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Social Security: What You Need to Know

Every U.S. citizen has a Social Security number. Established in 1935, Social Security helps retired and disabled individuals support themselves financially. Yet there are many misconceptions about the system. As you move into retirement, it is essential that you familiarize yourself with how Social Security works.

Nuts and Bolts

Your paycheck stubs have shown an amount deducted from your net pay that went into Social Security. Some employers opt out of the system, but most likely, you have been contributing all of your working life. The dollars deducted from your paychecks over the years will not be waiting for you the day you retire or become disabled. Rather, the contributions go into a fund that benefits those currently receiving Social Security benefits. When you receive benefits, someone else will be contributing to the fund. You will, however, receive Social Security credit for the contributions you pay into the system. This means that once you are eligible to receive benefits, the amount of money you receive will be proportionate to what you paid into the system.

Who is eligible?

If you were born in 1937 or before, eligibility began for you at age 62. For those born after 1937, eligibility begins at 65. Disabled persons can also receive benefits. Regardless of the year you were born, you must have worked for at least 40 quarters while paying into the system.

When to cash in

Although you are eligible when you reach a certain age, if you elect to keep working, the benefits you receive once you retire will be greater than if you had sought benefits as soon as you became eligible. Keep in mind that there is a three-month period between when you apply and when you receive benefits.

Yearly Updates

Everyone over age 25 who pays into Social Security who does not yet receive benefits receives an annual update from the Social Security Administration. This document tells you what you have earned over the years; what you have paid into Social Security; and your estimated Social Security retirement, disability, and survivor’s benefits. Because errors on this statement can affect your benefits, remember to check these statements carefully against your own records.

The Social Security “Strain”

Those who currently receive Social Security benefits are getting their checks from a fund that takes in more money than it pays out. Soon, however more and more of the Baby Boom generation’s 45 million members will begin to go into retirement. Many will apply for Social Security benefits. More beneficiaries over longer periods will not drain the system, however. In fact, Social Security will be able to pay out 100 percent of its benefits through the year 2040. After that, without any changes to the system, it will still be able to pay beneficiaries more than 70 percent of their promised benefits.

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