Social Security

Social Security — A Retirement Income Supplement to Your Own Savings


Social Security — A Retirement Income Supplement to Your Own Savings

Social security was created in 1935 during the Great Depression as part of President Franklin D. Roosevelt’s New Deal plan. Today it is one of the largest government programs in America. Its focus is to help protect retired and disabled workers from falling into poverty. The program was never intended to provide retirees with 100 percent of their retirement income. Rather, it was designed to supplement other sources of retirement income, such as pensions and personal savings.

The entire program is funded by a payroll tax on current workers’ wages. You’ll recognize this as the FICA (Federal Insurance Contributions Act) deduction on your paycheck. You pay a portion of the tax and your employer pays the other portion.

Who qualifies and how much do you get?

Social Security provides monthly income that's adjusted each year for inflation. To qualify for the retirement benefit, you must:

  • Accumulate enough Social Security credits, generally by working for at least 10 years with substantial earnings subject to Social Security tax
  • Be age 62 or older
  • Apply for the benefits (Social Security benefits are not automatic—you can apply online).

Social Security was never intended to provide retirees with 100 percent of the income they would need to live.

You can choose to start receiving reduced benefits before your full retirement age (this age varies depending on your date of birth). Waiting until after your full retirement age will increase the monthly benefit. Since benefits are taxed as income, you may want to talk with your tax professional before deciding when to start taking benefits.

The benefits formula has changed over the years, but generally the lower your average salary, the higher the percentage of your preretirement income that Social Security will replace. Some retirees may be surprised to discover that Social Security replaces less than a third of their preretirement income.

Take control of your retirement income

In 2011, nearly 55 million Americans received $727 billion in Social Security benefits. Retired workers received an average monthly benefit of $1,181, which represented about 41 percent of their income.1 Clearly, you can’t rely on Social Security as your only income source in retirement. This is why it’s so important to save your own money. You may need a lot more than Social Security can provide to live the retirement lifestyle you want.

1 Source: Social Security Administration, June 2011