Social Security Explained

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Social Security Explained
Social Security is a federal program that provides retirement, disability and survivors benefits to those who qualify.
by Cara Smith Lead Writer | Investments, auto loans, crypto Cara Smith is a lead writer at NerdWallet, where she writes about investing, cryptocurrency, and auto loans. She has reported on commercial housing, real estate and general business for Houston Business Journal, CoStar News as well as other publications. She was a student of psychology and journalism in The University of Houston, where she served as the editor-in-chief of the university's student newspaper. She is located in Chicago and is on the lookout night and day to find authentic Tex-Mex throughout the Midwest.





Sep 14, 2022


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Social Security is a federal program that offers benefits to qualifying residents. Most people know Social Security provides retirement benefits however, Social Security also provides the following benefits based on your lifelong earnings
Disability
Survivors
Dependency

In the Great Depression (1929-1939), it was designed to offer financial security to aging workers. It's funded through regular payments from taxpayers during their working years to an unrestricted Social Security fund.
What is Social Security?
Social Security is a program operated by the Social Security Administration. It offers financial assistance to retired people and their families, in addition to children and the families that have lost a loved one. It also pays benefits to those with disabilities who may be unable to earn a living.
Social Security benefits are paid for by tax. The majority of employees and employers pay an 6.2 percent income tax, up to 147,000 dollars per year. This funds social security. Social Security program.
For instance If an employee earns 148,000 dollars in pre-tax earnings then they won't have to pay the 6.2% tax on the final one thousand dollars of their earnings.
Self-employed employees have to pay 12.4 percent of Social Security taxes.
What amount of Social Security will I get?
It's also impossible to estimate your exact benefits value until after you've attained the age of retirement. However, on an average, people can count on their Social Security benefits to replace about 40 percent of their salary prior to retirement.
The amount you receive will be contingent on how much the amount you pay into Social Security throughout your lifetime, as well as the amount you earn during your working years. There are many documents from the Social Security Administration that offer specific information about the possible benefits you may be eligible for.
>> Find out what you'll receive
How much is your maximum Social Security benefit?
Here are the most monthly Social Security benefits an individual retiring in 2022 could get, based upon the date they turn 65 and begin receiving benefits.
62 years old



65 years old



Age 67



70 years old



$2,364 per month.


$2,993 per month.


$3,568 per month.


$4,194 per month.








In order to be eligible for this benefit benefits, you'll need to earn $147,000 a year which is the maximum tax-deductible income allowed by Social Security -- for at least 35 years. This is because Social Security benefits are calculated by using your top earning years over the 35 year period.
How is Social Security calculated?
Social Security benefits are determined by two factors:
What age are you when you take your retirement.
Your best 35 years of earnings prior to inflation.

Since the program is based on the highest earnings for the 35 years throughout your career, employees who earn higher wages will be able to receive more Social Security benefits. Workers with low earnings or who are in the work force are likely to receive less benefits.
>> MORE: Our free will help you figure out how much you must save
Are Social Security benefits taxable?
Yes it is possible that you could be eligible for Social Security retirement and disability benefits may be .
What percentage is determined by whether you're "combined income" that includes your benefits but also wages, interest, dividends and other types of tax-deductible income -- exceeds certain thresholds within a specific year (see tables below). Most recipients earn higher than that minimum threshold, and end having to pay taxes on their benefits.
In fact, roughly 56% of beneficiaries' families are expected to pay taxes on their benefits for the 35 years in the years 2015-2050, according to a Social Security projection.
Here's the breakdown If you file federal income tax as an individual:
Gross income for the year ranging from $25,000 and $34,000



Annual gross income greater than $34,000



The first 50% of your benefits are tax-deductible.


up to 85% of your benefits are taxable.








This is how it breaks down if you jointly file your federal income tax:
Together, gross annual income between $32,000 to $44,000



Combined, an annual gross income of more than $44,000



The first half of the earnings are taxable.


Up to 85% of your income is tax-deductible.








No beneficiary will be taxed for more than 15% of their income.
Learn the best way to
When can I collect Social Security?
Workers who were born after 1960 qualify for Social Security benefits at age 62. However the longer you are working, the better benefits from Social Security benefits will be. This is because the Social Security Administration considers 67 to be the " " for people born after 1960. Likewise, those claiming their benefits before they turn 67 will qualify for reduced benefits.
This could result in a sizable difference in benefits. For example, according to Social Security Administration, somebody who qualifies for a monthly retirement benefit when they reach 67 will only be eligible for a $700 monthly retirement payment if they retired at age 62.
After the age of 67, however, you may still be thinking about when you retire. After 67, your Social Security benefits continue increasing until you reach 70. After you turn 70, the growth in Social Security benefits ceases, even if you decide to put off retirement for a longer period.
>> Ready to start retirement planning? Start here to start
How long will Social Security benefits last?
Social Security retirement benefits don't expire; once you start getting Social Security payments, you'll be receiving them for the rest of your life.
There's no expiration date on disability benefits, either. Payments will continue as long as the qualifying health condition remains, as well. Social Security will check in frequently to make sure your health status isn't affecting your capability to work.
People receiving survivors benefits on behalf of a deceased spouse are eligible for retirement benefits as early as the age of sixty or fifty if they have an impairment. The benefits will be paid out for the rest of the life of the spouse who died however there are some restrictions on divorced spouses.
Children receiving Social Security benefits on behalf of a deceased or retired parent, or parent with a disability, will continue to receive benefits until they turn 18. In the case of a child who is in school they'll typically continue receiving benefits until they graduate high school or two years after the age of 19.


The author's bio: Cara Smith joined NerdWallet in 2021 following reporting on business and real estate within Houston and Chicago for eight years.







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