History of Social Security

Public images of our society generally render invisible many millions of economically hard-pressed older Americans. The older person with little income and assets is left out of the standard media pictures of two-car, two-kid suburbanites and of wealthy retired couples in gated luxury communities. Modern Western capitalism produces expendable workers. And the most vulnerable, such as people older than 65, are the most easily expended.

In what is commonly thought to be the most advanced of modern societies, the United States, there is a shockingly large economic gap between most working people and the wealthy few. The richest 1% of U.S. households control almost 40% of the nation’s financial wealth, with the richest 10% controlling over 70% of that wealth. On the other end, the lower 80%—that is, the vast majority of us—control less than 9% of the nation’s financial wealth, with the bottom 40% having less than 1%.

During periods of extreme economic retrenching, the number of people cast off by the economy spills over the normal barriers of invisibility. And with so many people during these crises sharing their complaints about economic injustice, it is sometimes difficult to keep them all under control. One such period of extreme economic dislocation was the Depression of the 1930s. Many millions of people were displaced—not only from job, home, and family, but from any hope for a place in the economy.

The Beginning of Social Security

Faced with this crisis and with the possibility of massive social upheaval, Franklin Roosevelt and Congress decided to act. Roosevelt pushed through a number of programs of national financial assistance—one of which was a system of retirement benefits called Social Security, enacted into law in 1935.

When benefits began, Social Security retirement cushioned slightly the crushing effects of the Depression. But retirement benefits were set at levels that were never enough to guarantee a standard of living above the poverty line. In 1939, Social Security benefits were extended to a retired worker’s spouse and minor children; in 1956, to severely disabled workers. These extensions helped cover more people in need, but neither new program deviated from the basic premise of Social Security: Provide just enough to keep starvation from the door, but not enough to guarantee a decent standard of living.

Benefits Now Provide Diminished Security

The economic position of many older Americans is increasingly precarious. People are living longer, their private pensions are disappearing, and their Social Security benefits—despite yearly cost-of-living increases—are not keeping up with their true living expenses.

The Social Security system is facing pressure to lower benefits even more. Due to longer life-spans, an overall population increase, and the bubble of Baby Boomers beginning to reach retirement age, there is a steady increase in the number of people collecting Social Security benefits. If the system continues as-is, the total benefits that retirees, dependents, and survivors collect will eventually surpass the amount of taxes paid into the system by younger workers. If the system is not altered, at some point—although experts disagree widely about exactly when—the system will no longer be able to pay the full benefits currently promised.

"Saving" Social Security

Clearly, the system requires some adjustment. But most discussion of this subject in Washington in recent years has been about "saving" Social Security, giving the false impression that the system is about to collapse. And the plan that recent administrations have put forth for this "salvation" is the diversion of a portion of Social Security contributions into the stock market (through a device the political spin-masters have comfortingly termed "personal accounts"). Instead of solidifying the system, however, this would only serve to weaken it, pushing people into highly risky investments that could ultimately leave many retirees with nothing. This plan would only guarantee one thing: that hundreds of billions of retirement dollars are pumped into Wall Street and corporate coffers.

Instead, simple adjustments to the system—none raising the basic Social Security tax rate—could address its financial problems without introducing investment risk or siphoning off funds to Wall Street.

Remove cap on earnings subject to Social Security (FICA) tax. At present, the Social Security system does not tax earned income over about $100,000 per year (the amount goes up slightly each year). This makes it a regressive tax (a tax that takes a larger percentage of the income of low-income people than of high-income people). For example, someone earning $30,000 per year pays about 6.2% of their income in FICA tax while someone earning $200,000 pays only 2.9% of their total income. The Congressional Research Service has found that removing this cap on taxed income, by itself, would keep the Social Security retirement system solvent for the next 75 years. So far, however, national politicians and their wealthy supporters have resisted this change.

Set-off against early benefits for non-earned income. Under current rules, people may claim Social Security retirement or dependents benefits as early as age 62 and survivors benefits as early as age 60. During any year before full retirement age, if someone collects any of these Social Security benefits but continues working, the benefits are reduced by income the beneficiary earns over a certain amount. The rule does not apply, however, to someone who has income from sources other than current work—such as investments, real estate, trusts, and so on. This rule penalizes those who must continue to work in order to survive, at the same time permitting others to collect their full benefit amount despite any amount—no matter how enormous—of non-earned income. If the same rule were applied to non-earned income, the system could save significantly without taking anything away from those who most need benefits.

Delay full retirement age. The original standard age for full Social Security retirement benefits was 65. That age has been raised for people born in 1938 or later, saving a great deal of money for Social Security. The age at which most people stop working continues to rise, so there is no reason why the full retirement age for collecting Social Security benefits should not also rise again to parallel this changing reality.

Slight reduction in benefits for high-income recipients. This limit on benefits could happen in one of two ways. There could be a yearly reduction in retirement benefits to people who continue to have a high income from work or investments. Or, there could be progressive price-indexing, by which initial retirement benefit levels are slightly reduced for upper-income claimants.

Any one of the adjustments discussed above would make a significant contribution to the long-term stability of Social Security. Several of them together could put the system on sound financial footing for many decades to come.

What You Can Do

In response to this deteriorating situation, anyone facing retirement should take two important steps.

First, understand the rules regarding Social Security benefits. (These are described in Chapters 1 through 5.) That will enable you to plan wisely for your retirement years, including answering the basic questions of when to claim your benefits and how much you can work after claiming them.

And second, become aware and active concerning proposed moves by Congress regarding the Social Security and Medicare programs. Local senior centers and national seniors organizations such as the Alliance for Retired Americans in Washington, DC (202-974-8222, www. retiredamericans.org) are good sources of current information.

If you are even beginning to think about your retirement, it is not too early to begin trying to safeguard it.

Social Security Defined

Social Security is a series of connected programs, each with its own set of rules and payment schedules. All of the programs have one thing in common: Benefits are paid—to a retired or disabled worker, or to the worker’s dependent or surviving family—based on the worker’s average wages, salary, or self-employment income from work covered by Social Security.

The amount of benefits to which you are entitled under any Social Security program is not related to your need. Instead, it is based on the income you have earned through years of working. In most jobs, both you and your employer will have paid Social Security taxes on the amounts you earned. Since 1951, Social Security taxes have also been paid on reported self-employment income.

Social Security keeps a record of your earnings over your working lifetime and pays benefits based upon the average amount you earned. However, the only income considered is that on which Social Security tax was paid. Income such as interest, dividends, sale of a business or investments, and unreported income is not counted in calculating Social Security benefits.

Four basic categories of Social Security benefits are paid based upon this record of your earnings: retirement, disability, dependents, and survivors benefits.

Retirement Benefits

You may choose to begin receiving Social Security retirement benefits as early as age 62. But the amount of your benefits permanently increases for each year you wait, until age 70. The amount of your retirement benefits will be between 20% of your average income (if your income is high) and 50% (if your income is low). For a 66-year-old single person first claiming retirement benefits in 2008, the average monthly benefit is about $1,100; $1,800 for a couple. The highest earners first claiming their benefits in 2008 would receive about $2,200 per month; $2,800 for a couple. These benefits increase yearly with the cost of living. (See Chapter 2 for a full description of retirement benefits.)

Disability Benefits

If you are younger than 65 but have met the work requirements and are considered disabled under the Social Security program’s medical guidelines, you can receive disability benefits. The amount of these benefits will be roughly equal to what your retirement benefits would be. (See Chapter 3 for a full discussion of disability benefits.)

Dependents Benefits

If you are married to a retired or disabled worker who qualifies for Social Security retirement or disability benefits, you and your minor or disabled children may be entitled to benefits based on your spouse’s earning record. This is true whether or not you actually depend on your spouse for your support.

Married recipients should determine whether they will receive a greater sum from the combination of one Social Security benefit and one dependent benefit or from two Social Security retirement benefits (assuming both partners are entitled to one). They may be awarded retirement or dependent benefits, but not both. (See Chapter 4 for a full discussion of dependents benefits.)

Survivors Benefits

If you are the surviving spouse of a worker who qualified for Social Security retirement or disability benefits, you and your minor or disabled children may be entitled to benefits based on your deceased spouse’s earnings record. (See Chapter 5 for a full discussion of survivors benefits.)

TIP: You can choose the program from which to claim benefits. You may meet the eligibility rules for more than one type of Social Security benefit. For example, you might be technically eligible for both retirement and disability, or you might be entitled to benefits based on your own retirement as well as on that of your retired spouse. You can collect whichever one of these benefits is higher, but not both.

Eligibility for Benefits

The specific requirements vary for qualifying to receive retirement, disability, dependents, and survivors benefits. The requirements also vary depending on the age of the person filing the claim and, if you are claiming as a dependent or survivor, on the age of the worker.

However, there is a general requirement that everyone must meet to receive one of these Social Security benefits. The worker on whose earnings record the benefit is to be paid must have worked in "covered employment" for a sufficient number of years by the time he or she claims retirement benefits, becomes disabled, or dies.

Earning Work Credits

All work on which Social Security taxes are reported is considered covered employment. About 95% of all American workers—about 160 million people—work in covered employment. For each year you work in covered employment, you receive up to four Social Security work credits, depending on the amount of money you have earned. Once you have accumulated enough work credits over your lifetime, you, your spouse, and your minor or disabled children can qualify for Social Security benefits.

The amount of work credits you need in order to qualify for specific programs is discussed in Chapter 2 (retirement benefits), Chapter 3 (disability benefits), Chapter 4 (dependents benefits), and Chapter 5 (survivors benefits).

The Social Security Administration keeps track of your work record through the Social Security taxes paid by your employer and by you through FICA taxes.

The self-employed—that is, people who take a draw from a self-owned or partnership business, or who receive pay from others without taxes being withheld—earn Social Security credits by reporting income and paying tax for the net profit from that income on IRS Schedule SE. Income that is not reported will not be recorded on your earnings record. Although many people fail to report income to avoid paying taxes, a long-term consequence is that the unreported income will not count toward qualifying for Social Security retirement or other benefits, and will reduce the amount of benefits for those who do qualify.

Coverage for Specific Workers

There are special Social Security rules for coverage of some workers in certain sorts of employment.

Self-Employed Before 1951

Self-employment earnings have been covered by Social Security only since 1951. Self-employment earnings before then had no Social Security tax obligations and were therefore not applied to a worker’s earnings record.

Self-employment earnings before 1951 will not help you qualify for any type of Social Security benefits. And if you do qualify for benefits, the amounts you earned in self-employment before 1951 will not be counted in determining how much your benefits will be.

Federal Government Workers

If you were hired as an employee of the federal government on or after January 1, 1984, all your work for the government since then has been covered by Social Security.

If you worked for the federal government before 1984, your work both before and after January 1, 1984 has been covered by the separate federal Civil Service Retirement System. (See Chapter 9 for a full description of civil service retirement benefits.)

State and Local Government Workers

Many state and local government workers are not covered by Social Security. State government employees are usually covered by their own pension or retirement systems, and local government employees have their own public agency retirement system, or PARS.

However, some state and local government employees are covered by Social Security instead of—or in addition to—a state or PARS pension system. If so, these governments and their workers pay at least some Social Security taxes. And workers under these plans are entitled to Social Security benefits if they meet the other regular requirements.

If you are a government employee and aren’t sure whether you are covered by Social Security, check with the personnel office at your workplace. And remember, even if your employment at a state or local agency does not entitle you to Social Security benefits, any other work you have done during your lifetime may qualify you, if you paid Social Security taxes.

Workers for Nonprofit Organizations

Since 1984, all employment for charitable, educational, or other nonprofit organizations is covered by Social Security. (Some churches and religious organizations, however, are exempt from this rule.) Before that time, however, nonprofit organizations were permitted to remain outside the Social Security system, and many chose to do so. Because people who worked for such organizations were left out of any retirement plan, the Social Security system now permits some of them to qualify for benefits with about half of the normal number of years of work credit. If you reached age 55 before January 1, 1984, and you worked for such a nonprofit organization, you and your family can qualify for Social Security benefits with a reduced number of work credits.

Members of the Military

Whether your military service was considered by Social Security to be "covered employment" depends on when you served and whether you were on active or inactive duty. From 1957 on, all service personnel on active duty have paid Social Security taxes, and so all active service from that date is covered employment. Since 1988, periods of active service, such as reserve training, while on inactive duty have also been covered.

If you served in the armed forces between 1940 and 1956, you may also have accumulated some Social Security work credits if you met certain additional conditions. (See "Special Rule for Military Service 1940 to 1956," below.)

Household Workers

Household work—cleaning, cooking, gardening, child care, minor home repair work—has been covered by Social Security since 1951; work before that date is not credited on a worker’s earnings record.

A major problem for household workers is that most employers do not report their employees’ earnings to the Internal Revenue Service (IRS) and do not pay Social Security taxes on those earnings. Of course, a lot of domestic workers do not want their earnings reported. They are paid so little that they prefer to receive the full amount, often in cash, without any taxes withheld.

One result of this nonreporting, however, is that the earnings do not get credited to the worker’s Social Security record. So when the worker or worker’s family later seeks Social Security benefits, they may have trouble qualifying and, if qualified, may have lower benefit amounts.

If you want your earnings from household work reported to Social Security, you have several options. If you work for different employers and make less than $1,000 per year from any one of them, you can report that income yourself as self-employment income and pay 15.3% self-employment tax on it in addition to income tax. Paying self-employment tax, on federal income tax Form 1040, Schedule SE, credits the earnings to your Social Security earnings record.

Since 1993, if you work for any one employer who pays you a total of $1,000 or more over the course of a year, you can ask that employer to withhold Social Security taxes from your pay, report your income to Social Security, and pay the employer’s share of the Social Security tax on that income, as the law requires. (See "Employer’s Duty to Report Earnings of Household Workers," below.)

Farmworkers

Since 1954, farm and ranch work has been included in the Social Security system. If you do crop or animal farmwork, your employer must report your earnings, and pay Social Security taxes on them. The employer must also withhold your share of Social Security taxes from your paycheck if you earn $150 or more from that employer in one year, or if the employer pays $2,500 or more to all farm laborers, regardless of how much you earn individually. Any amounts you are paid in housing or food do not have to be reported by the employer.

Farmworkers have long faced problems with employers who do not pay their share of the Social Security tax. To make sure your farmwork is counted toward your Social Security record, check your pay stub to see if Social Security taxes—labeled FICA—are being withheld. Also ask the person who handles payroll to give you paperwork indicating that Social Security taxes are being paid on your earnings. If your employer is not paying Social Security taxes on your earnings, or you get the runaround and you are unsure what the employer is doing, ask your local Social Security office to find out for you.

If you are worried about your employer finding out that you are checking on this, ask the Social Security worker to make a confidential inquiry. Social Security can request all the employer’s wage records without letting the employer know which employee in particular has brought the matter to its attention.

Earning Work Credits

To receive any kind of Social Security benefit—retirement, disability, dependents, or survivors—the person on whose work record the benefit is to be calculated must have accumulated enough work credits. The number of work credits you need to reach the qualifying mark—what Social Security calls insured status—varies depending on the particular benefit you are claiming and the age at which you claim it.

You can earn up to four work credits each year, but no more than four, regardless of how much you earn. Before 1978, work credits were measured in quarter-year periods: January through March, April through June, July through September, and October through December. You had to earn a specific minimum amount of income to gain a work credit for that quarter.

• Between 1936 and 1978, you received one credit for each quarter in which you were paid $50 or more in wages in covered employment.
• Between 1951 and 1978, you received one credit for each quarter in which you earned and reported $100 or more from self-employment.
• Beginning in 1978, the rules were changed to make it easier to earn credits. From 1978 on, you receive one credit, up to four credits per year, if you earn at least a certain amount in covered employment, regardless of the quarter in which you earn it. That means that if you earn all your money during one part of the year and nothing during other parts of the year, you can still accumulate the full four credits. The amount needed to earn one credit increases yearly. In 1978, when the new system was started, it was $250; in 2008, it increased to $1,050.

Example: In 1950, Ulis was paid $580 between January and March, nothing between April and July when he could not work because of a back injury, $340 in August, and $600 in cash from self-employment in October and November. For the year 1950, Ulis earned two credits: one credit for the first quarter, in which he was paid more than the $50 minimum; nothing in the second quarter, so he got no credit; one credit in the third quarter, because he earned well over the $50 minimum even though he worked only one month; and nothing for the last quarter, because in 1950 self-employment income was not covered by Social Security.

Example: Eve was paid $800 in January 1978, but did not earn anything the rest of the year. Based on the earnings test in effect in 1978, she got three credits for the year—one for each $250 in earnings—based on her earnings for January alone.

Example: Rebecca was paid $500 a month in 2008 at her part-time job, for total earnings for the year of $6,000. Because her earnings of $6,000 divided by $1,050 (the amount needed to earn one credit in 2008) is more than 4, she received the maximum four credits for 2008.

Determining Your Benefit Amount

If you are eligible for a Social Security benefit, the amount of that benefit is determined by a formula based on the average of your yearly reported earnings in covered employment since you began working. Wages before 1937 are not counted, however. And self-employment income before 1951 is not counted, either.

How Your Earnings Average Is Computed

Social Security computes the average of earnings differently depending on your age. If you reached age 62 or became disabled on or before December 31, 1978, the computation is simple: Social Security averages the actual dollar value of your total past earnings.

If you turned 62 or became disabled on or after January 1, 1979, Social Security divides your earnings into two categories: Earnings from before 1951 are credited with their actual dollar amount, up to a maximum of $3,000 per year. From 1951 on, yearly limits are placed on earnings credits as shown in the chart below, no matter how much you actually earned in those years.

Caution: Only employment-related income counts, and you must have paid Social Security taxes on that income. Other income that you may have earned, such as interest, dividends, capital gains, rents, and royalties, will not be considered in calculating your Social Security benefits.

["Yearly Dollar Limit on Earnings Credits" Chart] omitted for online sample chapter.

Benefit Formula

Based on a worker’s earnings record, the Social Security Administration computes what is called the worker’s Primary Insurance Amount, or PIA . This is the amount a worker will receive if he or she claims retirement benefits at full retirement age, which is 65 for everyone born in 1937 or earlier. The full retirement age is 67 for those born in 1960 or later. (If you were born between 1938 and 1960, see "Retirement Age for Those Born After 1937" in Chapter 2.) The exact formula applied to each worker’s earnings record depends on the year the worker was born.

Caution: There is no "minimum" Social Security benefit amount. If your average earnings were quite low, your check will also be low.

Social Security benefits for a disabled worker (as described in Chapter 3), or for a worker’s dependents (as described in Chapter 4), or survivors (as described in Chapter 5), are based on a percentage of the worker’s PIA . You can get an estimate of your future retirement or disability benefits, or those of a worker on whose earnings record you will receive dependents or survivors benefits.

Taxes on Your Benefits

A certain amount of Social Security benefits may be taxable, depending on your total income. In determining whether you owe any income tax on your benefits, the Internal Revenue Service looks at what it calls your combined income. This consists of your adjusted gross income, as reported in your tax return, plus any nontaxable interest income, plus one-half of your Social Security benefits. If your combined income as an individual is between $25,000 and $34,000 (or, for a couple filing jointly, between $32,000 and $44,000), you may have to pay income taxes on 50% of your Social Security benefits. If your combined income is more than $34,000 ($44,000 for a couple filing jointly), you may owe income taxes on up to 85% of your benefits.

The way to calculate any income taxes you may owe on your Social Security benefits is explained in the instruction booklet that accompanies the Form 1040 federal tax return. The IRS also publishes a free information booklet explaining numerous tax rules pertaining to older people. It is called the Older Americans’ Tax Guide, Publication 554. To get the booklet, call the IRS at 800-829-3676 or download it from their website at www.irs.gov.

Your Social Security Earnings Record

The Social Security Administration keeps a running computer account of your earnings record and the work credits it reflects. (It tracks these by use of your Social Security number.) Based on those figures, Social Security can give you an estimate of what your retirement benefits would be if you took them at age 62, 65, or 70. It can also estimate benefits for your dependents or survivors, or your disability benefits, should you need them.

It makes good sense to find out what your Social Security retirement benefits will be several years before you actually consider claiming them. You’re probably curious, and finding out can help you plan for the future. And since so much is riding on your official earnings record, it is important to check the accuracy of that record every few years. You want to make sure that all your covered earnings are credited to you.

Checking Earnings Record and Estimated Benefits

To help you keep track of your earnings record and estimate of benefits, the Social Security Administration mails out copies of individual Social Security records on what is called a Social Security Statement.

A Social Security Statement is supposed to be mailed to everyone age 40 and older who is not currently receiving Social Security benefits.

If you have not received a Social Security Statement—or you received one more than a year ago and want a more recent estimate—you may request one by filling out a simple form, SSA-7004, called a Request for Social Security Statement. This form is available in English and Spanish. A copy of this form is included at the end of this chapter.

There are several ways to get the request form. It is available at the end of this chapter and at your local Social Security office, often in the front lobby, without waiting in line. It is available online, as described below. Or call Social Security at 800-772-1213 to request one by mail.

You may be sent an older version of this form, entitled Request for Earnings and Benefit Estimate Statement—that’s okay: Social Security still accepts the older version.

Computer: You can request a statement online. The Internet gives you two options for figuring out your earnings record via the Social Security Administration’s Web page at www.ssa.gov/mystatement. The low-tech option is to download the Request for Social Security Statement form, fill it out by hand, and mail it in. To do this, click on "Need to Request a Statement?", then scroll down until you see the link for "Social Security Statement Request Form (SSA-7004)."

The higher-tech option is to fill out the request form online. After clicking "Need to Request a Statement?", scroll down to the gray bar saying "Request a Social Security Statement." You’ll be led to an interactive form which asks for the same information as the printed form. After submitting your request (whether by mail or online), expect the Social Security Statement to come to you by mail.

If you don’t use the interactive Internet form, mail your completed request form to:

Social Security Administration
Wilkes Barre Data Operations Center
P.O. Box 7004
Wilkes Barre, PA 18767-7004

Completing the Request Form

There are only a few questions you need to consider carefully when filling out the request form. Make sure you fill in your name exactly as it is on your Social Security card. That will help Social Security to track down any missing or misplaced records in case your earnings were ever mistakenly reported.

As to Part 6, which requests your earnings, do not worry about providing exact income figures. They are used only to provide you with an estimate of your benefits; your benefits will be based on your actual earnings as reported on your tax returns, not on the estimate you provide on this form. Even if you are off by a couple of thousand dollars on the income estimate you give here, it will have only a slight effect on your benefit estimate.

Part 7 asks you to indicate the age at which you plan to stop working. Again, this is just so that Social Security can estimate the number of years of earnings you still have before you can claim your retirement benefits. In no way does it commit you to anything. If you are not certain when you will stop working, put down age 65, which is currently considered full retirement age. If at any time you consider stopping work earlier or later than age 65, you can request another statement estimating your benefits.

Part 8 asks you to estimate your average yearly earnings between now and the time you think you will retire. Remember that this estimate only includes income from wages, salary, or self-employment, and does not include investment income, capital gains, gifts, or inheritance. If you are more than a few years away from claiming retirement benefits, this is a very difficult question to answer accurately. Unless you know that you are in line for a significant jump or decrease in earned income in the next few years, it is best to fill in your current income here.

Social Security will adjust the figure for inflation and will give you your benefit estimate in current dollars. If you are still a long way away from claiming retirement, the current income estimate and retirement figure Social Security provides will give you a more accurate picture of your benefits than if you try to speculate about what your salary might be years from now. You can judge what it would be like to live at today’s cost of living on the amount Social Security estimates in today’s dollars.

Once you have sent in your completed request form, it takes several weeks for the Social Security Administration to process it and mail you a copy of your earnings record.

Reading Your Social Security Statement

Your Social Security Statement consists of six pages (four if you are younger than age 55).

Computer: A sample Social Security Statement is available in other languages. Though you can obtain your personal statement only in English, comparing this to a sample in a language with which you’re more comfortable may clarify the information. Sample statements are currently available in Chinese, Italian, Korean, Polish, Tagalog, and Vietnamese. These can be obtained online at www.ssa.gov/mystatement, or by calling 800-772-1213.

Only pages two and three contain information that is personal to you. The other pages merely give a boilerplate overview of Social Security programs. See the sample pages two and three below, from the official sample provided by the SSA.

Note that the sample represents a person who is about 40 years old. If you are closer to retirement, the figures on your statement should look much different.

TIP: You may notice mistakes on your statement. The procedure for setting the record straight is discussed in "Correcting Your Record," below. Failure to correct mistakes could result in a regular bite out of your monthly check.

Page two. The second page of your statement shows dollar estimates of the benefits to which you’d be entitled under the various Social Security programs. As cautioned in the introductory paragraphs, these are only estimates. The precise figures will not become available until you actually claim your benefits. To arrive at these estimates, they’ve guessed at how much you’ll earn per year until you reach retirement age—you can see their guess on the second-to-last line of this page. However, your earnings could rise or fall dramatically in the years ahead. Because of this uncertainty about the future, the less time that elapses between when you receive the estimates and when you actually claim your benefits, the more accurate the estimates are likely to be.

If you look at the sample, the first sentence next to "Retirement" reads "You have earned enough credits to qualify for benefits." This isn’t mere boilerplate—this statement would also tell you if you had not earned enough credits. If you hadn’t, the statement would also tell you how many more credits you needed to qualify.

The remainder of this statement is largely self-explanatory, or will be after you’ve read other portions of this book. To figure out your "full retirement age," see "Timing Your Retirement" in Chapter 2. For how your continuing to work after reaching full retirement age will increase your benefits, see "Working After Claiming Early Retirement Benefits" in Chapter 2. The Social Security Disability program is explained in Chapter 3, family benefits in Chapter 4, survivors benefits in Chapter 5, and finally Medicare benefits in Chapters 11 through 14.

["Your Estimated Benefits" Graphic] omitted for online sample chapter.

You’ll note that no estimate is given for the family benefits that you’ll receive—that’s because these vary not only with the amount of your retirement benefits but also with the number of your minor children. Also, no figure is given for Medicare benefits—that’s because the key issue is simply whether or not you’ve earned enough credits to qualify for coverage, which the statement does tell you.

At the bottom of page two, make sure that your name appears exactly as it does on your Social Security card and that your birthdate and Social Security number are listed correctly.

Page three. The third page of your statement actually breaks down your earnings history year by year, for your entire working life back to 1950. Any earnings before 1950 will be summarized on a single line. This history may not reflect every dollar you’ve earned—it includes only income on which you’ve paid Social Security taxes. Also, if you earned more than the maximum taxable earnings during a particular year, your earnings record will show only that maximum amount. (This is basically fair, since you wouldn’t have paid any taxes into the system for amounts over these limits.)

You’ll notice that the earnings record is broken into two columns, one titled "Your Taxed Social Security Earnings" and the other "Your Taxed Medicare Earnings." For most people, these two columns will contain the exact same numbers. However, some people will see higher numbers in the Medicare column. That’s because since 1994 all earned income, even over and above the Social Security maximum, has been taxed for Medicare purposes. People who earned more than the maximum taxable income since 1994 will have paid more into the Medicare system than into the regular Social Security system.

["Your Earnings Record" Graphic] omitted for online sample chapter.

TIP: Regularly review your records. Your benefits estimate is based on the average of your earnings over your entire lifetime. Your earnings in the last few years before you claim retirement may be higher than most of your earlier working years, and if so will increase your average, and your benefits, significantly. For that reason, it is important to request an official statement every few years to keep track of your changing benefits estimate.

Correcting Your Record

Mistakes do occur in official earnings records. Social Security estimates that employers make mistakes in wage reports about 4% of the time. Social Security easily clears up most of these errors: misspelled names, transposed numbers. But one dollar of every $100 reported to Social Security fails to be credited to the correct worker’s record.

If you believe a mistake has been made on your record, you can do something about it even if it concerns wages from many years past.

Common Sources of Errors

The problem of unreported earnings occurs more frequently with people who have used more than one name—usually women who have changed their names when they married, or married and divorced, and who may have had their earnings reported under both unmarried and married names.

The problem also appears to be more common for people whose family names the Social Security computer may have trouble identifying properly. Examples include:

• hyphenated names, such as Watson-Jones
• names with spaces between one part and another, such as de la France, and
• names in which the identifying family portion does not come at the end as in Anglo constructions, such as Park Chee Ho or Martina Rosales Rincon.

How to Spot Errors

To locate possible errors, start by checking the Social Security number on the earnings statement to make sure it is your earnings that are being calculated.

Next, check the amounts listed in columns two and three of page three with your own records of earnings. You may have records of your earnings in your income tax forms or pay stubs. Your place of work may also have pay records for a number of years. (See "Locating Your Earnings Records," above.) Note that the amounts of your reported income listed in this column include only earned income from covered employment and do not include any income that is not wages, salary, or self-employment. This listed amount also does not include any self-employment income before 1951. Nor does it include any income over the amount listed for any one year in Yearly Dollar Limit on Earnings Credits, above. Even if you made more than that figure during the year, you got credit only for the maximum earnings amount listed.

How to Request a Correction

When you have evidence of your covered earnings in the year or years for which you think Social Security has made an error, call Social Security’s helpline at 800-772-1213, Monday through Friday from 7 a.m. to 12 p.m. Eastern time. (This is the line that takes all kinds of Social Security questions, and it is often swamped, so be patient. It is best to call early in the morning or late in the afternoon, late in the week, and late in the month.) Have all your documents handy when you speak with a representative.

If you would rather speak with someone in person, call your local Social Security office and make an appointment to see someone there, or drop in to the office during regular business hours. If you drop in, be prepared to wait, perhaps as long as an hour or two, before you get to see a representative. Bring with you two copies of your benefits statement and whatever evidence supports your claim of higher income. That way, you can leave one copy with the Social Security worker. Write down the name of the person with whom you speak so that you can reach the same person when you follow up.

The process to correct errors is slow. It may take several months to have the changes made in your record. Even after Social Security says that it has corrected your record, be sure to request another benefits statement, just to double check.

U.S. Citizens' Rights to Receive Benefits While Living Abroad

If you are a U.S. citizen living in another country, you are theoretically entitled to the same Social Security benefits as if you lived in the United States. However, there are a few countries to which the Social Security Administration simply cannot send payments, regardless of any particular individual’s right to benefits. These countries include Cuba, North Korea, Cambodia, Vietnam, or any country formerly part of the Soviet Union (except Russia, Armenia, Estonia, Latvia, and Lithuania, to which payment may be sent). Your money won’t just disappear into a black hole, however. If you go to another country where Social Security can send payments, you can ask them to send you a check for all the benefits you’re owed there.

Introduction

Social Security is the general term that describes a number of related programs—retirement, disability, dependents, and survivors benefits. These programs operate together to provide workers and their families with some monthly income when their normal flow of income shrinks because of the retirement, disability, or death of the person who earned that income.

The Social Security system was initially intended to provide financial security for older Americans. It was meant to help compensate for limited job opportunities available to older people in our society. And it was intended to help bridge the financial gaps created by the disappearance of the multigenerational family household—a break-up caused in large measure by the need for American workers to move around the country to find decent employment.

Unfortunately, this goal of providing financial security is today increasingly remote. The combination of rapidly rising living costs, stagnation of benefit amounts, and penalties for older people who continue to work has made the amount of support offered by Social Security less adequate with each passing year. This shrinking of the Social Security safety net makes it that much more important that you get the maximum benefits to which you are entitled.

This chapter explains how Social Security programs operate in general. It is helpful to know how the whole system works before determining whether you qualify for a particular benefit program and how much your benefits will be. Once you understand the basic premises of Social Security, you will be better equipped to get the fullest benefits possible from all Social Security programs for which you might qualify. (See Chapters 2, 3, and 5.)

Receiving Benefits as a Noncitizen

It is increasingly common for people who are not U.S. citizens to live and work here for long periods of time. This section explains your rights to collect Social Security benefits if you are not a U.S. citizen, whether you’re living in the United States now or have since left to live in another country.

Noncitizens Living in the U.S.

Noncitizens living in the United States are entitled to all the Social Security benefits that they or their spouse or parents have earned—under the same rules as U.S. citizens—if they are lawfully in the United States. For example, you might benefit from this if you:

• were not a U.S. citizen during some or all of the time you or your family member worked in the United States, but have since become a U.S. citizen, or
• are not a U.S. citizen, but are a lawful permanent U.S. resident or have another immigration status permitting you to be lawfully present in the United States.

Non-U.S. Citizens Living Abroad

Many non-U.S. citizens live and work for a time in the United States, paying Social Security taxes and earning enough work credits to qualify for benefits for themselves and their families. However, many of these people ultimately leave the United States. Their ability to collect earned Social Security benefits after departing depends in large part on whether the United States has entered into agreements with their home countries. If you’ve formerly worked in the United States, you need to look at three things to figure out your eligibility for benefits, including:

• your country of citizenship
• the country where you’re living when you request Social Security benefits, and
• the type of benefit you’re requesting.

What if you begin receiving benefits while you’re in the United States, but later move abroad? If you don’t qualify under one of the situations described below, your benefits will be cut off six months after you leave the United States.

Countries Whose Citizens Are Entitled to Collect U.S. Benefits

If you are a citizen of any of the following countries, you may receive any Social Security benefit to which you are entitled, regardless of what country you’re actually living in: Austria, Belgium, Canada, Chile, Finland, France, Germany, Greece, Ireland, Israel, Italy, Japan, Luxembourg, Netherlands, Norway, Portugal, South Korea, Spain, Sweden, Switzerland, and the United Kingdom.

Countries Whose Residents Are Entitled to Benefits

You may also receive any benefit to which you are entitled if you are a legal resident—but not necessarily a citizen—of any of the following countries: Australia, Austria, Belgium, Canada, Chile, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, South Korea, Spain, Sweden, Switzerland, and the United Kingdom.

Also note that if you live in, but are not a citizen of, Austria, Belgium, Germany, Sweden, or Switzerland, you may receive dependents or survivors benefits (described in Chapters 4 and 5) only if the worker on whose Social Security record you would receive benefits is a citizen of the United States or of the country where you now live.

Eligibility Based on Type of Benefits to Be Received

If you are not a citizen of the United States or of any of the countries listed above (see Countries Whose Citizens Are Entitled to Collect U.S. Benefits), you may still be entitled to receive retirement, dependents, or survivors benefits.

Your eligibility for retirement benefits based on your own work record (as described in Chapter 2) depends on whether you are a citizen of any one of more than 100 other countries. To find out whether your country of citizenship is currently on the lists (these lists change from time to time), and the particular rules that might apply to you, call Social Security at 800-772-1213. Request a copy of pamphlet #05-10137, Your Payments While You Are Outside the United States. You can also view the pamphlet online at www.ssa.gov/international.

Your eligibility for dependents or survivors benefits (described in Chapters 4 and 5) depends on any one of the following being true:

• You lived in the United States for at least five years, during which time you had a family relationship with the worker on whose record you would claim dependents or survivors benefits.
• If you are claiming benefits based on your parents’ work record, your parents lived in the United States for at least five years while they were married.
• You were initially eligible for benefits before January 1, 1985.
• You are entitled to benefits based on the record of a worker who died while in U.S. military service or as a result of a service-connected injury or illness.

["Request for Social Security Statement" Form] omitted for online sample chapter.