For nearly eight decades, the social income program known as Social Security has protected hundreds of millions of people, providing some level of income for retired workers, their families, and the disabled. Yet for all intents and purposes, the program is still mysterious to a lot of Americans because of its somewhat complicated laws regarding who qualifies and how much those individuals will qualify for.
However, there are certain aspects of Social Security that everyone should be aware of, though far too few Americans currently are. Today we'll clear up three big gray areas of Social Security.
1. You're probably covered by Social Security right now
Perhaps the biggest hurdle for Social Security awareness is overcoming the perception that it's a program only for the elderly. Although it is true that nearly three-quarters of all Social Security benefits go to retired workers, another one-quarter of 2014's expected total payout of $863 billion will flow to those defined as disabled by the Social Security Administration and to eligible survivors of deceased workers.
When CNN/ORC International in 2011 asked about 1,000 people across the country whether they believed Social Security was a good thing for America, all age groups overwhelmingly believed it was. However, when CNN/ORC asked whether Social Security directly benefited them, only those aged 65 and up responded with a resounding "yes." Those aged 18 to 34, 35 to 49, and 50 to 64 reported "no effect" from Social Security to the tune of 62%, 65%, and 48%, respectively.
But here's the shocker: You're probably covered by Social Security right now. You may simply not realize it.
According to statistics from the SSA, 96% of all workers aged 20 to 49 today are covered by survivor insurance, which, in the case of their untimely death, would offer some degree of financial protection to their eligible children and surviving spouses who take care of the children. Generally, a full 40 credits are required to automatically qualify for Social Security benefits. (You receive one credit for every $1,200 in earned income, up to a maximum of four credits per year.) However, the SSA has special exemptions to allow younger individuals with less than a full complement of work credits to qualify for benefits. So, even if Social Security seems like something you don't need to worry about for many years, it's important to understand that you may be covered by it right now and are therefore a beneficiary of the program.
2. Total benefits can actually exceed 100%
Another commonly overlooked component of Social Security is that it can provide income to eligible family members like your children, a current spouse, or even a former spouse, and it won't reduce your personal monthly benefit.
Spouses or ex-spouses who meet a list of eligibility requirements may be able to collect Social Security benefits based on their (ex-)spouse's earnings, so long as their own earnings aren't higher. Your children, assuming they also meet some specific qualifications, are eligible to receive Social Security benefits as well. Now here's the best part: Combined, you and your family members may be eligible to receive 150% to 180% of your full-time benefits. Clearly, there is a cap on how much the SSA will pay out, but it's certainly possible that your family can net benefits from your lifetime earnings without reducing your own monthly take-home benefit. This is a point too few Americans realize.
3. Your Social Security payment will not stop in 2033
Lastly, far too many Americans don't understand what will happen with the Social Security reserve fund when its surplus is depleted around 2033. Although the polls are a bit dated, two surveys conducted by The Washington Post, the Kaiser Family Foundation, and Harvard University in 2005 showed that a majority of the American public expects Social Security to go bankrupt.
The reality is that this couldn't be further from the truth. Are changes probably coming to Social Security over the next 20 years? That's very likely. But is insolvency a possibility? I'd respond with a confident "no."
The reasoning is that even if the Social Security Trust burns through its remaining cash as working demographics shift due to the retirement of baby boomers, there will still be revenue coming in from the remaining workers in the labor force. Based on estimates from the SSA, if full retirement benefits were cut by 25% in 2033 and paid out at 75% of original estimates, the Social Security Trust would have enough money coming in via taxation to fund benefit distributions through 2087 -- that's 54 additional years.
In other words, though the amount you may be paid when you reach retirement is still up in the air, you will receive some form of retired-worker benefit when you first become eligible to claim it.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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