Making Sense of Social Security Retirement Benefits

Good news for the millions of Americans who rely on Social Security%u2026 they will be getting a raise in 2012, the first time since 2009.

The Social Security Administration (SSA) announced that the cost of living allowance (COLA) increase for 2012 will be 3.6%.

According to SSA, the average monthly benefit for retirees will increase from $1,186 to $1,229; for individuals who receive disability benefits the average benefit will increase from $1,072 to $1,111.

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What is the Social Security tax rate for 2011?

If you are an employee, you know that part of your paycheck goes towards payroll taxes. A big chunk of those taxes go towards Social Security to pay for retirement and disability benefits to people who qualify.

The Act that requires employers to withhold Social Security taxes is the Federal Insurance Contributions Act (FICA).

The Social Security tax rate was reduced by two percent in 2011 only so employees pay only 4.2% in Social Security taxes.

For many years, the Social Security tax rate has been 6.20% of your gross wages, up to the Social Security wage base. However, in 2011 the amount was reduced to 4.2% for employees (the employer share is still 6.2%).

This reduction in the Social Security tax rate will result in hundreds to thousands of dollars in tax savings in 2011, depending on how much you earn. For example, people who make $30,000 will save $600, people who earn $60,000 will save $1,200, and people who earn $100,000 will save $2,000 in Social Security taxes in 2011.

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The idea for social security was first developed in Europe as response to families moving from farming to working for others as the world became industrialized. The first social security program was established in Germany in 1889.

In the United States, the Great Depression triggered an economic crisis that caused millions of seniors to become impoverished. In an attempt to provide economic security, the Social Security Act was passed in 1935 by President Franklin D. Roosevelt.

The original Social Security retirement program provided Social Security payments only to the worker, and only retirement benefits. In 1939, the act was amended to provide benefits to spouses and children for both retired and deceased workers.

The monthly retirement benefit didn't begin until 1940, and the first recipient was Ida May Fuller a retired legal secretary.

Since then the program has been amended to include COLAs (cost of living adjustments) and disability benefits. Medicare wasn't introduced until the 1960s.

To see the full history of Social Security, please visit Social Security History.

First a disclaimer: Social Security retirement benefits can be very complicated, so you should consult with a Social Security specialist before making any final decisions regarding your retirement benefits.

Having said that, here are some tips to help you get the maximum Social Security retirement benefits you are entitled to:

Maximize Your Social Security Earnings:
Your retirement benefit is based on your top 35 years of earnings so it's important to get as many "high earning" years in as possible. Because of this, working just one year longer in a high paying job could make a big difference in your retirement benefit.

Delay Taking Your Social Security Benefits
You are penalized for every month you take your Social Security before you reach your full retirement age, with the maximum penalty being 25% if you start taking benefits at age 62. While starting your benefits early might be tempting, those who are patient can increase their benefits by up to 30% (including COLA adjustments) by waiting until full retirement age.

Work Part-Time During Retirement
While you are limited in how much you can earn if you are under full retirement age and collecting Social Security, once you reach full retirement age you can earn as much as you want without your retirement benefits being reduced. Another idea is to take a part-time job after you retire so that you can delay taking SS benefits.

Collect Based On Your Spouse's Earnings
If you're married, you can withdraw Social Security retirement benefits based on your own earnings, or you can collect half of your spouse's benefit, whichever is larger. If you and your spouse aren't the same age, you may need to do some planning to make sure you maximize your benefits, but this is definitely a strategy to consider if one spouse earns significantly more than the other, or if one spouse has been out of the work force for many years.

Tap Into Your Ex's Benefits
The spousal benefit applies to ex-spouses too. If you were married to your ex-spouse for at least 10 years, and you aren't currently married to someone else, you can collect up to 50% of your ex spouse's benefits. You don't have to communicate with your ex-spouse to claim your benefits; in fact they will never know unless you tell them, and it won't affect their benefits in any way.

These are just a few tips to help you maximize your Social Security retirement benefits. Withdrawing your Social Security benefits can be a very complex decision, so please consult with a professional before you make any decisions.

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One of the most commonly asked Social Security questions is "is Social Security taxable?"

The answer is... it depends.

Your Social Security benefits could be taxable, depending on your other income and your marital status.

Generally, if Social Security is your only income, then it is not taxable.

However, if you have other income from wages, investments or even tax exempt income, your Social Security could be taxable.

For 2008, if your total income including 1/2 of your Social Security income and any tax exempt income you have totals $25,000 (for Single, Head of Household and Qualifying Widows) or $32,000 (for married taxpayers filing jointly), then up to 50% of your Social Security benefits will be subject to tax.

However, if your income is higher, then up to 85% of your benefits could be subject to tax. If your total income (as defined above) is over $34,000 ($44,000 if you are filing married filing joint), then up to 85% of your Social Security benefits are taxable.

For more information including examples, please read Publication 915: Social Security and Equivalent Railroad Retirement Benefits.

This month it will be 75 years since Social Security was signed into law...
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Anita Creamer

Aug. 9, 2010 (McClatchy-Tribune Regional News delivered by Newstex) -- Evelyn Sekula's widowed grandmother struggled to survive during the Depression. Like millions of other elderly people, she had no pension and no savings.

"She had no income at all except for what my father gave her," said Sekula, 90, who lives at the Atria El Camino Gardens senior residence in Carmichael. "She was always looking for a way to make money. My father probably gave her $10 a month."

Today's older adults were children and teenagers when President Franklin D. Roosevelt changed the face of aging on Aug. 14, 1935, when he signed the Social Security Act into law.

They remember the difficult years when old age took place in a bleak, Dickensian landscape of need dotted with poor houses for those whose families couldn't support them. And they remember the difference that Social Security made in ordinary people's lives.

They also remember their parents' fears that Social Security amounted to socialism. Yet on the edge of the program's 75th anniversary, most of them can't imagine retirement without the small cushion of funds and dignity that Social Security provides.

As California Budget Project executive director Jean Ross says, Social Security lifted the elderly out of poverty -- and as the most important source of income for most older Americans, it continues to do so.

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