Social Security, Medicare & Government Pensions: Get the Most Out of Your Retirement & Medical Benefits

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Social Security is the general term that describes a number of related programs -- retirement, disability, dependents, and survivors benefits. These programs operate together to provide workers and their families with some monthly income when their normal flow of income shrinks because of the retirement, disability, or death of the person who earned that income.

The Social Security system was initially intended to provide financial security for older Americans. It was meant to help compensate for limited job opportunities available to older people in our society. And it was intended to help bridge the financial gaps created by the disappearance of the multigenerational family household -- a break-up caused in large measure by the need for American workers to move around the country to find decent employment.

Unfortunately, this goal of providing financial security is today increasingly remote. The combination of rapidly rising living costs, stagnation of benefit amounts, and penalties for older people who continue to work has made the amount of support offered by Social Security less adequate with each passing year. This shrinking of the Social Security safety net makes it that much more important that you get the maximum benefits to which you are entitled.

This chapter explains how Social Security programs operate in general. It is helpful to know how the whole system works before determining whether you qualify for a particular benefit program and how much your benefits will be. Once you understand the basic premises of Social Security, you will be better equipped to get the fullest benefits possible from all Social Security programs for which you might qualify. (See chapters 2, 3, and 5.)

Public images of our society generally render invisible many millions of economically hard-pressed older americans. The older person with little income and assets is left out of the standard media pictures of two-car, two-kid suburbanites and of wealthy retired couples in gated luxury communities. Modern western capitalism produces expendable workers. And the most vulnerable, such as people older than 65, are the most easily expended.

In the most advanced of modern industrial nations, the United States, the position of expendable workers is the worst. The richest 1% of U.S. households control almost 40% of the nation's financial wealth, and the bottom 80% of the population -- that is, the vast majority of us -- control only about 15% of the nation's financial wealth. These figures for the distribution of wealth are twice as large as those of great Britain, a society commonly thought to have a wide divide separating rich and poor.

During periods of extreme economic retrenching, the number of people cast off by the economy spills over the normal barriers of invisibility. And with so many people during these crises sharing their complaints about economic injustice, it is sometimes difficult to keep them all under control. One such period of extreme economic dislocation was the Depression of the 1930s. Many millions of people were displaced -- not only from job, home, and family, but from any hope for a place in the economy.

Faced with this crisis and with the possibility of massive social upheaval, Franklin Roosevelt and Congress decided to act. Roosevelt pushed through a number of programs of national financial assistance -- one of which was a system of retirement benefits called Social Security, enacted into law in 1935.

When benefits began, Social Security retirement cushioned slightly the crushing effects of the Depression. But retirement benefits were set at levels that were never enough to guarantee a standard of living above the poverty line. In 1939, Social Security benefits were extended to a retired worker's spouse and minor children; in 1956, to severely disabled workers. These extensions helped cover more people in need, but neither new program deviated from the basic premise of Social Security: provide just enough to keep starvation from the door, but not enough to guarantee a decent standard of living.

Current Threats to the System

The United States is presently in the throes of yet another economic upheaval, one that rivals the Depression. Millions of older people find it increasingly difficult to get by on their meager pensions, their low-paying part-time jobs, and their Social Security benefits.

More than 30 million people receive Social Security retirement benefits, which average a little over $1000 per month. Another 6.5 million widows, widowers, and their minor or disabled children receive survivors benefits, averaging about $900 per month. Nearly seven million disabled workers receive Social Security disability benefits, on average about $950 per month. And some five million spouses and children of retired or disabled workers receive dependents benefits, which average around $450 per month per person. Although these add up to a hefty federal outlay, the average figures show how thinly the benefits are being spread. Recipients' monthly checks are usually not enough to maintain a decent standard of living. And there are plenty of people receiving less than the average amount, whose financial situations may be truly dire.

Now, in 2007, the system is facing pressure to lower benefits even more. A steady increase in the number of retirees and their families who collect Social Security benefits -- due to the population increasing and people living longer -- means that the total benefits they collect is surpassing the amount of taxes younger workers pay into the system. At this rate, in 15 or 20 years the system will no longer be able to pay anywhere near the full benefits currently promised. (And this looming problem does not even take into account the fact that the federal government has been borrowing huge amounts of money from the Social Security Trust fund to pay for non-Social Security expenditures.)

Clearly, the system requires some adjustment. So far, the current plan for revamping the Social Security system does nothing to address the system's financial weakness. Instead, the plan suggests diverting a portion of Social Security contributions into the stock market. This would only weaken the Social Security payment system -- offering people a highly risky retirement investment alternative while pumping many billions of dollars through Wall Street and into corporate coffers.

Instead, several simple adjustments to the system could address its financial problems without introducing investment risk or siphoning off funds. For example, Social Security taxation could be applied to high-income earnings. At present, the system stops taxing earnings at around $100,000 per year. So far, however, national politicians and their wealthy supporters have resisted this approach. Another approach would be to reduce benefits for those people over retirement age who continue to earn a high income from work or investments. Yet another option would be to slightly raise the age at which full benefits are available. In some combination, these changes could easily stabilize Social Security far into the future, without the corporate world and Wall Street scooping up vast amounts of public money.

In response to this deteriorating situation, anyone facing retirement should take two important steps.

First, understand the rules regarding Social Security benefits. (These are described in Chapters 1 through 5.) That will enable you to plan wisely for your retirement years, including answering the basic questions of when to claim your benefits and how much you can work after claiming them.

And second, become aware and active concerning proposed moves by Congress regarding the Social Security and Medicare programs. Local senior centers and national seniors organizations such as the Alliance for Retired Americans in Washington, DC (202-974-8222, www.retiredamericans.org) are good sources of current information.

If you are even beginning to think about your retirement, it is not too early to begin trying to safeguard it.

Social Security is a series of connected programs, each with its own set of rules and payment schedules. All of the programs have one thing in common: Benefits are paid -- to a retired or disabled worker, or to the worker's dependent or surviving family -- based on the worker's average wages, salary, or self-employment income from work covered by Social Security.

The amount of benefits to which you are entitled under any Social Security program is not related to your need. Instead, it is based on the income you have earned through years of working. In most jobs, both you and your employer will have paid Social Security taxes on the amounts you earned. Since 1951, Social Security taxes have also been paid on reported self-employment income.

Social Security keeps a record of your earnings over your working lifetime and pays benefits based upon the average amount you earned. However, the only income considered is that on which Social Security tax was paid. Income such as interest, dividends, sale of a business or investments, and unreported income is not counted in calculating Social Security benefits.

Four basic categories of Social Security benefits are paid based upon this record of your earnings: retirement, disability, dependents, and survivors benefits.