Social security was established in 1937 as an emergency net for workers of this nation. It was to cover all workers and has grown to cover a wide range of benefits. These benefits are funded by worker payroll taxes and are paid into a fund managed by the federal government.
To be insured and to receive benefits a worker is required to “pay in” for a minimum of 40 quarters (10 years). The amount paid in will depend on the amount of taxable income the worker earns. Current laws require anyone earning up to $100,000 is taxed. Some restrictions apply when calculating the benefit such as to be covered a worker must have been covered by at least 6 quarters of the past 13 calendar quarters.
There are several ways to receive social security benefits. Here is a list of who can benefit.
This is a monthly payment payable for life to either a retired worker or a disabled worker.
This refers to a monthly income for a spouse or a retired or disabled worker.
This is a monthly benefit for a dependent child of a deceased, disabled or retired worker.
This is a monthly retirement income for a surviving or former spouse of a deceased or disabled worker.
Factors effecting how social security is used and planned by the administrations.
1. The life expectancy has increased by 34% since 1938. By living longer the demand for retirement benefits has increased causing rates paid by workers to increase.
2. The high birth rate of baby boomers has caused a short term financial issue that has created some stress on the retirement fund. Once the baby boomers generation has passed through the numbers will be more in line with past planning.
When social security was originally conceived President Roosevelt promised that the income benefits would not be taxed for income tax purposes. In 1984 President Reagan changed the rules so that 50% of all social security benefits were taxed. In 1992 President Clinton changed the taxation rate to 85%. These current tax rates are still in effect.
Based on current projections, the social security administration has determined that enough funds are in place to keep the plan solvent until 2075. A suggested increase in the amount of income that is included in social security calculations from the current $100,000 of taxable income to $125,000 will provide additional solvency to the projected year of 2150.
As with all important decisions make certain you fully understand all aspects of your decision and it is always suggested you seek competent legal and tax advice before making any important decision.
The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor or other licensed professional.??