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Retirement Income Tips: Social Security
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Retirement Income Tips: Social Security
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SOCIAL SECURITY OVERVIEW
The most common question we hear about Social Security is, “I know I can’t outlive my Social Security benefit, but will Social Security provide me with enough income when I stop working?” Here’s a fact that may surprise (and possibly scare) you: Social Security may replace up to 57% of lower income workers’ income; however, it may replace only 27% for higher income workers – less than one-third of their income! Ouch!
Now, if we have your attention, then please spend just a few minutes and read on. We’ll come back to this first set of facts shortly. WHAT WAS SOCIAL SECURITY ORIGINALLY DESIGNED FOR?
Way back in the 1930s, the entire world began a slide down into economic calamity, commonly referred to as “The Great Depression.” Here in the United States most historians point to the stock market crash in October, 1929, as the first very public signal that some very tough times were “a’comin’” very, very soon! And, man, were they right! No matter what date you use for the beginning of the worst economic depression ever, it lasted for most of the 1930s and, in some countries, well into the mid-1940s.
In our country, both rich and poor people were affected: family incomes, business profits, and, obviously, federal tax revenues dropped radically. So, Congress and the President developed a limited form of Social Security as a kind of “social insurance” to help senior citizens who had been hit extremely hard. In August 1935, President Roosevelt signed into law the Social Security Act. What’s important to understand today, however, is that Social Security was never meant to be Americans’ only source of retirement income; rather, it was designed as a “safety net” and remains as that now. Here’s another startling fact: Social Security pays out nearly two billion dollars in benefits each day! Most of that money is going to retirees and their qualified survivors; however, many people don’t understand these benefits due to the complexity of the system and various characteristics of the programs. Assuming you’ve paid into the Social Security program throughout your working life, here are some more helpful facts:
IS SOCIAL SECURITY HARD TO QUALIFY FOR?
After that first question from above (“Will Social Security provide me with enough income when I stop working?”), things get a little complicated! But stick with us, and we’ll give you the facts in real, “human” language.
The Social Security system has evolved over the years and now uses a fairly simple method of determining how you qualify for benefits, beginning with the word “credits.” In order to receive your Social Security retirement benefits (payments), every American worker needs to build up forty (40) of these credits over his or her lifetime of working. The most credits you can accrue in a single calendar year are four (4) credits. The Social Security department then computes your benefits on your highest thirty-five (35) years of earnings adjusted for inflation. If you don’t earn any credits in a calendar year, however, that year counts as zero (0) and lowers your average career earnings and your monthly Social Security benefit. So, paying into the system over the course of your lifetime of work is extremely important. If you work for a company your entire career, your Social Security contributions are deducted automatically from your paycheck. |
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