Wednesday, March 27, 2019

Social Security: Facts Everyone Should Know

There is so much misinformation on the internet about Social Security, it has become imperative that we dispel as many of these myths as possible.  In addition, a large number of people do not understand the basic facts about this essential government program, which is especially unfortunate since the vast majority of adults in the U.S. have either paid into the program through withholding from their paychecks, or they currently receive Social Security benefits.  As a result, we researched basic factual information directly from the Social Security Administration website, as well as the AARP, and the National Committee for the Preservation of Social Security and Medicare and are sharing this information below.

Facts Everyone Should Know About Social Security


Fact: Social Security still has plenty of money to pay benefits.  The Social Security trust fund currently contains about $2.89 trillion.  In addition, millions of workers continue to pay into the program.  For decades, more money was collected than was being paid out in benefits and the extra money accumulated in the trust fund.  Starting in 2018, the Social Security Administration began to dip into the trust fund to maintain the promised level of payments.  If nothing changes in the future, the trust fund will be empty by sometime around 2034, and future retirees will only be able to collect about 79% of what they have been promised.  Benefits could continue to be paid for decades at these reduced levels, because workers would continue to pay into the system.  At no point would Social Security completely run out of money and be unable to make payments.  Fortunately, the full promised benefits could also be maintained with only a few minor changes to the program.  The National Committee for the Preservation of Social Security and Medicare has recommended specific adjustments which, if implemented by Congress, would assure beneficiaries there is no need to cut benefits in the future.

Fact: We need bi-partisan pressure on Congress to make the necessary changes and maintain the promised benefits.  Although it would require very small changes in order to preserve the full level of Social Security payouts, it has been difficult to get both political parties to agree on anything, even something as important as Social Security.  We need voters in both parties to put pressure on their members of Congress to reach an agreement and protect the program.

Fact: Only a few minor adjustments are required to protect our benefits.  Ideas for saving Social Security fall into three categories, which could be implemented gradually.  These recommendations are: raise the cap on payroll taxes above the current income level of $132,900;  raise the percentage rate workers and employers pay by 1/20th of 1 percent every year for the next 20 years, so that it will only go up by a total of 1 percent over a period of 20 years; slightly raise the age for people to collect their full retirement benefits.  That's it.  If Congress could agree to gradually make those three changes, ALL our promised benefits would be protected for ourselves and future generations, and cuts would not be necessary.

Fact: The Social Security Trust Fund has not been raided by Congress.  This often repeated story is not true. The confusion is because the money we pay in has been invested in U.S. Treasury securities and the government can use the invested money, but must pay it back with interest.  Congress does determine how much money can be used on administration and, in that way, a large amount of the incoming receipts have been eaten away by administrative costs, which is why it may appear that the trust fund has been raided.  Some people believe that modernizing systems and improving efficiency would reduce some of the administrative costs.  However, these expenses can never be entirely eliminated.

Fact:  Social Security is not meant to be your sole source of retirement income.  Unfortunately, approximately one-quarter of retirees rely on their Social Security benefits for nearly all of their living expenses after retirement.  Encouraging workers to put more money into 401(k) and IRA retirement accounts would help future retirees have a better quality of life.  This is especially important because, historically, Social Security benefits have NOT kept up with inflation. It is never too late for workers to begin saving for retirement.  The younger you are when you start, the better off you will be in the future.  Ideally, everyone should retire with a nest egg of retirement savings, as well as low debt, if they want a relaxed retirement.

Fact:  Your Social Security benefits may be taxed.  Currently, thirteen states tax your Social Security benefits. Those are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.  However, even if you do not retire in one of those states, you are not off the hook for income taxes on Social Security. At the federal level, you may have to pay income taxes on up to 85 percent of your benefits if your combined income from all sources exceeds about $34,000 for a single retiree and $44,000 for a couple.  Many people believe that Congress should significantly raise these income levels or exempt Social Security from taxation for most people, because it makes no sense for the federal government to tax our federal Social Security benefits, except possibly for those with a very high income. Personally, I agree that paying federal taxes on federal benefits simply makes life harder for middle class retirees.

Fact: You can work and get Social Security benefits at the same time, but be careful!  If you work and collect Social Security benefits prior to your full retirement age of about 66 or 67, your benefits will be cut.  If you work after reaching your full retirement age, your benefits will not be cut, but it could increase the amount of taxes you pay on your benefits.  You may want to discuss the pros and cons of your specific retirement job and expected income with a tax professional, so you are certain that a retirement job will not hurt you more than it helps you.

Fact: The Social Security Administration only makes electronic payments into an account.  They no longer mail checks to beneficiaries; the funds have to be direct deposited into a bank account.  This has cut administrative costs and reduced the number of lost or stolen checks.  If you live in another country and have a bank account there, your benefits may be deposited directly into a foreign bank account in many, but not all, countries.  Hundreds of thousands of American retirees receive their benefits in a foreign country.  Other retirees have their checks deposited into American banks, and then transfer it into their foreign bank accounts as they need it. 

Fact:  You can only collect one type of Social Security benefit at a time.  Social Security has four different programs: retirement, disability, dependent and survivor. You can only collect from only one of these programs at a time, so it is important to discuss changes to your situation with the Social Security Administration and determine which benefit would earn you the highest income.  For example, if you currently receive benefits on your own work record and your spouse dies, you may be eligible to increase your benefits by claiming survivor benefits, instead, based on your spouse's work record.  However, you cannot collect both. You may only collect the one which will pay you the most.

Fact: The good news is that the majority of people receive more in benefits than they paid in!  According to research by the Urban Institute (which you can review at urban.org), the majority of people receive more lifetime Social Security benefits than they paid into the program during their working years, and this is true for both high income and low income earners.  Of course, there are exceptions when someone dies before they retire, or shortly after retirement, but the majority of people have significantly benefited financially from the program.  This is all the more reason why everyone should put pressure on Congress to fully finance the program.

Before you claim your Social Security benefits, you may want to learn as much as possible about the program by picking up a book which explains everything in easy-to-understand language.  You can find a variety of Social Security guides from Amazon at:  Social Security books.  

Readers can also get more information by visiting these websites:

ssa.gov
aarp.org/SocialSecurity
ncpssm.org/


If you are interested in learning more about Social Security, Medicare, financial planning, where to retire, common medical issues and more, use the tabs or pull-down menu at the top of the page to find links to hundreds of additional helpful articles.

You are reading from the blog:  http://www.baby-boomer-retirement.com

Photo credit:   Dupage Senior Group public page

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