Social Security: You Earned It

In 2004, over 47 million Americans collected $493 billion in Social Security benefits. If you are employed today, you are likely one of the millions of U.S. workers who helped foot that bill. But what goes around comes around. When you or a dependent becomes eligible to collect Social Security, the next generation of workers will shoulder the cost.

Are you in the habit of reading your pay stub? You may have noticed that a percentage of your earnings goes to Social Security -- 6.2% to be exact. This payroll tax is often labeled FICA for the Federal Insurance Contributions Act. What you may not know is that your employer contributes an equal amount for you. Let’s say you earn $800 a week. How much money will go to Social Security? Let’s do the math:

In general, you are eligible to start collecting benefits at age 62. Full benefits become available when you reach your full retirement age, which ranges from 62 to 67 depending on when you were born. Benefits are also paid to disabled workers and their dependents and to dependents of workers who died.

Once a year, you’ll get a statement with your estimated Social Security benefits. How much you collect is based on how much you’ve earned over your lifetime. Lower-paid workers, however, receive a larger benefit relative to their earnings than higher-paid workers do. Payments are adjusted every year to reflect inflation, or the increasing costs of living expenses.

Despite it’s noble aim of reducing poverty among the retired and disabled, Social Security is not enough to pay all your expenses when you retire. Find out how much you can expect to collect and how much income you’ll need in retirement. Then start a retirement savings plan to add to Social Security!

To request a statement or learn more about Social Security, go to www.ssa.gov or
call 1-800-772-1213.

To learn how you can save for retirement read “Tax Tip” and check out this online lesson.