Social Security is exactly what the title states. Almost everyone is eligible to get retirement benefits when they turn 62. This is mostly due to participation in the program being mandatory. 96% of all workers are covered by Social Security and even people who haven’t worked may be covered under their spouse’s or ex spouse’s earning record.
Workers contribute to Social Security through their payroll taxes or self-employment taxes (FICA or SECA) as mandated by the Federal Insurance Contributions Act. These taxes are assessed on all wages up to a maximum, which in 2014, was $117,000 of wages. This payroll tax for OASDI (Old Age Survivors and Disability Income) is 6.2% paid by the employee and 6.2% paid by the employer (12.4% total). If the worker is self employed, they pay the 12.4% tax on their own.
To qualify, a person needs to have worked in a Social Security-covered job for at least 10 years. To break it down further, a person needs 40 credits. A credit is earned when a minimum dollar amount is earned in a year. The minimum dollar amount in 2014 is $1200. Currently the Up to 4 credits may be earned each year (By earning $4800 you would receive 4 credits for that year). While earning more than the minimum doesn’t increase your max credits, it does raise your benefits.
Learn more about Social Security at our upcoming free seminars:
Brandon M. Smith, LPL Investment Advisor
Lifetime Planning, Inc.
Securities offered through LPL Financial, member FINRA/SIPC