Understanding SSA Benefits (Part 1)

Social Security: A Simple Concept

Social Security reaches almost every family and, at some point, touches the lives of nearly all Americans. Social Security helps older Americans, workers who become disabled, and families in which a spouse or parent dies. As of June 2018, about 175 million people worked and paid Social Security taxes, and about 62 million people received monthly Social Security benefits.

Most of the Social Security beneficiaries are retirees and their families—about 46 million people in June 2018. However, Social Security was never meant to be the only source of income for people when they retire. Social Security replaces a percentage workers' preretirement income based on their lifetime earnings. The amount of your average wages that Social Security retirement benefits replaces varies depending on your earnings and when you choose to start benefits. If you start benefits at age 67, this percentage ranges from as much as 75% for very low earners, to about 40% for medium earners, to about 27% for high earners. If you start benefits after full retirement age, these percentages would be higher. If you start benefits earlier, these percentages would be lower. Most financial advisers say you will need about 70% of preretirement income to live comfortably in retirement, including your Social Security benefits, investments, and personal savings.

The Social Security Administration (SSA) wants you to understand what Social Security can mean to you and your family's financial future. The current Social Security system works like this: When you work, you pay taxes into Social Security. SSA uses the tax money to pay benefits to

• People who have already retired
• People who are disabled
• Survivors of workers who have died
• Dependents of beneficiaries

The money you pay in taxes isn't held in a personal account for you to use when you get benefits. SSA uses your taxes to pay people who are getting benefits right now. Any unused money goes to the Social Security trust funds, not a personal account with your name on it.

Social Security is more than retirement.

Many people think of Social Security as just a retirement program. Most of the people receiving benefits are retired, but others receive benefits because they're

• Disabled
• A spouse or child of someone getting benefits
• A divorced spouse of someone getting or eligible for Social Security
• A spouse or child of a worker who died
• A divorced spouse of a worker who died
• A dependent parent of a worker who died

Depending on your circumstances, you may be eligible for Social Security at any age. In fact, Social Security pays more benefits to children than any other government program.

Your Social Security Taxes

SSA uses the Social Security taxes you and other workers pay into the system to pay Social Security benefits. You pay Social Security taxes based on your earnings, up to a certain amount. In 2019, that amount was $132,900.

Medicare Taxes

You pay Medicare taxes on all of your wages or net earnings from self-employment. These taxes are for Medicare coverage.

Additional Medicare Tax

Workers pay an additional 0.9% Medicare tax on income exceeding certain thresholds. The following chart shows the threshold amounts based on tax filing status:

Where Your Social Security Tax Dollars Go

In 2019, when you worked, 85 cents of every Social Security tax dollar you paid went to a trust fund that pays monthly benefits to current retirees and their families and to surviving spouses and children of workers who have died. The other 15 cents went to a trust fund that pays benefits to people with disabilities and their families.

From these trust funds, Social Security also pays the costs of managing the Social Security programs. The SSA is one of the most efficient agencies in the federal government, and is working to better itself every day. Of each Social Security tax dollar you pay, SSA spends less than one penny to manage the program.

The entire amount of Medicare taxes you pay goes to a trust fund that pays some of the costs of hospital and related care for all Medicare beneficiaries. The Centers for Medicare & Medicaid Services, not the Social Security Administration, manages Medicare.