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Social Security is important to all of us, whether we are retired
now or will be retiring in the future. We hear conflicting statements about
whether it is financially sound and whether it should be privatized. Basic
facts go a long way toward evaluating criticisms of the system and whether
proposals for change are good public policy.
It is important, too, that we understand how the system works, what choices
are available to us and the implications of those choices. This section of
the retiree web site is designed to answer basic questions and direct more
technical questions to specific web addresses. It is based on information
which was available on the Social Security web site in the Spring of 2003.
AFA encourages you to contact the Social Security Administration at
1-800-772-1213 or visit your nearest Social Security office to obtain the
most accurate information affecting your personal situation.
Here is a list of the questions addressed.
►What
is Social Security?
►How
does the program work? Is it financially secure?
►How
are my benefits calculated?
►What
does full retirement age mean?
►What
happens to my benefits if I retire early?
►How
are my benefits affected if I delay retirement?
►How
can I calculate my expected benefits?
►What
are the eligibility requirements for Social Security Disability Insurance?
►What
benefits are available for my family?
►How
do I sign up for Social Security?
►How
can I calculate the benefits of a spouse or parent?
►Will
my retirement pension from my job reduce the amount of my Social Security?
►Can
I work and get Social Security at the same time?
►Are
my Social Security benefits taxable?
►If
I work after I start receiving Social Security benefits, will I still have
to pay Social Security and Medicare taxes on my earnings?
►Why
does organized labor oppose privatization of Social Security?
What is Social Security? It is
a national program to provide a dependable income floor for retired and
disabled workers and their dependent and surviving families. It is meant to
complement pensions and personal savings. Social Security is based on the
idea that if workers pool a portion of their wages, they can protect
themselves and their families against catastrophic loss of income. The
AFL-CIO describes the Social Security program as "America's most
comprehensive and important family protection system".
Most Americans participate in the program and have their contributions
matched by their employers. Benefits are guaranteed by the US government to
contributors who meet the eligibility criteria. Most people need to earn 40
credits but younger workers may qualify with fewer credits. You can earn up
to four credits a year if you earn sufficient income in each quarter of the
year. The current standard is about $900 per quarter.
The program is flexible- permitting workers to begin receiving benefits as
early as age 62 or as late as they choose. Monthly benefit levels are
adjusted accordingly. Because so many Americans participate, the program is
extremely cost-effective. Administrative costs are less than one percent of
benefits paid.
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How does the program work?
Is it financially secure? It has always been a pay-as-you-go system.
Social Security taxes paid by today's workers go into a trust fund and
immediately to today's beneficiaries. The program has paid benefits every
single month for over 60 years.
In the mid-1980s, the Social Security system was revised to create a surplus
to accommodate the baby boom generation. Reserve funds are invested in
federal government bonds, which are backed by the full faith and credit of
the US government and are essentially risk-free. The surplus is growing by
approximately $120 billion a year and will reach about $4 trillion before it
is needed to pay benefits. In 2017, we'll begin paying more in benefits than
we collect in taxes.
The reserve will be depleted by about 2042 and then the program will return
to being a pay-as-you-go system. The payroll tax will cover only about 73%
of scheduled benefits at that time. Adjustments in the program can be made
before then to ensure 100% coverage of all participants. One way of doing
this, suggested by the AFL-CIO, is to raise the cap on earnings subject to
the Social Security payroll contribution taxes as a counterbalance to the
growing wage inequality among the highest and lowest paid workers.
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How are my benefits calculated?
Your retirement benefit calculations are based on your average earnings
during a lifetime of work under the Social Security system. For most current
and future retirees, this means the average of your 35 highest years of
earnings. Years in which you had low or no earnings may be counted to bring
the total years of earnings up to 35.
You may be able to receive Supplemental Security Income (SSI) in addition to
your monthly Social Security benefits if your Social Security benefits are
low. You can call the Social Security toll-free number 1-800-772-1213 to
find out if you are eligible for SSI.
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What does full retirement
age mean? All workers were once eligible to retire at age 65. Now
there is a new "full retirement age" formula. Those born in 1937 or before
are still eligible to retire at age 65 with full benefits. If you were born
in 1938, your full retirement age is adjusted to age 65 and 2 months. Full
retirement age continues to increase in 2 month increments until it reaches
65 years and 10 months for those born in 1942. If you were born between 1943
and 1954, your full retirement age is 66 years old. Then full retirement age
increases in two month increments again until it reaches age 67 for those
born in 1960 or later.
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What happens to
my benefits if I retire early? You may retire under Social Security
as early as age 62. As a general rule, early retirement will give you about
the same total Social Security benefits over your lifetime as you would
receive if you retired at your full retirement age. But since you will
receive benefits over a longer period of time, your monthly benefit is
permanently reduced.
The reduction ranges from 20% for those born in 1937 or earlier to 30% for
those born in 1960 or later. The reduction diminishes the closer your early
retirement date approaches your full retirement age. For example, if your
full retirement age is 65, the reduction in your benefits at age 62 is 20%;
at age 63, it is 14 1/3 %; and at age 64, it is 6 2/3%. For details on how
these calculations would affect you, go to
www.ssa.gov/retire2/agereduction.htm .
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How are my benefits affected if I delay receiving Social Security benefits?
Your benefits are increased, by a certain percentage depending on your date
of birth, if you delay retirement beyond full retirement age. For additional
details, go to
www.ssa.gov/retire2/delayret.htm .
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How can I calculate my
expected benefits? Recently, the Social Security Administration
began sending annual statements to covered workers about three months before
birthdays. It estimates your retirement benefits at age 62, your full
retirement age and age 70. These estimates assume you will continue to earn
exactly the same income you earned the previous year until you retire. The
statement also provides estimates of disability and survivors benefits for
which you are eligible.
You can calculate your anticipated Social Security income using the
Internet; this calculation can be useful if you expect your income to change
before you retire. You have three options for calculating your benefit. All
three options assume you have already earned enough credits to qualify for
benefits. The first is a quick, rough estimate in which you enter your age
and this year's earnings. The second requires your date of birth and a
complete earnings history. It allows you to make your own projections of
your future earnings history. The third provides the most precise estimates
and requires you to download a program and install it in your computer. For
details on all three programs, go to
www.ssa.gov/retire2/calculators.htm . These calculators can be used to
estimate disability or survivor benefits as well.
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What are the eligibility requirements for Social Security Disability
Insurance? You must have worked long enough and recently enough in
jobs covered by Social Security to qualify. Generally, you need 40 credits,
20 of which you earned in the last 10 years, to be eligible. (See discussion
of credits under the first question, What is Social Security?) You must have
a medical condition which meets Social Security's definition of disability -
that you cannot do the work you did before you became disabled and that you
cannot adjust to other work because of your disability. The definition does
not cover partial disability or short term disability. Your disability must
be expected to last at least one year or to result in death.
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What benefits are
available for my family? If you are receiving retirement benefits,
some members of your family can receive benefits up to a total family limit.
Family members who are eligible include your wife or husband age 62 or
older, your wife or husband under age 62 if she or he is taking care of your
child who is under age 16 or disabled, your former wife or husband age 62 or
older (under certain conditions), children up to age 18, children up to age
19 if full-time students through the 12th grade, and disabled children over
age 18.
If you are eligible for both your own retirement benefits and for benefits
as a spouse, SSA pays your own benefits first. If your benefits as a spouse
are higher than your retirement benefit, you'll get a combination of
benefits equaling the higher spouse benefit. For a divorced spouse to to
receive benefits, the marriage must have lasted at least 10 years and the
divorced spouse must be 62 or older and unmarried. If the spouse has been
divorced at least two years, he or she can get benefits, even if the worker
is not retired. However, the worker must have enough credits to qualify for
benefits and be age 62 or older. The benefits a divorced spouse receives
have no effect on the amount of benefits a current spouse can get.
If you choose to work while receiving retirement benefits, total family
benefits will be affected by your earnings. If a family member works, the
earnings affect only his or her benefits.
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How do I sign up for
Social Security? You can call 1-800-772-1213 to apply for benefits
or to make an appointment to visit any Social Security office to apply in
person. You will need some or most of the information listed below, but
don't delay in applying for benefits just because you do not have a document
you need. The information needed is:
1-your Social Security number;
2-your birth certificate;
3-your W-2 form or self-employment tax return of last year;
4-your military discharge papers if you had military service;
5-your spouse's birth certificate and Social Security number if he or she is
applying for benefits;
6-your children's birth certificates and Social Security numbers, if
applying for children's benefits;
7-proof of US citizenship or lawful alien status if you (or a spouse or
child is applying for benefits) were not born in the US; and,
8-the name of your bank and account number so your benefits can be directly
deposited into you account.
You can sign up on line by going to www.ssa.gov
and clicking on retirement and then scrolling down to the Internet
Retirement Insurance Benefits application.
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How can
I calculate the benefits of a spouse or parent? You can call the
toll-free number of the Social Security Administration - 1-800-772-1213 - or
visit your nearest Social Security office. (You cannot use the online
calculators to find these figures.)
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Will my retirement pension from my job reduce the amount of my Social
Security benefit? If your pension is from work where you also paid
Social Security taxes, it will not affect your Social Security benefit.
However, pensions based on work not covered by Social Security - such as the
federal civil service and some state, local or foreign government systems -
probably will reduce the amount of your Social Security benefit.
Although pension payments do not affect the amount of your Social Security
benefits, the opposite is not necessarily true. Some defined benefit pension
plans, such as the one at US Airways, utilize a formula that subtracts a
percentage of Social Security benefits from the pension benefit. So, once
you begin to receive a Social Security benefit, any pension payment based on
such a formula will take your Social Security benefit into account. You will
not receive a full pension payment and a full Social Security payment.
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Can I work
and get Social Security at the same time? You can work and receive
benefits at the same time. When you do, it could mean a higher benefit for
you. If you are under your full retirement age when you start receiving your
Social Security payments, $1 in benefits will be deducted for each $2 you
earn above the annual limit. In 2003, the annual limit rose from the 2002
level of $11,280 to $11,520.
There is a different standard for the year you reach full retirement age; $1
in benefits will be deducted for each $3 you earn above a certain amount. If
you reached age 65 in 2002, the limit on your earnings for the months before
age 65 was $30,000. If you become eligible for full retirement in 2003 at
age 65 and 2 months, the limit increases to $30,720. Beginning the month you
reach your full retirement age, you can get your benefits with no limit on
your earnings.
It is important to contact the Social Security Administration at the
beginning of the year you will reach your full retirement age so they can
determine whether you may also receive some or all of your benefits for the
months before your reach your retirement age.
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Are my Social Security
benefits taxable? Up to 50% of your Social Security income may be
taxable if you, as an individual, have a total income of between $25,000 and
$34,000. For married couples, up to 50% may be taxable for total income
ranging between $32,000 and $44,000. Up to 85% of benefits may be subject to
tax for individuals with income over $34,000 or couples with income over
$44,000.
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If I work after I start receiving Social Security benefits, will I still
have to pay Social Security and Medicare taxes on my earnings? Yes.
Anytime you work in a job that is covered by Social Security - even if you
are already receiving Social Security benefits - you and your employer must
pay the Social Security and Medicare taxes on your earnings. The same is
true if you are self-employed. Your net profits are subject to Social
Security and Medicare taxes.
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Why does organized labor oppose privatization of Social Security?
Social Security is a defined benefit plan, with guaranteed lifelong benefits
which are adjusted upward by annual cost-of-living increases. The benefits
you receive are based on your retirement age and your lifetime of earnings.
The financial risk is borne by the government rather than the individual.
By comparison, in an individual investment account such as a 401(k) program,
the individual bears the risk. There is no guarantee of how well the fund
will do and there are no automatic cost-of-living adjustments.
Substituting individual investment accounts for today's system would
significantly worsen Social Security's financial position. Funds invested in
private retirement accounts by today's workers would not be available to pay
retirees in the pay-as-you-go program. It would be necessary to transfer
large amounts of tax revenue from the rest of the budget to compensate for
funds not being invested in the Social Security trust fund.
When the government is running a substantial deficit, and financing that
deficit by borrowing from the Social Security trust fund, this is simply not
possible. The only alternatives to finance the new system would be raising
the retirement age, cutting Social Security benefits, raising taxes, cutting
or eliminating the cost-of-living adjustments or some mix of these bad
choices.
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