In this article, learn everything about the topic and ask your questions!
Social Security allows Americans an even calmer seniority. After years of contribution, it’s almost like a reward for so much work. However, the topic still leaves many in doubt.
Today, two-thirds of Americans over the age of 65 are primarily dependent on pensions paid by the system. Of this amount, 20% Americans have Social Security as their only source of income.
But believe me, the matter is less complex than it looks. It is important to know about the benefits and harms of Social Security, especially for those who want to get loans and long-term debt. Want to know everything about the topic? Read till the end.
What is Social Security?
Social Security, founded in 1940, is the US public pension system and pays benefits to more than 64 million Americans. Currently, the American pension system ranks 17th among the 30 best pension systems in the world.
US retirement rules require contribution time and minimum age for a worker to receive benefits. In addition, Social Security pays disability benefits to workers who have an accident.
Retirement by age in the US requires age 67 for both men and women, and can be brought forward to age 62 at a discount to the benefit amount. To be eligible to retire, it is also necessary to contribute for at least 10 years, receiving an amount proportional to the time of contribution.
The current Social Security rate is 6.2% of salary for the employer and 6.2% of salary for the employee, or 12.4% in total. The maximum retirement benefit depends on the age at which the worker applies for retirement. For 2020, the maximum monthly retirement benefit is:
- US$ 3,790.00 if worker retires at age 70;
- US$ 3,011.00 if the worker retires at age 67;
- US$ 2,265.00 if the worker retires at age 62.
How does it work in practice?
Social Security makes up the majority of the income of about two-thirds of American retirees. For about 20% of people living in the US, Social Security is the only source of retirement income, and for about one-third of Americans, Social Security is more than 90% of their retirement income.
Social Security trust funds are expected to run out of cash by 2033 or 2034. However, as Social Security is financed by a payroll tax, the annual funds would still allow Social Security to pay approximately 77% of all the benefits promised at that time.
Each year, you defer your Social Security benefits past your full retirement age (up to age 70), you receive an 8% increase in benefits per year. The downside to being late is that you’re giving up on payments today to get higher payments in the future.
Deferring Social Security is beneficial for individuals who expect to live a longer-than-average life, as you now receive higher benefits for a longer period of time.
So, if you’re hoping to live to be 80 or 90, or you’re worried about even longer longevity, the best strategy is usually to defer benefits until age 70 in order to maximize your lifetime Social Security payments.
Social Security calculates your average monthly salary indexed over the 35 years you earn the most. Social Security averages add up to your highest earnings for 35 years, which means you need to work for 35 years to maximize your benefits. For example, if you only worked 30 years, then you have five years in which you have $0 assigned to your income when Social Security benefits are calculated.