Social Security is at its roots an “inter-generational transfer of wealth.” Love it or hate it, Social Security is a fact of American life that, despite many loud and disgruntled opinions towards the program, is the cheapest way to provide financial security for the large population of retirees and disabled individuals.
Below are a few points often overlooked or misunderstood when casually discussing Social Security.
1) Multi-Faceted Entity
Essentially, the program turns employee taxes into benefits for those who can no longer adequately support themselves or their family financially. The amount taxed does not go into an individual fund for the taxpayer’s own retirement, but rather, the amount funds those simultaneously pulling benefits.
2) Paying Social Security Is Mandatory; Receiving Benefits Is Voluntary
Participating in Social Security during employment years is not voluntary: FICA payroll tax has been in place since the inception of Social Security. As with any tax, falling under the blanket does not provide the taxpayer with the option to participate or be excluded. Any employer covered by Social Security is subject to the tax. Perhaps the myth of voluntary participation gained traction because in the early stages of Social Security’s implementation, not all employers were yet covered by Social Security.
3) When to Begin Pulling Social Security Benefits Is a Personal Choice
Once employees reach 62, Social Security can begin to be pulled. Full benefits come into effect at 67. As the Social Security website explains, “If you start receiving retirement benefits at 62, you will get 70 percent of the monthly benefit because you will be getting benefits for an additional 60 months.”
4) Individuals Can Work (Pay Social Security Taxes) and Receive Benefits at the Same Time
Employment does not exclude someone of full retirement age from receiving Social Security benefits. However, there are penalties involved.
5) Social Security Benefits Are Not Automatically Instilled
Applying is the responsibility of the retiree.
Typically, three months prior is the recommended timeframe for applying.
6) Social Security Is Not Synonymous With Medicare
The two government programs are often incorrectly joined or used interchangeably despite their differences. Social Security works with the Centers for Medicare and Medicaid Services to help individuals enroll in the insurance programs.
Medicare is the health insurance available to individuals 65 years or older and qualified disabled individuals. While Medicare is often lumped in with Social Security benefits, it can be applied for without submitting an application for Social Security. Furthermore, the rules and regulations of Medicare are not contingent upon those of Social Security.
While deciphering the Social Security program is not always straightforward, socialsecurity.gov has made substantial efforts to abide by The Plain Writing Act of 2010, which demands all Federal agencies to communicate in a manner that is effective, precise and clear.
This article was a collaborative effort between Joe Young and Benzinga’s personal financial writer Rebecca Sheppard.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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