Social Security Explained
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Social Security Explained
Social Security is a federal program that provides benefits for survivorship, disability and retirement benefits to people who meet the requirements.
By Cara Smith Lead Writer | Auto loans, crypto Cara Smith is a lead writer for NerdWallet in which she writes on investing, cryptocurrency, and auto loans. She has written about commercial real estate, housing and general business for Houston Business Journal, CoStar News as well as other publications. She studied journalism and psychology in The University of Houston, where she was editor-in-chief of its student newspaper. She is based in Chicago, where she searches night and day in search of authentic Tex-Mex throughout the Midwest.
Sep 14, 2022
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Social Security is a federal program that offers benefits to qualifying residents. The majority of people are aware that Social Security provides retirement benefits however, the program also pays out these benefits, based upon your lifetime earnings
Disability
Survivors
Dependency
Established during the Great Depression (1929-1939), the program was created to offer financial security to elderly workers. It’s funded through regular payments from taxpayers during their working years to a shared Social Security fund.
What is Social Security?
Social Security is a program run through the Social Security Administration. It offers financial assistance to retirees and their families, in addition to children and the families of deceased workers. Additionally, it provides benefits to disabled people who might have fewer opportunities to earn a living.
Social Security benefits are financed by tax. Most employees and employers pay an 6.2 percent taxes on earnings, which can amount to $147,000 per year, which helps fund social security. Social Security program.
For example If an employee earns an annual income of $148,000 in pre-tax earnings then they won’t have to pay the 6.2% tax on the last $1000 from their salary.
Self-employed workers have to pay 12.4 percent of Social Security taxes.
What amount of Social Security will I get?
Of course, it’s impossible to determine your exact benefit size until the time you reach retirement age. But on average, most people can count on their Social Security benefits to replace approximately 40 percent of their salary prior to retirement.
Your benefits will depend on how much your contribution to Social Security throughout your lifetime and also the amount you make during your work years. It is the Social Security Administration that offer an accurate picture of the potential benefits you may get.
Find out more about the you’ll get
How much is your maximum Social Security benefit?
Here are the most each month Social Security benefits an individual who will retire in 2022 may receive, based on when they retire and begin collecting benefits.
Age 62
65 years old
The average age is 67.
70 years old
$2,364 per month.
$2,993 per month.
$3,568 per month.
$4,194 per month.
To qualify for the Social Security tax credit, you must earn $147,000 a year — the maximum taxable income for Social Security — for at minimum 35 years. That’s because your Social Security benefits are calculated by using the top income for the last 35 years.
How do you calculate Social Security calculated?
Social Security benefits are determined by two aspects:
The age at which you will be when you retire.
The best 35 years of earning before inflation.
Because the program uses the highest 35 years of earnings throughout your career, workers with higher salaries will likely be able to receive more Social Security benefits. People with lower earnings or who have spent a lot of time away from the workforce will be able to claim lower benefits.
>> MORE: Our free will help you figure out how much you’ll need to save
Is Social Security benefits taxable?
Yes it is possible that your Social Security retirement and disability benefits might be .
What percentage depends on the extent to which you’re «combined income» that includes your benefits but also dividends, interest, wages as well as other forms of tax-deductible income — exceeds certain thresholds during a particular year (see tables below). The majority of people who receive benefits earn much more than the minimum threshold and wind up paying taxes on their benefits.
In reality, around 56% of beneficiary families are expected to pay tax on their Social Security benefits during the 35 years in the years 2015-2050, according to an Social Security estimation.
Here’s how it breaks down when you file federal income taxes in the individual category:
Gross income for the year ranging from $25,000 and $34,000
Annual gross income greater than $34,000
Up to 50percent of benefits are tax-deductible.
The majority of your earnings are tax deductible.
Here’s what happens if you jointly file your federal income taxes:
Together, gross annual income between $32,000 and $44,000
Together, the annual gross income is greater than $44,000
The first half of the benefits are tax deductible.
The majority of your income is tax-deductible.
No beneficiary will be taxed on more than 85percent of their benefits.
Learn more about how to
When do I start collecting Social Security?
Workers who were born after 1960 are eligible for Social Security benefits at age 62. However, the longer you remain working longer, the greater your Social Security benefits will be. This is due to the fact that Social Security Administration considers 67 to be the » » Social Security Administration considers 67 to be the » » age for people who were born after 1960. Likewise, those claiming their benefits before they turn 67 will qualify to receive reduced benefits.
This can equate to an enormous difference in benefits. According to Social Security Administration, somebody who would qualify for a monthly retirement benefit when they reach 67 is only eligible for a monthly $700 retirement payment if they retired at the age of 62.
After at 67 it is possible that you will be thinking about when you retire. When you turn the age of 67 Social Security benefits continue increasing until you turn 70. Once you reach the age of 70, the growth in Social Security benefits ceases, even if you decide to extend your retirement.
>> Ready to start retirement planning? Start here to start
How long will Social Security benefits last?
Social Security retirement benefits don’t expire. Once you begin being paid Social Security payments, you’ll continue to receive them for the rest of your life.
There’s no expiration time for disability benefits either. Payments will continue until the medical condition is still deemed to be qualifying, as well. Social Security will check in frequently to make sure your health status isn’t impacting your capability to work.
The beneficiaries of survivors benefits on behalf of a deceased spouse can qualify for retirement benefits as young as age 60 or 50 if they suffer from an impairment. These benefits will be given for the duration of the life of the spouse who died however there are some limitations for divorced spouses.
Children who receive Social Security benefits on behalf of a deceased or retired parent, or parent who is disabled, will continue receiving benefits until they reach the age of 18. If the child is a student they’ll usually continue to receive benefits until they graduate high school, or for two months following turning 19.
About the author: Cara Smith joined NerdWallet in 2021, after covering real estate and business within Houston and Chicago for eight years.
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