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Social Security – How Much Do You Really Know?


Americans are reaching Social Security age at an alarming pace. We are the massive Baby Boomer Generation, and we are straining the finances of the Social Security System. For most of us, our Social Security benefits constitute an important part of our retirement income needs. Social Security is fundamentally a lifetime annuity system, and like all annuities, it is very complex. Maximizing lifetime benefits is our own responsibility, yet many Americans are woefully unaware of the myriad possibilities for collecting. 

In this blog series, we are covering a range of topics designed to educate Americans on what is rightfully theirs, assuming they earned the right to participate. Once you are employed and paying into the system, the government does a credible job of letting you know that you are earning your way to future benefits. They are not so adroit at helping you maximize your own lifetime Social Security benefits, but we are here to help.

First, consider the term benefits, a commonly-misunderstood term used in the insurance industry. Benefits are payments made to owners of insurance or annuity products. You are entitled to those benefits, once all qualification requirements have been met. That simple definition is why Social Security benefits are actually an entitlement, which means that benefits will be paid to you once you have qualified. It is unfortunate that Americans have been misled by Congress to view the word entitled as meaning you get a handout for simply “showing up”. Those payments are actually Entitlements, wherein the capital letter “E” denotes programs that provide other-than-earned payments.

Qualifying for Social Security benefits is accomplished throughout your working lifetime by completing a minimum of forty (40) “Quarters of Coverage.” A qualified quarter is one in which you earn $1,360 or more, the current limit, which may be changed in the future. Upon completion of your 40th quarter (they do not have to be consecutive), you are qualified to receive a benefit upon reaching age 62. Your filing choices range from ages 62 to 70.

People who continue to work and accrue Quarters of Coverage above their initial 40 are rewarded so long as they earn more in the current quarter than in some prior quarter. In other words, the system includes, for calculation of benefits, the 40 highest-earning quarters in your lifetime of work.

Conversely, people who fail to complete 40 Quarters of Coverage are not entitled to a benefit. Exceptions to the 40-quarter rule are granted to non-working spouses of covered workers, a necessary part of any comprehensive social system. There are other exceptions, such as dependent children of deceased workers. Those are topic for future blogs.

Personally, my biggest surprise as I began to study the Social Security System came when I began to realize how brilliantly the system was designed. (Insert snarky comment about government-designed programs here.) If every person were to go to work, earn their Quarters of Coverage, and later collect lifetime benefits, designing the system would be easy. But life is far more complicated and unpredictable than that. Life’s complexities demand that a fair and honest social system accommodate hundreds of situations. The system does that, and does it well.

In the next few weeks, we will be covering more and more details about Social Security. Our efforts are aimed at teaching people about options existing within the System, and how to plan for their personal “best” ways to collect.