A user's guide through the Social Security maze


Fifty-seven years after its creation, the Social Security system is a riddle to many workers, though money is taken from their paychecks to fund the government-operated program.

But the system is not as complicated as it might seem. Here's an explainer, put together with help from the Pennsylvania Institute of Certified Public Accountants:

Social Security was designed to protect workers and their dependents from loss of income because of retirement, death or disability. The system is funded by a payroll tax that has risen over the years. Today, workers and their employers each pay 7.65 percent of the worker's salary via a Social Security (FICA) tax.

But not all income is subject to the tax. For 1992, the limit is set at $55,500.

To qualify for benefits, you must earn credits, based on the income covered by the Social Security tax. The number of credits needed depends on your birthday, your age when you TC retire or become disabled, or, for survivors benefits, the age of the deceased.

The amount of income you need to accumulate Social Security credits changes each year. For 1992, you earn a credit for each $570 earned, but you can't earn more than four credits in a given year, regardless of annual income.

Most people need 40 credits (10 years of work) to qualify for monthly benefits at retirement. You can begin to get a Social Security retirement pension at age 62, but the payments will be less if you retire at that age.

To get a full retirement benefit, you must work until age 65. But, starting in the year 2000, the standard retirement age will gradually increase until it reaches 67 in 2027. If you delay retirement, your monthly benefits will increase each year you continue working, up to age 70.

The monthly benefit is based on your lifetime income, to a certain limit. The figure is calculated by getting an annual average of all the money you made over a 35-year period.

The average is then divided by 12 (for the number of months in a year). The monthly average is then put into a formula to determine your monthly benefit.

For a person making minimum wage, Social Security will replace about 57 percent of average monthly income. A person whose annual income averaged $22,000 would get Social Security payments equal to 42 percent of pre-retirement income. For a person whose income averaged $55,500, Social Security payments would replace 26 percent of that income. (Because income over $55,500 is not taxed for Social Security, no benefits are paid on amounts higher than that.)

When you die, certain members of your family can collect benefits on your Social Security record. They include a widow or widower, children and parents, as long as they were dependent on you for most of their support.

To receive a survivors benefit, surviving spouses must be 60 or older, or 50 or older if disabled. Those age limits don't apply if the surviving spouse is responsible for a child 16 or younger, or one who is permanently disabled.

An unmarried child can collect survivor benefits until age 18, or for an additional year if he or she is a full-time high school student. Children over 18 who become disabled before age 22 can receive benefits for as long as they remain disabled.

A worker can collect Social Security disability benefits after only a few months on the job. For example, a person under 24 who worked 18 of the previous 36 months would qualify.

If you work while getting Social Security benefits, your wages can reduce the amount of Social Security you get. A person under 65 can earn up to $7,440 a year without being affected, and people 65 through 69 can earn up to $10,200, but there are no income restrictions after age 70.

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad