Understanding Social Security

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A Brief History

Social Security numbers were first issued in 1936 to help the U.S. government track workers’ earnings, determine benefit eligibility, and calculate retirement benefits. Every U.S. citizen receives a nine-digit Social Security number (SSN) at birth, used as a secure identifier for key documents like tax returns and employment records.

Social Security — officially known as the Old Age, Survivors, and Disability Insurance (OASDI) program — is a federal system administered by the Social Security Administration (SSA). It provides income to eligible retirees, disabled individuals, and survivors of deceased workers.

  • Be at least 62 years old, and
  • Have worked and paid into the system for at least 10 years (40 credits).

Types of Social Security Benefits

1. Retirement Benefits

  • Eligible after 10 years of work; early benefits available from age 62.
  • Waiting until your Full Retirement Age (FRA) — between 66 and 67 — yields higher monthly income.
  • Benefits are based on your 35 highest-earning years.
  • Your spouse or ex-spouse (if married at least 10 years) may also qualify for benefits on your record.
  • Children may receive benefits until age 18 (or longer if disabled or full-time students).

2. Disability Benefits

  • Support for those unable to work due to disability.
  • Requires a sufficient work history and medical eligibility.

3. Survivor Benefits

  • Paid to surviving spouses, divorced spouses, or dependents.
  • Benefit amounts depend on the deceased worker’s age, earnings, and survivor relationship.
  • Includes a one-time death benefit of $255.

4. Supplemental Security Income (SSI)

  • Helps individuals 65+ or disabled who have limited income/resources.
  • Funded by general tax revenue, not Social Security payroll taxes.
  • Can be received alongside disability or retirement benefits.

Social Security Maximization

To “maximize” Social Security means getting the highest total lifetime benefit possible. You can do this by:

  • Working longer to increase your 35-year earnings average.
  • Delaying benefits until age 70, increasing payments by 8% per year beyond FRA.
  • Coordinating spousal and survivor strategies effectively.

How Social Security Is Funded

Social Security is financed primarily through the Federal Insurance Contributions Act (FICA) payroll tax:

  • 85% goes toward retirement and survivor benefits.
  • 15% funds disability benefits. Your contributions today support current beneficiaries, while future workers’ contributions will fund yours.

When and How Benefits Are Paid

  • Payments are issued monthly.
  • FRA is 67 for those born in 1960 or later.
  • Early claiming at 62 reduces benefits by up to 30%.
  • Delaying beyond FRA increases benefits by 8% per year until age 70.

Social Security & Medicare: How They Work Together

Although separate programs, Social Security and Medicare are closely linked:

  • Eligibility for premium-free Part A (hospital insurance) is based on your Social Security record.
  • Enrollment for Medicare is handled through the SSA.
  • If you receive Social Security, your Medicare Part B premium is automatically deducted from your monthly benefit.

Penalties and Reductions

Social Security benefits can be reduced if:

  1. You claim before your FRA (permanent reduction).
  2. You work while receiving early benefits and exceed the annual earnings limit.

These are not monetary penalties but reductions to your monthly benefit.

Let Oakleaf Advisors Help You Bridge the Gap

Understanding how and when to claim Social Security is key to maximizing your retirement income. Let’s build your personalized Social Security Maximization Strategy — one that aligns with your full retirement goals, income needs, and tax picture.