If you are working, then you are probably paying Social Security taxes. Roughly 163 million American workers pay these taxes each year.1 Even though most of us pay the taxes, we may be unaware of exactly how the system works.
Social Security is a pay-as-you-go insurance strategy.1 In simple terms, the Social Security Administration (SSA) collects money from workers and provides benefits such as Retirement, Disability, Medicare and Survivors. Here is a quick summary of the purpose of each benefit.
For those workers who qualify for Social Security Retirement Benefits, the SSA will provide a lifetime monthly income stream once the individual reaches their full retirement age (this varies and depends on the year you were born). The amount that the SSA provides on a monthly basis is determined by the income you made while working.
- 2. Disability
The SSA pays benefits to workers who are unable to work due to a medical condition. If the worker is expected to be out for 1 year or has a condition that is expected to result in death, they may be able to receive benefits. As with the Retirement benefits, there are earning requirements that must be met in order to be eligible to receive Disability benefits.
- 3. Medical
Medicare is the United State's health insurance program. This program covers a portion of the cost of medical care to those age 65 and older or to someone younger workers with certain circumstances.
- 4. Survivors
Some benefits may be provided to the family members of a deceased individual who logged enough working hours in his or her lifetime.
Who Qualifies for these benefits?
For each benefit type, the SSA must decide if you qualify to receive the assistance. Qualification depends on how many years you have worked in the United States and paid taxes to Social Security. The number of years needed to qualify for each benefit varies.
How to Qualify for Retirement Benefits:2
- An individual must work and pay Social Security taxes for at least 40 quarters (or 10 years) of their life if born in 1929 or later.
- These quarters do not have to be consecutive.
- A credit is earned for every 3-month period (or quarter) in which a worker earns a minimum of $1,200.
- An individual must be of either full or partial retirement age
To sum it up, workers contribute taxes to Social Security throughout their working years. When an individual has reached the eligible age and have met the qualification requirements, he or she may apply to receive benefits from the SSA. The amount of these benefits will vary depending on the income received while working.
1 National Academy of Social Insurance.
2 The Heritage Foundation
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Financial Sisterhood TM, 2016