I’m taking a break from the stock market today to discuss Social Security.
As you may know, Social Security is one of the most important programs run by the federal government. Currently, one in six Americans receives benefits. The total of benefits paid out last year came to $952 billion.
There are a number of misconceptions about Social Security. Tonight I’d like to clarify things, because I’d like my readers to know the facts regarding this enormous government program.
First…where does the money come from?
Roughly 174 million Americans contribute to Social Security through their paychecks.
In 2019, the first $132,900 of an individual’s wages will be subject to Social Security payroll taxes. The employer and employee each pay 6.2 percent of the employee’s gross wages into the Social Security system; those who are self-employed pay the entire amount, 12.4 percent.
The total that goes into the Social Security system is $966.6 Billion.
The money goes into the Social Security Trust Funds, which total $2.89 trillion today. The Old-Age and Survivors Insurance Trust Fund pays retiree benefits, and the Disability Trust Fund pays disability benefits.
All the money in the Trust Funds are invested in Treasury Bonds.
How does the money get distributed?
Workers are eligible to begin receiving retirement benefits at the age of 62. Claiming at 62, however, will result in the smallest benefit. Workers that can wait until age 70 will receive the highest benefit.
Social Security also provides disability insurance (SSDI) to workers that become disabled. Currently, 10.4 million workers receive SSDI.
Finally, Social Security protects survivors of program participants. Six million spouses and children presently receive survivor benefits.
12 Facts About Social Security
1. Social Security is not going bankrupt. At the moment, the program is in really good shape and running at a surplus. There are definitely long-term concerns; with baby boomers retiring, and the birth rate decreasing, the number of people that pay into the system over time will be fewer.
2. Congress will most likely not take up Social Security reform anytime soon. Most politicians agree that we need to address the future funding issues regarding Social Security. This would be an enormous undertaking, however, and now is not the best time politically to tackle it.
3. One proposal is to eliminate the wage cap on how much income s subject to the Social Security payroll tax. In 2019, this cap is $132,900, which means that any amount a person earns beyond $132,900 will not be taxed.
4. Lawmakers cannot indiscriminately use the money in the Social Security Funds for anything they want. The money remaining after Social Security benefits have been paid is invested in US Treasury Bonds. The government can use the money from those securities, but it has to be paid back.
5. The Social Security Administration (SSA) could stand to become more efficient. The wait time on average when you visit an office is one hour. That number has nearly doubled in the last year.
6. Most people are shocked by this one but your Social Security benefits can be taxed. If you have another form of income, and your combined income exceeds $34,000 for single filers and $44,000 for married couples, you maybe taxed federally on up to 85% of your Social Security benefits. You can also be taxed at the state level, depending on where you live.
7. Social Security is not meant to be a retiree’s only source of income. It is only meant to replace 40% of your income.
8. Social Security is not keeping up with inflation. Treasury Bills are the safest investment you can make, but they are not keeping up with the cost of living.
9. If you are younger than full retirement age and take Social Security early, you can have a job and still receive Social Security benefits. But if you earn more than $17,640, the government will withhold $1 from your benefit for every $2 earned over this cap.
10. Social security is now digital. They no longer issue physical (paper) checks.
11. Social Security is not just a retirement program. It consists of retirement, disability, dependent, and survivor benefits.
12. Most people get back more than they put into Social Security. Over the years, studies have shown that both married couples and individuals get back more than they’ve contributed. The Urban Institute has issued reports showing this very fact.
Whether you are close to retirement age, or just simply wondering, “What is Social Security, anyway?” or “Will Social Security be around when I’m old?” or the like, I hope this article has helped you make some sense of things.
And I hope you stay healthy, wealthy and wise.
My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.
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