Social Security

Purpose

MR. WATSON: The Social Security system provides a basic floor of protection to all working Americans against the financial problems brought on by death, disability, and aging. Social Security augments but does not replace a sound personal insurance plan. Too many Americans have come to depend entirely on Social Security as their source of retirement income. It was never intended as such.

MR. WATSON: Social Security started in 1935. It is funded by a FICA tax.

MR. WATSON: Everybody who works pays into social security, with few exceptions. Those who can opt out include:

1. Civil service workers who were hired before 1984, they can elect out of social security.
2. Railroad workers who were covered under the Railroad Act.
3. About 25 percent of state and local government employees-they elect out. They have a state pension program.

MR. WATSON: So once again, all of the above can elect out of social security.

MR. WATSON: There are two classifications of eligibility.

1. Fully Insured (entitles you to Old Age, Survivor, & Retirement benefits) and
2. Currently Insured (a limited status of eligibility. Partial benefits such as survivor's benefits, disability benefits, and a $255 lump-sum death benefit. Not entitled to old-age retirement benefits.)

To be Fully Insured requires 40 quarters of coverage. A worker can receive no more than four quarters in a year, so, it takes a minimum of ten years to become fully insured. Until then, a worker is only currently insured.

MR. WATSON: So what does all this mean? If something should happen to you, if you should die, become disabled, or retire, Social Security will verify the number of quarters you have. If you are fully insured you will receive benefits. If not, you would be classified as "currently insured" and entitled only to a limited amount of benefits.

MR. WATSON: Again, there are two statuses of eligibility. One is called currently insured and the other is called fully insured. You are fully insured when you have 40 quarters of coverage. You are currently insured if you have been actively paying into Social Security but have not worked long enough to be classified as "fully insured". It is a limited status of eligibility. It provides only a limited survivor benefit. A small death benefit.

MR. WATSON: Workers pay a FICA tax. 7.65 cents of every dollar you earn goes towards FICA. If you work for yourself, double it. So 15.3% of what you earn goes to FICA if you're self-employed. If you work for me, we take out of your check 7.65%. And then I write a check out of my funds on your behalf for another 7.65%. So for every worker, over 15 percent goes towards FICA.