Social Security

Although we all spend a lot of time talking and thinking about Social Security, few of us know how the system works. It is a social insurance program that provides old-age benefit for retirees and their survivors, disability insurance for workers, and survivor benefits for dependents. It is called an “entitlement” because Congress has set eligibility requirements — age and years worked.

The system is financed by matching contributions from employers and employees. Employees currently pay 6.2% of their earnings, up to a maximum of $65,400, into two separate trust funds: 5.6% into the Old Age and Survivors Insurance (OASI) fund and 0.6% into the Disability Insurance fund (DI). Employers match this amount. (Together the funds are known as the OASDI program.)

Every day, dedicated payroll tax revenues are deposited in the OASDI fund. Social Security benefits are paid from these funds and any money not needed is invested daily in U.S. government bonds and earns interest.

For many years, Social Security was financed on a current-cost basis or a “pay as you go” plan. Since 1983, however, it has been operating under a “partial reserve” type of funding that aims to take in more money than is paid out in order to build up the necessary reserves to pay the benefits of the large number of retired baby boomers who will begin collecting benefits in 2012.

In order to plan your retirement investments intelligently, start by taking a close look at your Social Security situation. Then build around this basic data. It may seem like a nuisance, but ignoring Social Security records could lead to lower benefits than you’re legitimately entitled to, since benefits are based on the Social Security Administration’s records of what you have earned. It’s up to you, and not the Social Security Administration, to find out if your records are accurate. Serious errors could cost you thousands of dollars in benefits.

For additional help

To reach one of the 4,200 Social Security representatives who help the public. The Iines are least busy between 7 A.M. and 9 A.M. and 3 P.M. and 7 P.M, Eastern Time. Social Security representatives can answer most questions and will also send you helpful publications.

Several hundred lawyers specialize in resolving Social Security problems related to disability benefits. They are members of the National Organization of Social Security Claimants’ Representatives, which operates a nationwide referral service. For a member in your area.