Exactly how does Social Security work? Social Security is one of those federal government programs that have existed for several generations, yet few people truly understand the intricate workings of it. Started in 1935, Social Security is a form of social insurance. It is primarily considered an insurance fund for retired workers, but it also pays for the disabled and the widowed. In recent years, Social Security has come under severe scrutiny. Critics believe it cannot withstand the heavy burden of the retiring Baby Boomer generation. Social Security, however, remains the largest government program and is said to prevent over 40% of America's senior citizens from entering poverty.
How Does Social Security Work?
Social Security is broken down into three distinct programs. The first program is a retirement program and is available to qualified workers who have reached the federal age of retirement. Retirees may start collecting monthly benefits at age 62, but full retirement does not begin until sometime between ages 65 and 67, depending on the year of birth.
The second program is a survivor's program. This program pays monthly benefits to the survivor of an eligible worker, once she reaches retirement age. The survivor can be either a spouse of the deceased's, or a child under the age of 18. In the event it is a child, the child will no longer be able to collect benefits upon turning 18.
The third program is a disability program. The disability program pays benefits to the worker who is no longer able to work due to illness or disability. It can also pay benefits to the spouse or child of the disabled, in the event of death.
Because Social Security is a social insurance fund, all workers must contribute a certain amount of credits before they are allowed to draw benefits from it. Workers must have at least 40 credits. Each credit translates into roughly 3 months and $900 paid in Social Security tax.
Many people think of Social Security as a private account that one cashes in on after retirement. Unfortunately, this is incorrect. The amount that you pay in Social Security taxes is not stored for your retirement but is directly paid out to those who are currently drawing benefits. Any money not going to the retirees is used as a surplus to fund other government projects. The money for your benefits will be drawn on the taxes of those who will work during your retirement.
The amount you will receive in benefits is tallied by a complicated equation. It calculates your highest earned salary on a 35-year basis and is adjusted further for inflation.
The death of a spouse is a difficult time for any family, but it can be worse for a family worried about finances. If your deceased spouse was receiving Social Security benefits at the time of death, or was eligible to receive Social Security benefits, you or your children may be eligible to receive Social Security death benefits.
For many disabled individuals, Social Security disability benefits are the only source of income enabling them to lead a relatively normal life. If you're permanently disabled and curious about applying for Social Security disability benefits, here are the things you need to know.