Social Security Basics

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Social Security Basics In 1935, President Franklin Roosevelt signed the Social Security Act, which provided a nationwide retirement and social welfare program for the first time. Since then, Social Security has grown to become an essential part of modern life and has been modified to provide for widows, orphans, the disabled and divorced spouses.

Today, about 98% of all workers are in jobs covered by Social Security. One in six Americans receives a Social Security benefit, and nearly one in three beneficiaries is not a retiree. According to the Social Security website,, Social Security benefits comprise about 5% of the nation’s total economic output.

To be eligible for benefits, a worker needs to be employed and subject to Social Security taxes for 40 quarters. A fully insured status enables the worker to receive unrestricted retirement, disability and survivor payments. To be eligible in any quarter, a worker must earn at least $1,160 in 2013.

Benefits payable are determined using a formula for the average indexed monthly earnings (AIME) that takes into account the worker’s top 35 earning years since 1950. The retirement benefit amount may be equal to, less than, or greater than the AIME. If the worker chooses to retire early, say at 62, the earliest age for retirement, the amount is reduced by approximately .56% for each month before normal retirement age (age 66 in 2013). If the worker elects to delay receiving benefits beyond the normal retirement age, but prior to age 70, the benefits are increased by 8% a year up to 140% of the normal benefit.

The maximum monthly Social Security benefit is $2,533 in 2013. The maximum amount is payable to a person who reaches Full Retirement Age in 2013 (someone born in 1947) and has earned the maximum taxable earnings for their top 35 years of wages.

Maximum Taxable Earnings Each Year

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A retired worker’s spouse may elect to receive the greater of one-half of the worker’s benefit or his or her own benefit. It does not matter if the primary worker is still working and has not begun to draw benefits—the spouse may draw at his or her eligible age.

A divorced spouse who has been married for ten years or more to an insured worker and who has not remarried may draw under the same rules as a married spouse. This does not impact the benefits available to the insured worker. As a matter of fact, the insured worker could have several divorced spouses drawing upon his or her benefit, and could also be currently married to a spouse drawing benefits.

The minor children and spouse caring for minor children of a retired worker may be eligible for benefits. For those of you who became parents when you were older, your children under the age of 18 (or 19 if not graduated from high school) will receive a check equal to one-half of your benefit. The same goes for your spouse if he or she is caring for a minor under age 16. The total payable to a family is limited by a family maximum benefit calculation.

Finally, if an insured worker passes on, his family is entitled to certain benefits. Children under age 18 (or 19 if not out of school) receive a benefit, as does a spouse caring for a minor child under age 16. The amount is subject to family maximums and is dependent upon the worker’s AIME. A surviving spouse may elect to draw a widow’s benefit at age sixty, whether or not he or she was married to the worker at his/her time of death.

The Social Security website contains a wealth of information on benefits and rules as well as a useful retirement planning calculator. The latter will help you estimate your benefit based upon different scenarios for retirement, earnings and family situation.

Rick’s Insights

  • To receive the maximum monthly Social Security benefit you need to wait until you reach full retirement age to enroll.
  • You also need to earn the maximum taxable earnings in your highest 35 years of wages to get the maximum monthly benefit.
  • Your spouse can draw half of your benefit or all of their own benefit whichever is higher.

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