Guide to
Social Security Benefits
Part 2
What You Need To Know About Social
Security While
You're Still Working
How
Social Security Works--The General Idea
The basic idea
behind Social Security is a simple one. You pay
taxes into the system during your working years, and you and
members of your family receive monthly benefits when you retire
or become disabled. Or, your survivors collect benefits when
you die.
Here's An Important
Point: Social Security is not intended to
be your only source of income. Instead, it is meant to be used
to supplement the pensions, insurance, savings, and other investments
you will accumulate during your working years.
Your
Social Security Number
What's your Social
Security number? You probably know it as
well as you know your own phone number.
We use your Social
Security number to track your earnings while
you're working and to track your benefits once you're getting
Social Security.
Almost everybody
reading this report already has a Social Security
number. Today, even most young children have a number because
the Internal Revenue Service requires that a Social Security
number be shown on tax returns for all dependents age one
and older.
In fact, most
parents apply for a Social Security number for
their newborn child when they provide information for the child's
birth certificate. That's because most states make applying
for a Social Security number part of the birth registration
process. This is taken care of before the mother and
child leave the hospital.
In addition to its
"official" uses, banks, insurance companies,
and many other businesses and government agencies use
the Social Security number for record-keeping purposes. Although
we can't prevent others from asking for your number, you
should know that if you give it to them they can not use it to
get your Social Security records. We will not give out your records,
without your written consent, unless the law requires or
permits it.
The Social Security
Administration is aware of concerns about
the increasing uses of the Social Security number for identification
and record-keeping purposes. That concern centers
on the issue of your right to privacy and the increasing
possibility that it could be invaded if all your records
are kept under one number. If a business or other enterprise
asks for your Social Security number, you can refuse to
give it to them. However, that may mean doing without the purchase
or service for which your number was requested. Our primary
message is this: be careful with your Social Security number
and protect its privacy whenever possible.
If you need a Social
Security number, if you lost your card
and need another one, or if you need to change your name on
your current card, just call or visit a Social Security office.
We'll ask you to fill out a simple one-page application form.
And we'll ask to see certain documents depending on your situation.
(We need to see originals or certified copies.) Some
typical examples are:
-
A birth
certificate and some form of identification for a new
card;
-
Some form of
identification for a replacement card;
-
A marriage
certificate or divorce papers for a name change.
The
Taxes You Pay
Social Security
taxes are used to pay for all Social Security
benefits. In addition, a portion of your taxes is used to
pay for part of your Medicare coverage. General tax revenues,
not Social Security taxes, are used to finance the Supplemental
Security Income (SSI) program.
If
You Work For Someone Else
You and your
employer share the tax burden for Social Security and Medicare.
The deduction might be labeled
"FICA" on your pay slip. That stands for Federal Insurance
Contributions Act, the law that authorized Social Security's
payroll tax.
If
You Work For Yourself
If you're
self-employed, you pay the full tax on your taxable
income into Social Security, up to a preset limit. However, there
are special deductions you can take when you file your tax
return that are intended to offset your tax rate.
For More
Information:
If you would like to learn more about
self-employment tax rates, call or visit Social Security to
ask for a free copy of the fact sheet, If You're Self-Employed
(Publication No. 05-10022).
Extra
Taxes For Medicare
If you make more
than $60,600 in 1994, you continue to pay the
Medicare portion of the Social Security tax on the rest of your
earnings. The Medicare portion of the tax is 1.45 percent for
employers and employees each, and 2.9 percent for self-employed
people.
You
Become Eligible For Social Security By Earning "Credits"
You must work and
pay taxes into Social Security in order to
get something out of it. (Of course, some people get benefits
as a dependent or survivor on another person's Social Security
record.)
As you work and pay
taxes, you earn Social Security "credits."
In 1994 you earn one credit for each $620 in earnings
you have--up to a maximum of four credits per year. (The
amount of money needed to earn one credit goes up every year.)
Most people need 40
credits (10 years of work) to qualify for
benefits. Younger people need fewer credits to be eligible for
disability benefits or for their family members to be eligible
for survivors benefits if they should die.
During your working
lifetime, you probably will earn many more
credits than you need to be eligible for Social Security. The
fact that you earn these extra credits does not increase your
eventual Social Security benefit. However, the income you earn
while working will increase your benefit, as you will learn
in the next two sections.
For More
Information: If you want to learn more about the number
of credits you would need to qualify for benefits, just call
or visit Social Security to ask for a Personal Earnings and
Benefit Estimate Statement (see the next section), or ask for
a free copy of one of the following reports: Retirement, (Publication
No. 05-10035), Survivors (Publication No. 05-10084),
or Disability (Publication No. 05-10029).
How
Much Will You Get From Social Security?
The amount of your
Social Security benefit is based on factors
such as your date of birth, the type of benefit you are applying
for, and most important, your earnings.
This report will
explain in a general way how a Social Security
benefit is figured. In the back of this report, you will
find tables that give examples of Social Security benefits.
But if you would like a detailed, personal estimate of
your Social Security retirement, disability, and survivors benefits,
all you have to do is call or visit Social Security and
ask for it. We will send you a form you can use to get a Personal
Earnings and Benefit Estimate Statement.
How
Your Benefit Is Figured
In general, a Social
Security benefit is based on your earnings
averaged over your working lifetime. This is different from
many private pension plans that are usually based on a relatively
small number of years of earnings.
In its simplest
terms, here's how your Social Security benefit
is figured:
Step 1
We determine the
number of years of earnings to use
as a base.
Retirement benefits: For everybody born after 1928 and retiring
in 1991 or later, which includes most people reading
this report, that number is 35 years. Fewer years are
used for people born in 1928 or earlier.
Disability and survivors benefits: We use most of the years
of earnings posted to your record.
Step 2
We adjust these
earnings for inflation.
Step 3
We determine your
average adjusted monthly earnings
based on the number of years figured in step 1.
Step 4
We multiply your
average adjusted earnings by percentages
in a formula that is specified by law. That
formula results in benefits that replace about 42 percent
of a person's earnings. This applies to people who had
average earnings during their working years. The percentage
is lower for people in the upper income brackets
and higher for people with low incomes. (That's because
the Social Security benefit formula is weighted in favor
of low-income workers who have less opportunity to save
and invest during their working years.)
If
You Didn't Earn Enough Credits To Get Social Security
If you haven't
worked long enough to get Social Security, or
if you get only a small amount, you may be eligible for Supplemental
Security Income, or SSI.
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