social security

Social Security numbers were first assigned in 1936 so the government could track the earnings histories of U.S. workers, determine benefit entitlements, and decide how much you should receive in benefits.

Every U.S. natural-born citizen receives a Social Security card with their identifying number at birth. This number is nine digits long and its first three digits correspond to the area of the U.S. where you were born.

You use this number as a highly secure identifier for important documents, such as your tax return and hiring contracts.

What is Social Security?

For most people, Social Security will play a big role in providing retirement income and is a commonly used term for the federal Old Age, Survivors, and Disability Insurance (OASDI) program and is administered by the Social Security Administration (SSA).

The program provides retirement benefits and disability income to qualified people and their spouses, children, and survivors.

To qualify for Social Security’s retirement benefits, workers must be at least 62 years old and have paid into the system for 10 years or more. There are other benefits Social Security can provide depending on many factors.

Types of Social Security benefits

There are four basic types of Social Security benefits based on the person receiving them:

  • Retirement

Workers who have worked and paid into the Social Security system for at least 10 years become eligible for early retirement benefits at age 62. Waiting until your full retirement age, which is between 66 and 67 depending on the area where you were born, results in higher monthly benefits. Your benefit amount will vary based on your pre-retirement salary as well as the age at which you begin collecting benefits. Benefits from Social Security are intended to replace a portion of your pre-retirement income based on your earnings. That being said, these benefits are not meant to be your only source of income, but they can help you avoid debt during your retirement years and relieve some of the potential financial stress.

Your full retirement benefit is calculated based on the average of your highest 35 years of earnings. To live comfortably in retirement, you should bring in 70% of your earned income from all sources, including any savings, investments, life insurance cash values, and your Social Security benefit.

Also, your spouse or divorced spouse may be eligible for Social Security retirement benefits even if he or she has financially supported the program. So for example, a divorced spouse who is not currently married can receive benefits based on an ex-spouse’s earnings record if their marriage lasted at least 10 years. These benefits can also include children of retirees who can potentially receive benefits until they turn 18 or longer in case the child is a student or has a disability.

  • Disability

Disability benefits support people who cannot work because of disabilities. People who wish to receive these benefits need to make sure they have a certain amount of working years to be eligible for disability benefits.

  • Survivors

Survivor benefits can help with possible financial gaps survivors of workers and retirees might face. Eligible survivors can typically get help for widows and widowers, divorced spouses, and children. The level of benefits depends on various factors, including the worker’s age at death, the worker’s salary, the survivors’ ages, and the survivors’ relation to the deceased person.

There is also something called a death benefit which is meant for survivors and is a one-time payment of $255 that covers benefits for spouses or children of a deceased worker.

  • Supplemental benefits (SSI)

Supplemental Security Income helps people who cannot earn adequate wages on their own. SSI is available to adults with disabilities, children with disabilities, and people who are 65 or older. People who have enough work history may even be eligible to receive supplemental security income in addition to disability or retirement benefits.

Social Security maximization

Since Social Security will most definitely play a big role in providing retirement income for individuals, it is good to learn how to make a proper Social Security maximization plan and what a successful maximization strategy implies.

To maximize your Social Security means to receive the most benefit from Social Security before you die. Maximization can happen in two different ways. In other words, you can maximize the number of years you receive Social Security, or maximize the total amount of money you receive from Social Security.

To get the most out of Social Security, keep in mind how your Social Security benefits are calculated in the first place. Your Social Security retirement benefit is based on the average of your highest 35 years of income so the higher your income, the higher your retirement benefits will be.

Also, since your benefit is based on your 35 highest earning years, the longer you work, the higher your Social Security benefit will most likely be so think about working as long as possible for you individually.

Social Security funding and payouts

The Social Security program is funded primarily through dedicated payroll taxes called the Federal Insurance Contributions Act tax (FICA). Employers also pay Social Security taxes.

The money that you pay in taxes while working goes into the Social Security trust to pay for the benefits of those already receiving them. It is not set aside in an account for you.

85 cents of every dollar you pay go into a fund for workers and the remaining 15 cents go into a fund for those with disabilities. That means that the security of your future retirement benefits rests on the administration’s management and future workers paying for your benefits.

Recipients of Social Security benefits receive payouts once a month. Full retirement benefits are available to individuals when they reach their full retirement age, which is between 65 and 67 years old.

The full retirement age depends on the year you were born so for example, for people born in 1960 or later, the full retirement age is 67, and for those born before then, the retirement age may be lower.

The program advises seniors to wait until they are of full retirement age before they begin collecting their retirement benefits. It is true that retirement benefits are available to people who are 62 or older but the early collection of benefits results in a permanent decrease in monthly benefit amounts, so you would only receive around 70% of your full benefit.

To put it more accurately, this means that the earlier you begin collecting your benefits, the fewer benefits you receive over time. You receive your full benefit if you claim them when you reach full retirement age and can potentially increase your benefit by 8% each year you wait to receive benefits until age 70.

Social Security and Medicare:
Are they correlated?

For American retirees, Social Security and Medicare are two programs that are of big importance. On the one hand, Social Security is a government program whose main benefits are providing retirement Benefits for those at least 62 years old and providing disability benefits for those who meet the Social Security Administration’s requirements.

On the other hand, Medicare is also a government-led program but its main task is providing qualifying beneficiaries with health insurance plans.

Being eligible for Social Security benefits also means you will be eligible for Medicare coverage and most people enter Medicare when they are first eligible for enrollment which is at the age of 65. Medicare consists of Original Medicare (Parts A and B), Medicare Advantage (Part C), and Medicare Part D.

Though they are two separate programs, there are some overlapping points between Social Security and Medicare. Your eligibility for premium-free Part A is based on your Social Security eligibility.

Also, you’ll signup for Medicare through the Social Security Administration, and in some cases, you’ll automatically enter Medicare based on your Social Security benefits.

Finally, once you’re in Medicare and also receiving Social Security payments, you’ll pay your Part B monthly premiums through Social Security directly.

Are there penalties
with Social Security?

Penalties with Social Security exist and can also be thought of as reductions in income. You can experience a penalty with Social Security in one of these two ways:

  • A reduction in your benefit payment because you drew Social Security early, before your Full Retirement Age, or
  • If you receive Social Security early and continue to work, your benefits may be reduced if your earnings exceed certain limits


In other words, these penalties don’t imply an amount of money you have to pay to Social Security but are to be considered as a procedure that lowers the number of your retirement checks in case there is a reason for it.

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