Social security, as the name suggests, is a social program which aims at providing security assurance to citizens in such conditions as old age, retirement, disability, unemployment, and poverty, among others. Its most common form is social insurance wherein the benefits provided are quid pro quo for contributions made to insurance programs. This includes retirement and survivor benefits and unemployment and disability insurance.

In the United States, Social Security generally refers to Federal Old-Age/Retirement, Survivors, and Disability Insurance (together referred to as the federal OASDI or RSDI program). This program is governed by the provisions of the Social Security Act, 1935 as amended from time to time (now codified under 42 U.S.C. ch.7). The Act also includes within its purview such social welfare/insurance programs as:
 

• -Unemployment compensation
• -Aid and services to needy families
• -Maternal and Child Health Services
• -Services to the aged, blind, or disabled
• -Aid to permanently and totally disabled
• -Supplemental Security Income (SSI)
• -Health Insurance for the aged and disabled
• -Medical Assistance programs

 
The U.S. may have been late on the scene in terms of developed nations to enact social security schemes, but in terms of dollars paid towards social security, it ranks foremost (the U.S. Social Security Program being the largest governmental program around the world). Social security makes for the biggest charge on the American exchequer, the budget allocation towards social security (20.8%) outstripping even that towards defense (20.5%). Besides, among social insurance programs in the U.S., social security is the largest.

Social Security in Terms of Retirement Benefits

Introduction: An aging U.S. population has ensured that the social security concerns of the aged find prominence in the social security system. This primarily includes retirement benefits. It was in the year 1935 that the first attempt to provide retirement benefits on a national scale were made. It started as a measure to curb the prevailing poverty that was reported to be plaguing more than 50% of the senior citizen population. Today social security is said to keep around 40% of Americans aged 65 or above afloat.

How it works: Simply understood, retirement benefits are a form of social insurance wherein retirees receive benefits in reciprocation of payments made by them towards payroll taxes. The payroll tax in question, the Federal Insurance Contributions Act tax (commonly abbreviated as the FICA tax), is levied on both the employee and the employer. The FICA tax rate started out as an equal levy of 1% on both the employer and the employee; it climbed to 7.65% on both in 2003 and currently (as of 2011) stands as a 5.65% levy on the employee and a 7.65% levy on the employer. (The employer-employee tax-rate disparity was brought on at a time when the Social Security rate for workers was lowered to 4.20%).

The tax deposits so made are handed over to the Federal Old-Age and Survivors Insurance Trust Fund. Thus, retirement-benefit payments are made to current retirees out of the payroll tax levied and collected on current employees’ wages. This naturally entails that for a healthy balance to be maintained the number of those working to those retired needs to be proportionate. The current trend is that of a decline in the worker-retiree ratio and unless both the birth rates and the death rates rise, there is no changing this for some years to come and this is why this system is headed for a serious wakeup call and needs to be reformed. Many people are not kind to any thought in raising social security taxes on workers or employers as well.

Importance of planning right: Planning right assumes a newfound importance in light of this trend. It is a misconceived notion that one need not do much besides investing in social insurance. One needs to plan well and in advance for a secure and better retirement. Planning right is said to help Americans allocate a bigger percentage of their money towards retirement and not depend so much on the government to offer them critical sustenance in their latter years.

Planning right includes:

• -Understanding Social Security and deciding in a way to best serve individual needs and purposes
• -Deciding when to commence Social Security (Far too many experts warn against the dangers of starting too soon.)
• -Deciding when to use other retirement money i.e. deciding when to start with the individual employer-provided retirement money
• -Timing the use of these in such a manner as to help lower your taxes (About 3/4th of those who are in retirement and taking Social Security are said to be reeling under more taxes)
• -Using Dependant Benefits correctly
• -Saving for retirement
• -Supplementing Social Security planning with savings and personal investments
• -Understanding the related law and its application to help with better decision-making (Learning about Social Security, experts say, can help you gain more from the system)
• -Knowing about such things as – the annual cost-of-living adjustment for inflation, the fact that you can stop benefits and re-start them to your advantage, the role or impact of your spouse’s income history, and other related aspects

Social Security FAQ’s

Q. What exactly are Retirement Insurance Benefits?

A. Retirement Insurance Benefits (RIB) are a type of social security payment made in the form of social insurance and dispensed by the U.S. Social Security Administration to individuals upon retirement.

Q. What is the legal authority behind RIB? Or which legal provisions govern RIB?

A. The Social Security Act, 1935 (as amended from time to time) deals with RIB. The main provisions relating thereto are contained in Section 202 [42 U.S.C. 402]. This includes provisions relating the eligibility criteria, the start and cessation of payment of benefits, survivors’ insurance benefits, application procedures, etc.

Q. What are the eligibility criteria for entitlement to RIB?

A. The eligibility criteria for entitlement to RIB cover both age requirements and policy requirements. To be entitled to RIB benefits an individual must:

• have completed 63 years of age
• be a fully insured individual under the Social Security system
• have applied for Old-age Insurance benefits or been entitled to Disability Insurance benefits

Q. What is the meaning of being fully insured?

A. A fully insured status is a pre-requisite for entitlement to RIB benefits. Besides, it is also brought into play in case of other benefits. Being fully insured entails making imbursements into the Social Security system (done through the medium of payroll taxes as mentioned above) for a particular period during employment in an area of work covered under the Social Security system. The fully insured status is calculated in terms of QCs (Quarters of Coverage) and an individual is required to have a minimum of 6 total QCs (not essential to have above 40 QCs).

Q. How and when are the RIB payments made?

A. RIB payments are made in keeping with an individual’s birth-date and privilege to further benefits. They may be dispensed on the 3rd day of a month or on the 2nd or 3rd or 4th Wednesday of a month. (For the purpose of age calculation, the U.S. relies on the English Common Law System whereby an individual is deemed to obtain his/her age on the day before his/her birthday.)

Q. How can you apply for RIB benefits?

A. As mentioned above, RIB benefits are payable by the U.S. Social Security Administration to individuals upon retirement. But not every individual may choose to commence receiving RIB benefits immediately upon attaining the age of eligibility. Hence, individuals are required to make an application to the SSA for the same. Applications can be made online, at your local or nearest Social Security Office, with the Immediate Claims Taking Unit or by mail.

Q. How are the RIB benefits calculated?

A. RIB benefits are calculated keeping in mind such factors as the payroll taxes (FICA taxes) paid, the age of the claimant and the current income of the claimant. The biggest factor in deciding the RIB benefits amount is the Primary Insurance Amount (PIA). And while RIB benefits can be claimed any time after attaining the age of eligibility, claiming benefits before the attainment of Full Retirement Age may entail certain deductions.

Q. Is it possible to earn and still receive Social Security benefits and if so to what extent?

A. It is possible to earn and still receive Social Security benefits. The extent to which this is possible is calculated by the applicable earnings test. Since the year 2000, the enactment of the Senior Citizen’s Freedom to Work Act has done away with these tests in the case of beneficiaries who have attained the full age of retirement. (Experts generally advise against the cessation of work or limiting earnings to avoid deductions.)

Q. When is it advisable to file for benefits?

A. There are no correct answers to this question and deciding right depends more or less on individual circumstances. While the trend in the past veered towards filing for Social Security immediately upon attainment of the age of eligibility, more and more experts are now advising their clients to defer doing so until the age of full retirement or even later. An expert (Alicia Munnell in her research) suggests that one way for couples to maximize their Social Security benefits is by the wife claiming benefits at the age of 62 and the husband deferring filing claims until 70. Again, every situation is different.