5 Little-Known Facts about Social Security
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5 little-known facts about Social Security
Most Americans watch their money go into the Social Security trust fund in the form of payroll deductions as soon as they begin working, when retirement seems a long way off. As a result, many go through their working lives without giving it much thought.
Here are a few facts everyone should know about Social Security benefits before making any decisions about retirement.
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Who is entitled to retirement benefits?
Just about anybody who has worked for 10 or more years is eligible for Social Security retirement benefits.
"You need 40 quarters of employment, earning a minimum income of $1,120 per quarter," says Brett Horowitz, principal and wealth manager at Evensky & Katz in Coral Gables, Fla.
The income requirement is so low that "it could be met with seasonal work," says Richard W. Stumpf, principal at Financial Benefits in Wichita, Kan. There are some exceptions. Most federal employees hired before 1984 aren't eligible to participate, Horowitz says. Stumpf adds that pastors may choose not to pay in.
Also, railroad workers and their families generally get benefits through a separate retirement system.
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How are payouts calculated?
The size of your monthly check is arrived at by a series of calculations.
Your primary insurance amount, or PIA -- the benefit you would get at full retirement age -- determines the size of your monthly retirement check. According to the Social Security Administration's website, the PIA is based on the Average Indexed Monthly Earnings, or AIME, as applied to an inflation-adjusted formula. The PIA is then adjusted for whether you take retirement before or after your normal retirement age -- 66 for those now reaching retirement age, but gradually adjusted to age 67 for those born after 1954.
You can begin drawing reduced Social Security as early as 62. For every month you delay after reaching full retirement age, up to age 70, the monthly benefit increases. According to a recent report of the Senate Special Committee on Aging, for someone with an AIME of $5,000 in 2009, the PIA would total $1,971.
In keeping with the original intent behind Social Security -- a way to lift seniors out of poverty -- lower-wage earners get a higher proportion of their earnings than higher wage earners. The maximum monthly benefit that can be received in 2010 is $2,346.
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