Planning for Retirement

Planning for retirement? Retirement help is here, with these retirement planning tips offered in this free lesson.

What is Social Security?

Social Security benefits are based on the earnings recorded under your nine-digit Social Security number. When you work, your employer withholds Social Security and Medicare taxes from your paycheck. Your employer matches that amount, sends the taxes to the Internal Revenue Service (IRS), and reports your earnings to Social Security. If you're self-employed, you pay your own Social Security taxes when you file your tax return, and the IRS reports your earnings to the Social Security Administration.

As you work and pay taxes, you earn credits that help make you eligible for future Social Security benefits. How many credits you earn per year depends on how much money you make; in 2014, you recieve a credit for each $1,200 of income, up to a maximum of 4 credits per year. This does not apply to money earned as a domestic or farm worker, which has a separate set of rules. To quality for benefits, most people need to have accumulated 40 credits.

Social Security benefits can provide financial support for you and your family when you retire or if you become disabled. Such benefits can also be provided to your family if you die.

When it comes to planning for retirement, remember that Social Security should be only part of your retirement plan. The amount of money that retirees get from Social Security does not always rise with inflation, so it can be hard to live comfortably on Social Security. It is therefore important to try to save other money for your retirement as well.

To help you plan for retirement, each year the Social Security Administration sends you a personal Social Security Statement. You can also view your statement at any time by creating an account on the Social Security Administration's website. Your Social Security statement contains an estimate of the monthly benefit amounts you and your family may qualify for now and in the future.