In this post, we list 12 facts you need to know about Social Security. These will help you understand more about the program and its future.
12 Facts About Social Security
- Social Security is not bankrupt
- Congress will not reform Social Security anytime soon
- Some funding reforms are taking shape
- Politicians do not “raid the fund”
- Many believe it can work better
- You may be taxed on your benefits
- It is not intended to be your sole income
- Purchasing power is decreasing
- You can work and collect Social Security
- Social Security has gone digital
- It is not just a retirement program
- Most receive more back than they put in
Social Security is not bankrupt
Currently, the Social Security trust funds are near an all-time high. “The program really is in good shape right now,” says David Certner, AARP’s legislative policy director. “But we know it has a long-term financial challenge.”
For decades, Social Security collected more money than it paid out in benefits. The surplus funds were invested in Treasury securities. Now the trust fund reserves are worth about $2.89 trillion.
Ss the birth rate has fallen and a huge wave of baby boomers retire, the ratio of workers to Social Security recipients is changing. This year is a tipping point: The program will need to dip into its reserves to pay full benefits from this point forward, absent any change to the program.
It is now forecast that the trust fund reserves could be exhausted in 2034. Even if that happens, Social Security won’t be bankrupt. The program will continue to pay benefits but at a rate of 79 percent of what recipients expected to receive.
If the goal is to keep benefits at their current levels, the sooner funding issues are addressed, the better.
Congress will not reform Social Security anytime soon
There have been several members of Congress that have proposed addressing long-term funding issues. Given the current political divide, however, it is unlikely that Congress makes any effort to reform Social Security until there is more bipartisan support.
Some funding reforms are taking shape
One funding proposal suggests to either raise or eliminate the wage cap on how much income is subject to the Social Security payroll tax.
In 2019, that cap will be $132,900, which means that income beyond that is not taxed. By removing the cap, higher-income earners would contribute far more to the system.
Other options include either raising the percentage rate of the payroll tax or raising the age for full retirement benefits.
Politicians do not “raid the fund”
A common myth about Social Security is that either Congress or the president can use Social Security funds to pay for programs such as education, defense or economic programs. That is not accurate.
Any money remaining after the Social Security Administration pays benefits and expenses is invested directly into U.S. Treasury securities. The government can use the money from those securities, but it must pay back the money with interest.
Many believe it can work better
The Social Security Administration has more than 60,000 employees and 1,200 field offices nationwide. The agency has struggled to keep up with the rapid increase in the number of retirees seeking benefits.
“There aren’t enough resources to take care of all the people now, and another 10,000 people turn 65 every day,” says Max Richtman, CEO of the National Committee to Preserve Social Security and Medicare says.
A recent audit showed that the average wait time at field offices increased 32 percent between 2010 and 2017, for example. During that same time, the number of visitors who must wait over an hour to be seen at as office nearly doubled.
You may be taxed on your benefits
If you have income in addition to your Social Security, you may have to pay federal taxes on your benefits. Single filers whose combined annual income exceeds $34,000 might pay income tax on up to 85 percent of their Social Security benefits; couples filing jointly may pay tax on up to 85 percent if their combined income tops $44,000.
13 states tax Social Security benefits depending upon differing variables: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.
It is not intended to be your sole income
The Social Security Administration says if you have average earnings, the program’s retirement benefits will replace only about 40 percent of your preretirement wages.
Despite this, 26 percent of those 65 and over who receive a monthly Social Security benefits live with families that depend on it for almost all of their retirement income. 50 percent of them say their families depend on Social Security for at least half of their income.
Purchasing power is decreasing
Each year, the SSA issues a cost-of-living adjustment, which is an annual adjustment that beneficiaries receive to help their monthly checks keep up with inflation.
Unfortunately, the formula used to calculate the cost-of-living adjustment does not fully account for the medical costs of the average older American. These costs have been increasing much faster than other expenses.
The average American 55 and older spend about 27 percent more annually on health care than the overall population, according to the Bureau of Labor Statistics.
You can work and collect Social Security
You can have a job and collect Social Security, but the agency will withhold some of your benefits if you are younger than full retirement age and your earned wages exceed a certain limit.
In 2019, the threshold on your earnings will be $17,640. Make more than that, and the government will temporarily withhold $1 from your benefit for every $2 earned over the cap.
You will receive this money later on in the form of higher benefits when you hit your full retirement age. If you wait until full retirement age to start drawing Social Security, you can work as much as you like and your benefits will not be reduced.
Social Security has gone digital
The Treasury Department has moved away from mailing out paper checks in favor of electronic payments. The SSA has set up an online portal called My Social Security, where you can track your benefits. You are encouraged to visit the website and set up an account. This helps prevent scammers from setting up an account in your name and trying to steal your benefits.
It is not just a retirement program
There are four main types of Social Security benefits: retirement, disability, dependent and survivor. Sometimes a person can qualify for more than one of these, but Social Security generally will only pay one benefit at a time to a person.
When filing for benefits, make sure to ask about eligibility for other benefits. If there is a change in your family status, such as the death of the breadwinner, you should inform SSA of their death and ask if you or other family members will be eligible for any additional survivor or dependent benefits.
Most receive more back than they put in
Studies have shown that most people receive more in benefits than they paid into the program. Married couples are more likely to get back more than they contributed than single people, and both low-income and high-income people may receive more dollars from the program over a lifetime than the amount of money they contributed to it.
This post is based on the article “12 Top Things to Know About Social Security” written by Kenneth Terrell and originally published in AARP Bulletin.
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