On Wednesday, January 13th, we had a webinar titled “Social Security 101.” It was a great opportunity to learn the basics of a program many people find confusing. If you missed it, you’ll be able to catch the recording. But first, let’s talk a little about Social Security, its role in your retirement, and its other programs.
Founded in 1935 by President Roosevelt, Social Security is a program that saves a portion of each of your paychecks and pays out a retirement benefit when you are older. Today, Social Security accounts for a large proportion of the American federal budget, with 178 million workers paying in and 64 million receiving benefits this year.
Connected to the retirement program, Social Security also covers disability insurance. We’ll also talk about the related program for seniors, Medicare.
How It Works
Social Security isn’t a savings program—the money you pay in isn’t just put in an account for you to receive later. Instead, you earn credits for each year you work. The social security tax you pay is put in a trust fund, out of which benefits are paid. Most of the money you pay in pays for people currently retired, and your own benefits will come from the next generation as they work.
If you have worked for at least 10 years, you are eligible to start receiving benefits when you turn 62. However, full benefits don’t kick in until your full retirement age—66 or 67, depending on when you were born. Or, if you want to continue working, you can receive a higher benefit if you put off retirement until age 70.
The amount of the Social Security benefit varies with how much you earn while you are working. Social Security benefits are taxable.
Who Can Benefit
Not only the worker paying into the system is eligible for benefits. Spouses, widows, ex-spouses, and children of paying workers may be eligible as well. If a marriage has lasted at least ten years, regardless of whether it’s ended since, the spouse qualifies for half of the Social Security amount the worker receives. The worker’s benefits are unaffected.
Widows can receive a full benefit at retirement age, or at any time if they are caring for minor children. Minor children, if their parents are retired, disabled, or deceased, can also qualify.
Social Security benefits are not means-tested, so they can be combined with other retirement income. However, if you continue to work after retirement, making over $50,000 a year, your benefits may be lessened.
Another component of Social Security is disability benefits. According to government rules, a disability is a condition or combination of impairments which prevent substantial work for at least a year, or which are expected to result in death. You are eligible for disability if you have worked five out of the last ten years, or less than that if you are under 31 years old.
Adult children qualify if their parents are receiving benefits and they are disabled before the age of 22.
Medicare is the federal health insurance program for seniors and disabled individuals. Once you retire, you’ll no longer have health insurance from work. Medicare is cost-subsidized and can help you afford medical care.
You become eligible for Medicare at 65, or two years after becoming eligible for disability benefits. People with amyotrophic lateral sclerosis or permanent kidney failure are also eligible.
Medicare comes in four parts:
- Part A covers hospital care and nursing home or hospice care.
- Part B covers doctor visits and outpatient care.
- Part C consists of Medicare Advantage plans—private insurance from Medicare-approved companies.
- Part D covers prescriptions.
Some people will pay no premium for Part A, but everyone pays a premium for part B. For part D, you will have to choose an approved plan.
Want to Learn More?
Are you wondering how Social Security fits into your retirement plans? Are you already eligible for a Social Security program and wondering what to do next? Is it time to decide on a Medicare plan? Call today to speak to a financial advisor who can help you navigate these complicated decisions.
And, for a more in-depth primer on Social Security and what it can offer you, watch the webinar recording on our YouTube channel!