchildren, and adopted children may be included in some cases.
  • Dependent parents over age 62.

As with everything, there are exceptions and most times it’s best to get a lawyer if you are in a unique situation.

There has been a lot of concern about Social Security, which has lead into debates about privatization and reform that I won’t get into in this article. It has been estimated that many of today’s workers won’t be able to get Social Security because the program is simply going to run out of money. President Obama and Congress have recently implemented a tax cut that furthers this concern; the Social Security tax will be cut by approximately 1/3. That’s a lot, especially for a program that is suffering. What does this mean for the future of Social Security? No one really knows, but I think everyone agrees that reform needs to happen or the program will go belly up.

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