Social Security: Never too Young to Start Planning

One of the biggest question young people have is whether or not Social Security will still be around by the time they are old enough to receive benefits. Because of the current economic crisis this country is in, many question whether there will still be money left for when today's 20-30-year-olds are ready to retire. The answer is Yes. While the current system does need some reform, Social Security will still be active and paying out benefits. One of the reasons for the need for reform is the fact that people are living longer. The average 60 year old man can expect to live until the age of 81, and the average 60 year old woman can expect to live until the age of 85. So young people today can expect to spend 20 years in retirement. This means that the amount of Social Security and retirement income received is spread out over a longer time period. Another reason for the need for reform is that people are having fewer children. After WWII, the U.S. had a population spike, known as the "baby boomer" generation. Today, with fewer children being born, means that there are fewer young people in the work force trying to support the 80 million "baby boomers". In fact, 20% of the U.S. population will be 65 by the year 2035. With fewer workers trying to support more aging adults, means that financial stress is put on the system.

To understand why it is hard for workers today to support all those on Social Security, you need to understand how the system works. When you work or earn money, you pay taxes on that income. One of those taxes is FICA - or Federal Insurance Contributions Act. A portion of your paycheck is used for this program and your employer matches the contribution. This money is put into the Social Security Trust Fund. This fund is what pays out the benefits for those receiving Social Security. 85 cents of every dollar that is taken out for FICA goes into the trust fund. The other 15 cents goes into disability in order for the government to pay out Social Security Disability benefits. It is important to remember that every person who is receiving benefits has paid into the system, so the money you will get later in life after you retire or become disabled, is money that you earned throughout your work history. According to the Social Security Administration, in 2011, the maximum amount of income that you will pay FICA taxes on is $106,800.

Now, how does the government keep track of how much you earn over the course of your work history?  Each person is issued a social security number and that number is what is used to track your work earnings. Your social security number is used to match your work earnings with you; this is why you have to fill it in on your work form when you start a new job. Your Social Security payments are calculated based on what you earn (or paid into) over the course of your work history.

The next logical question when understanding how Social Security works, is how do you become "eligible" to receive benefits? This is calculated through what the government calls "credits". You must have earned enough work credits during the time you worked in order to receive payments. Credits are earned in the same manner, no matter where you work. You can work for a company, be self employed, or work for a non-profit. Your earnings are reported and the credits are earned just the same. Guidelines stipulate that you must earn 40 "credits" to qualify for Social Security. As you work and pay taxes, you are earning credits. You can earn up to a maximum of 4 credits per year. In 2010, you had to make $1,120.00 to earn 1 credit. So a person who earned at least $4,480.00 in 2010 earned 4 credits. It is possible to get social security benefits with fewer than 40 credits, but this will depend on your age and the type of payments you are applying for. But as a general rule of thumb, at least 10 years making more than $5000.00 a year will make you eligible for benefits based on work credits.

Young people can be eligible for survivor benefits and disability benefits, depending on the circumstances. The government estimates that 1 in 7 of today's 20-year-olds will die before the age of 67. Social security will pay money to the spouse of a worker who dies and the children regardless of the age of the worker. Young people can also qualify for benefits through the social security disability program. There are 2 types: Social Security Disability and Supplemental Security Income (SSI). It is estimated that 3 in 10 of today's 20-year-olds will become disabled before the age of 67. Social security will pay money to those that become disabled and cannot work, as well as their families. Supplemental Security Income (SSI) is for those who have disabilities and have limited income. It is possible to qualify for SSI but not for disability because of not earning enough work "credits." SSI payments come from general taxes; not the portion of a paycheck that is designated to go into the social security trust fund.

The last piece of the puzzle is retirement benefits. Retirement payments are based on the montly average of your highest 35 earning years. This means that the best 35 years of your work history will be used to calculate how much you will receive in monthly retirement payments. Currently, the earliest age that you can begin collecting retirement benefits is 62. However, the longer you wait to begin receiving these benefits, the higher your monthly payment will be. The government keeps track of your earnings record through your W-2 forms that are submitted yearly from your employer. This is called your Lifelong Earnings Record. This record is used to determine whether you can get future payments and the amount of those payments. This is why it is important to read your statements from the Social Security Administration and check it for accuracy. You want to make sure that the government has an accurate record of your work history. If there is an error, you can contact a local office and provide them with the accurate information in the form of a W-2. Most importantly though, is to remember that social security retirement benefits were only meant to be a part of your income during your retirement years. Most finanacial advisors state that an average retiree will need 70% or more of their pre-retirement earnings in order to live comfortably. Social security will only make up about 40% of that income so it is very important to have savings and investments to make up the difference.

Lastly, it is important to begin saving now for the future. Everyone has heard that "it's never to early to begin saving." This is true. Even a few dollars a week can pay off later on. If you were to save $25 a week and place it into a savings fund that had an average of 5% annual growth, it would end up being $165,000 in 40 years. Every little bit helps take care of you in the future, so make sure you start with whatever you can, as early as you can.

Social security may seem confusing and its important to understand what your tax dollars are being used for. Each worker pays into the system in order to take care of yourself later in life. Workers today are paying into the system to take care of the previous generation and the next generation will pay into the system in order to take care of you. Learning to save, and remembering the importance of savings and investments will help bridge the gap once you are older. For more information on the different programs or eligibility, please visit www.ssa.gov

If you are in need of a Myrtle Beach SC social security disability attorney, Conway lawyer Dirk Derrick at the The Derrick Law Firm has been handling social security disability cases in Myrtle Beach, North Myrtle Beach, and Conway SC for over 23 years. Please call 843-248-7486 today.