How Does Social Security Work?
Social Security was actually started in 1935 by something called the Social Security Act. It was the first federal financial safety net for the elderly, which took the place of some of the support from family, states and lower level organizations.
Basically, workers pay into the system every time they get a paycheck and when they reach retirement they get to take the money back (or at least a portion of it). The Federal Insurance Contributions Act takes the money out and Social Security is going to give it back once you file and reach the required age.
Medicare is another government program that often comes alongside Social Security, though it’s not actually part of the same system. You still pay this money in through FICA however.
What is the Maximum Social Security Tax?
In 2020 the maximum amount of money that could be taxed for Social Security was actually raised. In 2019 the maximum was $132,900 but in 2020 it was raised to $137,700.
This increase actually affects a total of 11.8 million people out of the total 171 million that are currently paying into Social Security. The idea, however, is that about 7% of people are going to be paying in more money in wages over the next year, and that might not be a good surprise.
At this point, workers are paying 6.2% of earnings up to their taxable maximum. They also have to pay 1.45% into Medicare. Then, the employer matches these numbers to 15.3%. If you’re self-employed you’re responsible for the entire thing.
Can I Get Social Security Benefits?
If you worked for at least 10 years then you have the ability to collect social security. At least, you can get it if you’re over the age of 62.
If you haven’t worked at least 10 years you won’t be eligible, unless you were born before 1929.
How Much Will I Get?
There’s no way to know exactly how much you will get until you take a closer look at the payout sheet or statement that’s sent to you by the Social Security Administration. This gives you an estimate that still may not be exactly what your payment is. Other calculators and worksheets can also help you figure it out.
Keep in mind that younger people may not be able to see an accurate amount because the calculation is made based on 10 years of working and it takes your highest income 10 years, which means you could actually increase your Social Security payout by having a higher paying job in the future.
Am I Getting Credit For My Work?
You should get a summary of benefits before your birthday every year which lets you know about how you’re doing when it comes to your social security.
This statement actually gives you all of the information about your earnings history, your credits accumulated and even how much money you’re going to have when you retire.
Just make sure all of that information is correct each year and dispute it immediately if something is wrong.