| The Social Security program was
signed into law in 1935 after the nation had endured more than a
half-decade of the Great Depression. It was intended to provide a safety
net of income for individuals too old or disabled to continue working.
Participation in the Social Security
program is mandatory, with most wage earners contributing a percentage
of their annual incomes to support the program. In return, participants,
their spouses, and certain dependents are eligible for retirement,
disability, and survivorship benefits.
Today, approximately 90% of people
aged 65 and older receive a Social Security benefit check each month.
For many, this benefit is their primary source of retirement income.
How Contributions are Made and
Accounted For
Each year you work, you and your employer contribute to the Social
Security program in equal amounts. In 2007, 6.2% will be withheld from
your paycheck, with another 1.45% going to Medicare, for a total
contribution of 7.65% (unchanged from 2006). Your employer matches
contributions with another 7.65% of your total earnings. After you reach
an earnings cap of $97,500(in 2007), no further Social Security
contributions are deducted. However, there is no cap on earnings for
Medicare contributions.
How Your Benefits Are
Calculated
Your benefits are based on a calculation that includes how many years
you worked and how much you earned. These figures are used to determine
the number of quarterly credits you accumulated toward benefits. If you
were born prior to 1938, you may collect full Social Security benefits
when you turn 65, or you may collect 80% of your benefit if you retire
at 62. For people born after 1938, Normal Retirement Age (NRA), or the
age at which you can receive full benefits, gradually increases from age
65 to age 67. To determine your NRA, visit
http://www.ssa.gov.
When you die, your surviving spouse is entitled to your benefits, unless
he or she would collect more based on their own earnings history.
Your Social Security account opens
once you receive a Social Security card. However, it is not activated
until you begin earning income. Once your earnings begin, the amount you
contribute each year is recorded.
The accuracy of this record is
important. You can obtain a copy of your earnings record from the Social
Security Administration by filling out and mailing Form 7004. Forms are
available at your local Social Security office or by calling
800-772-1213 or online at
www.ssa.gov/online/ssa-7004.html. If you discover errors in
your record, you can ask that it be corrected, though you must supply
evidence of such errors. The Social Security Administration encourages
people to check their earnings records every three years or so, because
the earlier a problem is found, the easier it is to correct.
How Your Benefits Are Taxed
Once you begin receiving retirement benefits, you may have to include
them as part of your taxable income reported to the IRS each year.
If your total income for the year,
including half of your Social Security and your tax-exempt earnings, is
greater than $32,000 ($25,000 for single taxpayers), you will owe
federal income tax on a portion of your Social Security benefits. The
IRS provides a worksheet to help you determine how much you must include
in your taxable income each year.
Did you know that...
- The Social Security
Administration paid approximately $539 billion in benefits to nearly
49 million people in 2006
- Social Security benefits were
awarded to more than 4 million people
- Among elderly Social Security
beneficiaries, 54% of married couples and 74% of unmarried persons
receive half or more of their income from Social Security.
- Women accounted for 57% of adult
Social Security beneficiaries
- The average age of
disabled-worker beneficiaries was 51
- Disability and blindness were the
reasons for paying 82% of Supplemental Security Income recipients
Material discussed is meant for
general illustration and/or informational purposes only and it is not to
be construed as tax, legal, or investment advice. Although the
information has been gathered from sources believed to be reliable,
please note that individual situations can vary therefore, the
information should be relied upon when coordinated with individual
professional advice. Past performance is no guarantee of future results.
Diversification does not ensure against loss. Source: Financial Visions,
Inc. |
