Understanding ‘Your Social Security Statement’

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Do you know what Your Social Security Statement is?

You know, the stylish 4 page booklet (you get each year) with the rich green trim on the top and bottom of the statement.

If you’re not sure what I’m talking about, let’s see if I can help to jar your memory.

It’s the annual statement you receive from the Social Security Administration, that explains what social security is, how it impacts you and what kind of benefits you can expect to receive in the future.

If you’re still not sure what I’m talking about, then you’re either:

• under the age of 25; the statements are not automatically sent till you reach that age or
• currently receiving social security benefits

A brief summary

Social Security is also known as (OASDI) Old-Age, Survivor, and Disability Insurance.

Social Security benefits are paid from:

• the 6.2% FICA tax on each employee’s wages (which is matched by employers) and
• the tax on self-employment earnings (for those of us that are self employed)

In my situation, since I am self employed, I am the employer and employee. So that means I pay 6.2% x 2 or 12.4%. These FICA taxes are imposed on a maximum of $97,500 of wages for 2007.

(An additional 1.45% is paid by both employees and employers on wages for Medicare, and there is no limit on wages subject to this tax.)

Where it all ends up

These social security taxes (that the overwhelming majority of Americans pay) don’t accumulate in accounts with individual workers’ names on them (at least not yet they don’t); rather, they are counted in the general receipts of the U.S. government.

To the extent these tax proceeds exceed current benefit payments, (estimates show a surplus til 2017) the funds are used to buy US Treasury bonds in a sort of “trust fund.” Out of this ‘trust fund’ the US Government cuts the Social Security checks sent out to the public.

The role Social Security plays

Here’s a couple bullet points that drive home the importance of Social Security in America:

• Over 90% of U.S. workers are covered by Social Security and eligible to receive both retirement and disability benefits.
• Social Security keeps a full fifteen million people above the poverty line and millions more from near poverty.
• It is the major source of income for 63 percent of Social Security’s beneficiaries, comprising about 90 percent of total income for a quarter of that age group. If it didn’t exist, the poverty rate among older Americans would exceed 50 percent.

Those are some serious eye opening statistics that should get you thinking about your future.

Breaking down the individual statement pages

Each year the SSA (Social Security Administration) mails out more than 125 million customized statements, with more than 300,000 mailed each day.

Over the course of the next 4 posts I’m going to break down each of the 4 pages that make up ‘Your Social Security Statement’ and add some of my own interpretive commentary.

Tomorrow I’m going to look at page 1, Tuesday page 2, and so on and so forth…

Tags: Social Security, Your Social Security Statement