Social Security For Dummies. Peterson Jonathan

But even for people who don’t rely so heavily on Social Security, it provides a solid floor of income in later life.

      Although Social Security benefits are generally modest, they help keep 15 million seniors above the poverty line, including many hardworking, middle-class Americans who otherwise would have little to fall back on.

      

Social Security isn’t intended to be your sole source of income. Instead, it gives you a foundation to build on with personal savings and other income.

      If you’re already retired (and not rich), you understand the role these payments play in your monthly budget. If you’re still in the workforce but thinking about that next phase of life, here are a few things to reflect on:

      ❯❯ Social Security is reliable. Its payments don’t rise and fall with the markets on Wall Street or depend on how your company is faring or how well you selected investments. Social Security income lasts a lifetime.

      ❯❯ Social Security is accessible. Almost all workers are covered. To put this in perspective, just half of workers are covered by an employer retirement plan, and many of these workers do not even participate.

      ❯❯ Social Security is protected against inflation, a crucial safeguard. Rising prices can slash the value of fixed income over time, driving down your standard of living in retirement.

      ❯❯ Social Security is especially important for older women. Women tend to live longer than men do, and they have less income to draw on in old age. Elderly widows are exceptionally vulnerable to poverty.

      ❯❯ Social Security gives a boost to the least affluent. That’s because the benefit is progressive. Poorer individuals get back a larger share of earnings than their higher-paid peers. Social Security benefits replace about 40 percent of the earnings of an average worker.

      THE ROOTS OF SOCIAL SECURITY

      You may think of Social Security as part of life in the United States, but it wasn’t always this way. Social Security was a foreign idea – literally. Americans by and large never expected their national government to rescue them in hard times. This was a country shaped by pioneer culture, a society that expected people to pull themselves up by their own bootstraps. Back on the farm, extended families took care of their own and struggled together. But as more Americans migrated to cities for work, traditional supports of family and close-knit communities began to unravel.

      The Great Depression of the 1930s transformed attitudes. Unemployment rocketed to 25 percent. People’s life savings vanished in a tsunami of bank failures. More than half of older Americans were poor. In desperation, people turned to Washington for help, and Washington looked overseas for ideas. President Franklin D. Roosevelt and his advisors, including Labor Secretary Frances Perkins, considered an idea known as social insurance, which had gained popularity in Europe. The idea was that governments could adapt insurance principles to protect their populations from economic risks. Unlike private insurance arrangements, which are supposed to protect individuals, social insurance programs are supposed to help all of society.

      In 1889, German Chancellor Otto von Bismarck pioneered the idea with a system of old-age insurance that required contributions from workers and employers. By the time of the Great Depression, dozens of nations had launched some sort of social insurance effort. U.S. leaders, eager to ease the economic pain engulfing the nation, took a more serious look at social insurance from Europe. Others viewed social insurance as radical and un-American.

      After a lengthy debate, Congress passed the Social Security Act, and President Roosevelt signed it into law on August 14, 1935. The law provided unemployment insurance as well as help for seniors and needy children. Title II of the act, “Federal Old-Age Benefits,” created the retirement benefits that many people now see as the essence of Social Security.

      “We can never insure 100 percent of the population against 100 percent of the hazards and vicissitudes of life,” Roosevelt said at the bill signing, “but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.”

Benefits for children

      Social Security pays more benefits to children than any other government program. More than 4 million children qualify for their own benefits, as dependents of workers who have retired, died, or become disabled. About 6 million children live in households where someone gets Social Security.

      The program’s definition of eligible children may include stepchildren and, in some cases, grandchildren and step-grandchildren. Typically, children who qualify may be covered until age 18 – or 19, if they haven’t yet graduated from high school and aren’t married.

Benefits for survivors

      The death of a family breadwinner hits everyone under the same roof. That’s why Social Security provides benefits for dependent survivors. Not to overwhelm you with statistics, but this is a significant program with more than 6 million beneficiaries, including children, widows, and widowers. These dependents qualify for benefits if the deceased worker or retiree met certain basic requirements of Social Security. In Chapter 2, I cover the rules, including technicalities that affect widows and widowers.

Benefits for the disabled and their dependents

      Almost 11 million Americans get Social Security’s disability benefits, a protection that extends to almost 2 million dependent family members. Social Security’s disability program is complicated, and it can be difficult to meet the standards required for benefits. I devote Chapter 11 to examining the program, as well as Supplemental Security Income (SSI) benefits for beneficiaries with the least income.

      Many applicants for Social Security disability benefits are turned down, but these decisions may be reversed in the appeals process. In Chapter 8, I go over your options if Social Security makes a decision you disagree with.

      You may not like to think about the risks you take walking out the door, but they may be higher than you realize. Almost four in ten men entering the labor force will become disabled or die before reaching retirement age; the same fate awaits more than three out of ten women.

Table 1-1 provides probabilities of death or disability for young workers (people born in 1996, in this example).

TABLE 1-1 Probabilities of Death or Disability

      Source: Social Security Administration

      Appraising the Value of Social Security

      The amount you get in Social Security retirement benefits is based on your earnings history and when you start to collect, factors I examine closely in Chapters 2 and 3. The average retirement benefit is currently about $16,200 per year, and the maximum benefit is more than $32,000 if you claim benefits at full retirement age. You can increase your benefits by taking them after your full retirement age, up to 70, and you reduce them by taking them earlier (typically, as early as 62).

      The survivor’s benefit of Social Security is really a life-insurance policy that has been valued at $476,000 for a 30-year-old worker who’s married with two children and has a median salary. The long-term disability protections are valued at $329,000 in coverage for that same family.

      Social Security combines other distinctive features that you usually don’t find all in one place. These traits are worth keeping in mind when you’re trying to get a handle on what the program is worth to you:

      ❯❯ Benefits are earned. After you meet the requirements for eligibility – generally ten years of earnings for retirement, but less than that for certain protections such as disability – you’ve established your right to a guaranteed benefit, which