In 1935, President Franklin Rooseveltsigned the Social Security Act, whichcreated the first nationwide retirementand social welfare program in theUnited States. Since then, Social Securityhas become an essential part of modernlife and has been modified to provide forthe nation's widows, orphans, disabled,and divorced spouses.
Today, about 98% of all Americanworkers are employed in jobs coveredby Social Security. One in 6 Americansreceives a Social Security benefit, andnearly 1 in 3 beneficiaries is not aretiree. According to the Social SecurityWeb site (www.ssa.gov), Social Securitybenefits comprise about 5% of thenation's total economic output.
Facts & Figures
To be eligible for benefits, you needto be employed and subject to SocialSecurity taxes for 40 quarters. A fullyinsured status enables you to receiveunrestricted retirement, disability, andsurvivor payments. To be eligible in anyquarter, you must earn at least $870.Benefits are determined using an averageindexed monthly earnings (AIME)formula, which takes into account aworker's top 35 earning years since 1950.
The retirement benefit amount may beequal to, less than, or greater than theAIME. For example, if you retire beforenormal retirement age (generally age 65),your monthly benefit will be reducedapproximately 0.56% until you reach normalretirement age. If you delay receivingSocial Security benefits beyond normalretirement age but prior to age 70, yourbenefits will increase by 8% a year, up to140% of the normal benefit.
A retired worker's spouse may elect toreceive the greater of one half of theirpartner's benefit or their own benefit.Even if the primary worker is still workingand hasn't begun drawing benefits,their spouse may begin drawing benefitsonce they reach the eligible age. A divorcedspouse who was married for 10years to an insured worker and who hasnot remarried may draw under the samerules as a married spouse. This doesn'timpact the insured worker's availablebenefits. In fact, the insured workercould have several divorced spousesdrawing benefits, in addition to a marriedspouse drawing benefits.
A retired worker's minor children andthe spouse who cares for them may beeligible for benefits. If you became a parentwhen you were older, children underage 18 (or age 19, if they haven't graduatedfrom high school) will receive acheck equal to one half of your benefit.The same goes for your spouse if theycare for a minor under age 16. The totalpayable to a family is limited by a familymaximum benefit calculation.
If an insured worker passes on, theirfamily is entitled to certain benefits.Children under age 18 (or age 19, if stillin school) receive a benefit, as does aspouse who cares for a minor child underage 16. The amount is subject to familymaximums and is dependent on theworker's AIME. A surviving spouse mayelect to draw a widow's benefit at age60, whether or not they were married tothe worker at the time of death.
For more information about benefits,check out the Social Security Web site,which contains a wealth of informationon benefits and rules, including a usefulretirement planning calculator. Theadministration's calculator can help youestimate your future Social Security benefitusing different retirement, earnings,and family scenarios.
Louis P. Ingargiola, a financialconsultant since 1992, is independentwith LPL Financial Servicesbased in Dunmore, Pa. He welcomesquestions or comments at800-440-1776.