Social Security


Social Security is the foundation of economic security for millions of Americans—retirees, disabled persons, and families of retired, disabled or deceased workers. About 163 million Americans pay Social Security taxes and 59 million collect monthly benefits. About one family in four receives income from Social Security.

Social Security provides benefits to retired workers (through Old-Age and Survivors Insurance, OASI), to people with disabilities (through Disability Insurance, DI) and to their families as well as to some survivors of deceased workers. Another element is Hospital Insurance or HI.

Those benefits are financed primarily by payroll taxes on people’s earnings.

Both the employee and the employer pays into the system, 6.2% plus 1.45%. If you are a sole proprietor, you will be paying for both the employer and the employee’s portion, so the entire 15.3 instead of just 7.65%.

How much benefits do you get? It depends on how long you have worked? How much did you make and when you choose to file for benefits?

To be eligible for social security benefits, you need to earn 40 credits. In 2016, you receive one credit for each $1,260 dollars of earnings, up to a maximum of four credits each year. To earn 40 credits, it will take 10 years.

How much did you make? You need to calculate your top 35 years of AIME or Annual Indexed Monthly Earnings.

In order to figure out how to apply your earnings, you need to figure out your AIME or your Annual Indexed Monthly Earnings. It is your top 35 years of earnings (zero on certain years if you work less than 35). In our example, take the total indexed earnings of $840,000, divide by 35 and again by 12 to get the annual indexed monthly earnings or AIME.

And here is how to calculate your Social Security Payouts. There are three tiers to the AIME calculation. These dollar amounts are indexes that change over years. The gist of the calculation is to apply a high percentage of Low AIME, 90%, medium range 32% and high dollar range, 15%, so low AIME people will get most of their benefits satisfied.

There are payment reductions if you decide to claim early or payment enhancements if you decide to claim late. This has to do with your Normal Retirement Age which differs depending on when you are born. Take a look at the next slide.

When is your Normal Retirement Age? If you are born between 1943 and 1954, it is 66 years old. It increases by 2 months each year after that. If you are born in 1960 or later, your Normal Retirement Age is 67.

When can you start receiving benefits? The earliest is 62 years old.

The early withdrawal penalty is 5/9 of a percent for each month before your Normal Retirement Age up to the first 36 months. After the first 36 months, it is 5/12 of 1 percent for each additional month.

Example: If your normal retirement age is 66, and you claim at 62. Your reduction for first 36 months is 20% and then the next 12 months, 5%. Total reduction for 48 months is 25%

What about the benefits of delaying your claim? For each additional month beyond your Normal Retirement Age, you are entitled to an additional 2/3 of 1%. You can delay up until 70 and no more.

Example: If you delay claim till Age 70 and your Normal Retirement Age is 67. By delaying your claim for 36 months, you increase your benefits by 24%.

If you look at the claim difference between Age 62 and 70. Instead of 30% reduction, you get a 24% increase, a total difference of 54%. Since the payments are inflation adjusted, the difference is HUGE. This may be a good way to provide for longevity. Think Carefully!

You can claim either 100% of your own benefit or 50% of your spousal benefit, whichever is larger, provided that you stayed married for 10 years. If your benefit is $500 and Spousal $600, you can claim spousal, but not both. If you spouse has passed away, you can step in and get 100%.

Here are some additional benefits for widow/widower, unmarried child, dependent parents if you passed away, and also disability insurance.

Is Social Security Benefits Taxable? YES!!! But no more than 85% of total benefits. Again, there are two tiers. It depends on your covered income which is your AGI plus non-taxable interest plus ½ of your social security benefits.

If you work for the State and City government, even if you don’t pay into the social security system, you are eligible for certain type of pensions. Check here for Windfall Elimination Provisions.

Finally, do log on to the social security website and check your social security statement. Check for accuracy and misstatements. Also try estimating your benefits using their calculators.

Now that you know a little more about the Social Security System, go online and read more. It pays to KNOW YOUR BENEFITS.

Read More to Learn:

  1. Find out what happens if you
  2. Learn how Social Security credits are being calculated
  3. Learn about Social Security programs,
  4. Learn how certain types of earnings and pensions can affect your benefits

Try These Activites:

    1. Find your retirement age,
    2. Estimate your life expectancy,
    3. Estimate Your Monthly Retirement Benefits,
    4. Use our other benefit calculators to test different retirement ages or future earnings amounts.


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©2018 Financial Wellness Tower a premium financial education site brought to you by Pension Maxima. DICLOSURE Pension Maxima Investment Advisory, Inc. is and investment adviser registered in the state of New York and California and has made notice filings in those states where required. Pension Maxima does not offer services to residents of any jurisdiction in which Pension Maxima is not  currently registered and/or has a notice filer, unless exempt. The information provided is intended for use by citizens and residents of the United States only. It is not intended to any person residing in, any citizen of, or any form of organization operating under the authority of any country or jurisdiction in which Pension is not registered as an investment adviser, unless exempt.


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