Social Security – The Basics
The Old Age Survivors and Disability Insurance Program, often known as Social Security, provides America’s aging population with a full spectrum of benefits, including retirement benefits, survivors’ benefits, Social Security Disability benefits (SSDI), and Supplemental Security Income (SSI). President Franklin Delano Roosevelt originated the program as a way to protect Americans from the pitfalls of poverty after the Great Depression.
How Is Social Security Financed?
Most Social Security programs are financed through a tax levied on employee wages, which are withheld at a rate of 6.2 % of gross annual wages up to an annual cap. For many employees, this tax may be abbreviated on their paychecks as “FICA,” which stands for the Federal Insurance Contributions Act, or it may be called “Social Security.” Employees’ contributions are matched by their employers, and the dollars collected are allocated into trust funds that pay for retirement and survivor benefits, Medicare benefits, and disability benefits. SSI is financed by the federal government’s general revenue funds.
How Is Eligibility Determined?
There are three levels of insurance benefits for Social Security: fully insured, currently insured for survivor’s benefits, and insured for disability benefits. The level of participation is determined by two factors: a recipient’s age and the number of credits he or she has accumulated. For each three-month period of employment, a Social Security applicant gains one credit; the total number of credits needed depends on an applicant’s date of birth. Generally speaking, those born after 1929 need 40 credits to qualify for the status of fully insured.
How Do I Apply?
Local Social Security offices can help determine what information is needed. Typically, only originals or certified copies of documents are accepted. These usually include proof of age, Social Security number, recent income information, proof of citizenship or lawful alien status, if applicable, and bank name and account number.
How Are Benefits Calculated?
Those who did not contribute to Social Security are not eligible for benefits, although some exceptions apply to spouses and dependent children. For those who are eligible, however, benefits are determined every year using a formula that is based on the Consumer Price Index. Each recipient’s monthly benefit is based on that recipient’s lifetime earning average. There is a cap on the amount that may be received.
Spousal benefits are set at one-half of an insured spouse’s full benefit. However, if a spouse’s personal entitlement is greater than this amount, the spouse may elect the greater amount.
A potential recipient can determine his or her estimated benefit by requesting a Personal Earnings and Benefit Statement, which sets forth the recipient’s earnings record and projected payments.
Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.