The United States is a country built on freedom and opportunity. Presidents, lawmakers, policy advisors, activists and more have helped shape and mold our society. There is one President, though, whose actions are still held in high regard and continue to influence the livelihood of many Americans and that person is President Franklin D. Roosevelt.
Roosevelt felt the pains of the country at the precipice and onset of the Great Depression and promised to restore hope and livelihood to the American people, and that he did. His revolutionary New Deal legislation created many public works programs and helped get America back on its feet. While many of Roosevelt’s programs made a statement, one in particular still affects us today: The Social Security Act.
August in Washington D.C is like being trapped in a sauna: hot, sticky, and humid. In the heart of summer, on August 14, 1935, President Roosevelt, tucked away in the White House signed the Social Security Act into law.For him, this legislation was patriotic and allowed the US government to safeguard its citizens “against the hazards and vicissitudes of life.” As Roosevelt imagined it, the Social Security Act would provide support for unemployed, disabled, and older workers. Over the course of the 84 years that Social Security has been around, its function has altered to support the income of retired workers and their families.
Concerns about the longevity of Roosevelt’s system leave many young workers worried about their piece of the pie, but for now, Social Security still functions at full force. How does this system work for retirees today? Let’s find out.
How does Social Security work?
Social Security is a government system designed to supplement income for retired workers and their families. All working Americans contribute money to Social Security through the Federal Insurance Contribution Act or FICA taxes. These taxes consume 12.4% of your taxable earnings to fund Social Security benefits. You contribute this percentage of your paycheck so that you will be able to collect the benefit when you retire.Social Security benefits are paid through a monthly check to the recipient and are often taxed as income.
When can you claim benefits?
There are three points in your life when you can begin claiming your Social Security benefit, and each presents its own set of advantages and disadvantages.
The earliest you can claim your benefit is at age 62. If you claim this early, however, you will not receive 100% of the benefit as reflected by your work record. In fact, if you claim benefits before your full retirement age (for people born after 1960, that age is 67) then your overall benefit will be reduced by 30% over the course of your retirement.
You can wait until full retirement age to claim your benefit, which is what many people do because they will receive 100% of it. But the final option is to wait to claim your benefit until you are 70. By waiting, you increase your monthly check by about 25%.
Determining when to claim should be based on your health, needs, wants, and desires. Talk with your financial advisor to help you decide when is the best time to claim your benefits.
How much will your benefit be?
The amount of your Social Security benefit relies on your work record and at what age you start claiming the money. If you use Social Security funds for disability, those benefits are based on your eligible lifetime average earnings.
You can find out how much money you will be eligible for by reading the annual statement issued by the Social Security Administration. They also have an online calculator that allows you to input your information and get the number you can expect when you retire.
Remember, your Social Security benefit is only designed to cover about 40% of your expenses in retirement, meaning that you will need other sources of income to supplement your retirement lifestyle. Other savings avenues like 401(k), IRAs, stock investments, pensions, annuities, and personal savings will make up the additional 60% you will need. Keep in mind, that as the stability of Social Security decreases, you will need to rely more on other savings channels to support you in retirement.
Franklin D. Roosevelt created Social Security to aid the many Americans who could not work. His program has continued to affect retired and disabled people by providing them with financial support. While the structure of Social Security has changed, the premise has not: to help give Americans a better life.
If you’d like to discuss how Social Security benefits will fit into your retirement plan, give us a call!