Before deciding to apply for benefits, here are some important things you should know about Social Security.
10. It Provides More Than Just Retirement Benefits
When most people hear the words “Social Security,” they usually think about elderly retirees. But, Social Security is so much more than just a retirement program. It also provides life insurance and Social Security Disability Insurance (SSDI) for workers via Social Security payroll tax contributions.
Additionally, the Social Security Administration offers Supplemental Security Income, or SSI, which helps aged, blind and disabled people who have little to no income and offering benefits for spouses or other survivors of a family member who has passed away.
9. It Lifts Millions of Elderly People Out of Poverty
Did you know that if it weren’t for Social Security benefits, nearly half of all Americans aged 65 and older would be living below the poverty line? Yep, that’s true, according to official estimates from the 2019 Current Population Survey.
In fact, most elderly beneficiaries rely on Social Security as their primary source of income. For about one in four seniors, it provides at least 90 percent of their income! For about half of seniors, it provides at least 50 percent of their income.
8. It Helps Children
According to an article published by the Center on Budget and Policy Priorities, Social Security is important for children and their families. In fact, nearly 6 million children under 18 lived in families that received Social Security benefits in 2019, including about 2.8 million children who received their own benefits as dependents of disabled, retired or deceased workers.
Not only that, but figures from the U.S. Census Bureau’s Supplemental Poverty Measure (SPM) showed that Social Security lifted 1.5 million children out of poverty in 2018.
7. It’s Especially Beneficial for Women
Social Security is especially beneficial for women for several reasons. For one, women tend to earn less than men. This helps women benefit disproportionately from the program’s progressive formula for computing benefits. Women benefit so much from Social Security because they tend to take more time off for pregnancy and childcare.
They also tend to accumulate fewer savings and receive smaller pensions than men. And, here’s something else: women tend to outlive men, which helps them benefit disproportionately from the program’s inflation-protected benefits as well as its benefits for spouses and survivors.
6. It’s Particularly Important for People of Color
Social Security is an important income source for groups who face higher poverty rates during their working years and retirement years. There is a significant racial wage gap between Black and Latino workers and white workers. And, there is a significant racial retirement wealth gap as well.
In fact, the poverty rate among Black and Latino senior citizens is over 2.5 times as high as white senior citizens’ rate. Fortunately, Social Security helps reduce the economic disparities between Whites and people of color.
5. You Might Have To Pay Taxes on Your Benefits
Once you start receiving your Social Security benefits, you might have to pay taxes on them. It all depends on your total amount of income. For example, married couples with a combined income of $32,000 may be taxed up to 50% of their benefits.
Couples who are higher earners could have to pay income tax on up to 85% of their benefits! If you’re married and your total income is less than $32,000, you won’t be taxed. Single people whose income is less than $25,000 won’t be taxed either.
FUN FACT: Social Security benefits were tax-free until 1984.
4. Benefits are Adjusted Every Year for Inflation
Every year the government adjusts Social Security benefits for inflation. This is known as a Cost-of-Living Adjustment (COLA). COLA can help Social Security beneficiaries keep up with the rising costs of living.
The size of the adjustment depends largely on broad inflation levels and varies from year to year. In 2009, for example, Social Security beneficiaries received a 5.8 increase, while there was only a 0.3% increase in 2017. What’s worse is that sometimes there is no cost-of-living adjustment at all, as was the case in 2016.
3. Benefits are Modest
While Social Security benefits are indeed helpful to millions of Americans, the truth of the matter is you won’t get rich off of them. In fact, Social Security benefits are quite modest and most likely won’t cover all of your income needs during your retirement years.
“Social Security was never meant to be the sole source of income for retirees,” Casey A. Marx, founder, and president of Crown Haven Wealth Advisors in Carmel, Indiana, told U.S. News & World Report. As a result, you will need some other form(s) of income to make ends meet.
So, just how modest are these benefits? Well, in June 2020, the average Social Security retirement benefit was roughly $1,514 a month, which comes out to about $18,170 a year. And, disabled workers and aged widows received even less than that on average.
DID YOU KNOW?
U.S. Social Security benefits are modest even by international standards. The U.S. ranks just outside the bottom third of developed countries when it comes to the percentage of workers’ earnings replaced by public pension systems.
2. You Might Not Receive Your Full Benefit at 65
When most people hear the words “full retirement age,” the first number that generally pops into their heads is 65. While this is the full retirement age for some people, it’s not the case for others.
“Full Social Security benefits are not available until you reach your normal retirement age, which may be a later date,” Kurt J. Rossi, president and wealth advisor at Independent Wealth Management in Wall, New Jersey, told U.S. News & World Report.
Depending on the year you were born, your full retirement age might be higher than 65. For example, the full retirement age for people born between 1943 and 1954 is 66. And, for those born after 1960, it’s 67.
1. You Can Apply for Benefits Online
Once upon a time, the only way to apply for Social Security benefits was to head to a Social Security office and fill out an application in person. But, with the advent of technology, you can now apply right from your computer.
“You can apply for Social Security benefits online,” Neal Stern, a certified public accountant and member of the AICPA Financial Literacy Commission, told U.S. News & World Report. “To allow for processing time, it’s a good idea to start the process up to four months before you want to start collecting benefits.”
Now that you’ve learned these important facts about Social Security, take a moment to learn about some of the changes coming to Social Security in 2021.