When it comes to Social Security benefits, there are lots of misconceptions out there. For those getting ready to retire, or those currently receiving benefits, being informed about Social Security is very important to receiving the full benefits you are entitled to. In this post, we will highlight the Social Security basics you need to know in 2021. See below for our Top 12 Facts about Social Security everyone should know.
Here are 12 facts about Social Security benefits you may not know about:
When it comes to Social Security, most people are familiar with retirement benefits.
However, there is more to Social Security than retirement benefits.
The payroll taxes American workers and employers pay to finance Social Security are deposited into two separate trust funds:
They are the Federal Old-Age and Survivors Trust Fund, which pays retirement and survivors benefits, and the Federal Disability Insurance Trust Fund, which pays disability benefits.
Together, these programs are referred to as Social Security.
Additionally, the Social Security Administration also oversees another program called Supplemental Security Income (SSI).
The SSI benefits are paid to low-income households.
While SSI is administered by the SSA, it’s not a Social Security program because it is paid from general tax fund dollars rather than money from Social Security taxes.
Social Security benefits are paid for using the “payroll tax” – also known as FICA.
While it is true that Social Security beneficiaries paid into the system through payroll taxes, employees only pay half of the Social Security tax.
The Social Security tax is currently 12.4% on the first $127,200 of wage income.
However, employees only pay half of this amount. The Social Security payroll tax that comes out of your paycheck only represents a 6.2% tax rate.
The other 6.2% is paid by employers.
Social Security benefits are much more modest than many people realize.
This may come as a surprise since a lot of retirees depend on Social Security as a large part of their monthly income.
For 2021, the maximum Social Security benefit is just $3,011, per month, at full retirement age.
Those who wait to claim benefits at age 70 could receive $3,895 per month.
However, the average Social Security retirement benefit in 2021 was about $1,543 a month, or about $18,516 a year.
Also, the average disabled worker and aged widow received even lesser amounts.
If you worked all of your adult life at average earnings and retires at age 65 in 2020, Social Security benefits will replace about 40 percent of your past earnings.
This “replacement rate” will slip to about 35 percent for a medium earner retiring at 65 in the future.
This is mainly because the full retirement age, which has already risen to 66 and is gradually climbing to 67 by 2022.
For beneficiaries with lower lifetime earnings and lower rates of pension coverage, Social Security benefits are a major source of income.
Social Security accounts for at least 50 percent of income for more than half of the 65-plus population.
Additionally, for the same age group, Social Security accounts for at least 90 percent of income for about 36 percent of those recipients.
The rate is even higher for minorities – where Social Security accounts for 90% of income for 53 percent of Hispanics, 46 percent of African Americans, and 44 percent of Asian Americans for those 65 and older.
Furthermore, Social Security keeps nearly 3 in 10 older Americans from falling below the poverty line.
If you earn money from other sources in addition to collecting Social Security, you might have to pay federal taxes on your benefits.
Single filers whose combined annual income exceeds $34,000 might pay income tax on up to 85 percent of their Social Security benefits.
Additionally, couples filing jointly may pay tax on up to 85 percent if their combined income tops $44,000.
Furthermore, there are state taxes to consider, depending on where you live.
Currently, 13 states tax Social Security benefits.
They are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.
Social Security is more than just retirement benefits. In fact, one of the key programs under the Social Security Administration is Disability Benefits.
This includes workers with disabilities, their spouses, and their dependent children.
About 90 percent of workers 21-64 in employment covered by Social Security have worked and paid into the program long enough to earn disability insurance, protecting them from severe hardship if they become unable to work due to disability.
Marriage brings couples an advantage when it comes to Social Security benefits.
One spouse can take what’s called a spousal benefit, worth up to 50% of the other spouse’s benefit.
Here’s how it works:
For example, if your benefit is worth $2,000 but your spouse’s benefit is only worth $500, your spouse can switch to a spousal benefit worth $1,000.
This will bring in $500 more in income per month.
However, if the spousal benefits are claimed before the full retirement age, the spouse will get a lesser amount.
That is, if you claim your spousal benefit before your full retirement age, you won’t get the full 50%.
Additionally, if you take your own benefit early and then later switch to a spousal benefit, your spousal benefit will still be reduced.
Also, you cannot apply for a spousal benefit until your spouse has applied for his or her own benefit.
Another advantage of being a spouse when it comes to Social Security is that you can claim spousal benefits even if you never worked.
For most people, in order to receive Social Security benefits, you have to pay into the system.
However, there is an exception to that rule.
If your husband or wife is eligible for benefits, you can receive spousal benefits in retirement even if you’ve never personally worked and paid Social Security taxes.
Yes, if you are divorced, you may be eligible to collect Social Security benefits based on the earnings of your ex-spouse.
You are eligible to collect spousal benefits on a living former wife’s or husband’s earnings record as long as:
Additionally, your former spouse doesn’t have to be collecting his or her retirement benefits yet for you to claim ex-spousal benefits.
However, if this is the case, the divorce must be at least two years old.
There is no such requirement if your ex is already receiving benefits.
Also, the most you can collect in divorced-spouse benefits is 50 percent of your ex-spouse’s benefits.
If a worker who is a parent dies, retires or becomes disabled, unmarried children can receive Social Security benefits.
This applies to kids that are:
The goal is to provide the necessities of life and help make it possible for those children to complete high school.
Additionally, if you provide financial support to a parent on Social Security, you may be able to get at least one-half of their benefits should that worker die.
However, the parent on Social Security has to prove that the child was providing at least one-half of their financial support.
If you’re a widow(er) under age 60, or you’re disabled but under 50, remarriage ends any Social Security benefits you may be receiving based on the record of your deceased spouse.
However, if you remarry after age 60 (or after 50 and are disabled), you can still continue to receive benefits based on the record of your deceased spouse.
If you decide to get spousal benefits through your new spouse (at age 62 or older), then your benefits based on the record of your deceased spouse will cease.
Additionally, if your second marriage ends as a result of death, divorce, or annulment in less than 10 years, you will again be eligible to collect benefits on your first spouse’s record.
Note that Social Security benefits paid to a disabled widow(er) are unaffected by remarriage.
Yes, you can work while you collect Social Security benefits.
However, part of your benefits may be withheld if you start receiving benefits before your full retirement age and your earned wages exceed a certain limit.
If you were born between January 2, 1959, and January 1, 1960, then your full retirement age for Social Security is 66 and 10 months.
Therefore, If you work, and are full retirement age or older, you may keep all of your benefits, no matter how much you earn.
However, If you’re younger than full retirement age, there is a limit to how much you can earn and still receive full Social Security benefits.
If you’re younger than full retirement age during all of 2021, here’s what you can expect:
The Social Security Administration (SSA) will deduct $1 from your benefits for each $2 you earn above $18,960.
It is however different for those who reach full retirement age during 2021.
For these people, the SSA will deduct $1 from your benefits for each $3 you earn above $50,520 until the month you reach full retirement age.
We hope this post on Top 12 Facts about Social Security is helpful.
For help calculating how much you will get in Social Security benefits, click here: Social Security Retirement Benefits Calculator.
To change your name on your Social Security card due to Marriage or Divorce, click here: Social Security Name Change Process.
For help on how to change your address with Social Security, click here: How to Change Your Address with Social Security.
If you need help replacing a lost Social Security Card, click here: Social Security Card Replacement Help.
If you have further questions about Social Security or Disability benefits, please let us know in the comments section below.
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