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The Social Security system is a type of retirement plan that allows workers to collect benefits at the end of their working lives. It is funded through taxes, which eventually are returned to the individual. Knowing about the ins and out of this process is very important for people planning on retiring.

So what does Social Security pay for?

Established in 1935, the Social Security system provides financial support to the elderly, disabled individuals, and surviving children of deceased workers.

Social Security is funded through payroll taxes. Workers are required to contribute to a fund used for the program’s benefit. The money collected is the workers’ own money, not the government’s.

Due to the tax revenue that the program generates, it is estimated that it will be able to pay 75 percent of its scheduled benefits by 2087.

Americans who need help paying for survivor, retirement, and disability benefits can rely on the Social Security system. It also provides financial support to disabled children, widows, and surviving spouses of deceased workers.

What’s the wage base of Social Security?

Before an individual can start collecting benefits, they must first earn a wage base of around $127,200. If their annual income exceeds this amount, they will not be required to pay Social Security taxes on earnings beyond this amount.

However, if your wage base exceeds the amount that you can earn, then you will be required to pay taxes on the additional earnings. This additional income is generally exempt from tax once it reaches a certain amount.

What about the tax rate?

The Social Security tax rate is 6.2 percent for employers and workers. On the other hand, the tax rate for self-employed individuals is 12.4 percent.

If you are a minister, military personnel, or have earned wages above the government’s wage base, your income may be exempt from Social Security taxes.

How much can be withdrawn from Social Security savings?

Since social security is considered a qualified retirement benefit, individuals can only withdraw up to $2,100 per year from their self-accumulation accounts.

How long does Social Security last?

Depending on an individual’s age, they may receive different types of benefits. For instance, people who retire at the age of 66 receive full benefits, while those who retire at 62 receive reduced payments.