Social security is a benefit plan that's been around since 1935. In addition to retirement, social security includes several other programs, including Medicare (the health care plan for people over sixty-five), disability benefits, and survivor benefits for spouses or dependents. These programs are funded by mandatory taxes deducted from your pay and matching taxes paid by your employer. The current tax rate is the same for both: 7.65 percent of wages under $97,500 and 1.45 percent of wages over that amount.

Social Security Benefits Statement

When you reach retirement age, you'll receive benefits based on a complex calculation using the number of years you worked, the income you earned during those years, and your age at retirement. You can request a Social Security Benefits Statement that will include a record of your earnings history by year as reported on your W-2s and the amount you and your employers paid in social security taxes. It also includes an estimate of the benefits you can expect to receive at retirement. However, this is just an estimate and it's subject to change.

Counting on Social Security

There was a time when many retirees relied on social security to get them through their golden years. Today social security is considered a supplement to your retirement income, not the main source.

There's been much discussion about whether social security is going broke. It appears that the system will be able to meet all benefit payment requirements for the next thirty years or so, but that may not be the case when you retire. Sixty-five million baby boomers will put a strain on the system when they start collecting benefits, but some experts project that even then they'll be able to pay 75 percent of the benefits that workers have earned. This will probably equate to no more than 40 percent of your preretirement income and will fall far short of what you'll need for even the simplest lifestyle.