We all know that Social Security is something we pay into for our entire working lives. But what exactly is it, and what is its purpose? The Social Security Act was signed by President Franklin Roosevelt in 1935, which created the Social Security Administration. Workers started paying taxes in 1937, and regular monthly benefits began the following year.
The Social Security Act is the central component of economic security for over 60 million Americans, including retirees, disabled individuals, and families of deceased or retired workers. Americans pay around 169 million dollars in taxes and receive around 61 million monthly benefits. Almost every worker in the US has a retirement plan that includes Social Security, providing a steady income for people who are retired.
Who Receives Social Security Benefits?
It was never intended to provide a person with all their retirement income needs. However, over a third of retirees today rely on Social Security for over 90% of their income. In addition to providing benefits for retirees, Social Security also provides benefits to disabled workers and families whose loved ones have passed away.
Who Funds Social Security?
The funding of Social Security is carried out through the taxes that workers pay into the system. Currently, about 175 million individuals in the US pay taxes into the system. However, don’t expect your earnings to be used for your retirement. Instead, the taxes you are paying are used to fund the benefits currently available to other beneficiaries. The majority of the money you pay into the system goes directly to the monthly benefits provided to current retirees. Around 15% of the funds are used to cover the expenses of disabled individuals.
How Do I Get My Money Out of Social Security?
As you work and pay taxes into the system, you are gradually building up credits that will allow you to qualify for retirement benefits. To reach these credits, you must work for at least ten years—the amount of money the Social Security Administration requires to earn one credit each year increases annually. For instance, if you made $1,360 in earnings this year, you will receive one credit for every $1,360 that you make up to a maximum of four credits per year. The higher your earnings, the more money you will eventually receive from the Social Security Administration. Working longer can boost your benefits, as it replaces lower-earning years. If you have no earnings history, working longer can turn those years into years with earnings.
How Much Can I Expect to Earn?
Depending on when you start receiving your Social Security benefits and your earnings, you can expect to receive a higher amount. You can start taking these benefits at age 62. However, they will be reduced by a half percent every month until you reach your full retirement age. If you choose to delay your benefits, they will increase. The maximum monthly benefit that a worker can receive is currently $2,861.