Social Security has been in the news a lot lately, with some members of Congress believing it should be privatized and therefore removed from the federal government. In fact, it is one of the issues Congress is debating as they discuss raising the federal debt limit. But we must realize that Social Security has a balance of $2.8 trillion. Social Security is not welfare. Every dollar paid out comes from contributions by workers and their employers, payments we made toward our retirement.
Social Security benefits play a vital role in reducing poverty, lifting more Americans above the poverty line than any other program. A hundred years ago most Americans worked until they died, and they died at younger ages. When a wage earner died or became disabled, the rest of the family was thrown into poverty and often became homeless. Most people couldn’t afford to retire unless other family members chose to support them.
Social Security was signed into law in 1935 by President Franklin Roosevelt as part of the New Deal programs of the Great Depression. President Eisenhower expanded Social Security in 1956 to include the disabled. It is a vital source of inflation-adjusted income for retired and disabled workers, their dependents and their survivors. For many who live in poverty, it may be the only income they receive.
The current Social Security system works like this: when you work, you pay taxes into Social Security. The money is used to pay benefits to • People who have already retired, • People who are disabled, • Survivors of workers who have died, • Dependents of beneficiaries. Benefits are adjusted for inflation.
You pay Social Security taxes of 6.2% of your earnings, up to $160,200. It’s listed as FICA (Federal Insurance Contributions Act) on your paycheck. Your employer matches what you pay. Self-employed must pay both halves. You and your employer pay Medicare taxes of 1.45% on all your wages or net earnings from self-employment; this is used for Medicare health insurance coverage.
Social Security bases your benefit payment on how much you earned during your working career. Your age when you start claiming benefits also affects how much you will receive. You can begin drawing retirement any time from age 62 to 70, and the longer you wait, the more you will receive each month. Full social security retirement age is currently age 67 if you were born in 1960 or later. Every year there is a cost-of-living adjustment.
Social Security is not the only source of income for most people when they retire. Most financial advisers say you will need about 70 percent of pre-retirement income to live comfortably in retirement. This income might include your Social Security benefits, pension, retirement accounts, investments, and personal savings.
A lot of people think Social Security is going bankrupt now that Baby Boomers are retiring. Even though 67 million people receive payments every month, money is still coming in from payroll withholding. The Social Security Administration uses those taxes to pay people who are getting benefits right now. And the amounts we have paid in the past are invested and earning interest.
Realize that there is $2.8 trillion in the Social Security trust funds – far from bankrupt! Social Security taxes are deposited in these accounts, and Social Security benefits are paid from them. The only purposes for which these trust funds can be used are to pay benefits and program administrative costs.
It is true that a few years ago Social Security began paying out more than they receive each month. But in 1983, under President Reagan, Social Security was restructured with a higher tax rate and retirement age to establish the trust fund to be prepared for this. If more funds are needed in the future, Congress can change the withholding rate, raise or eliminate the maximum earnings limit, or have people pay Social Security on other forms of income, not just paychecks. Wealthy people who live off dividends or capital gains but never receive paychecks from a job may have to begin to pay into the system.
Social Security is an important program in the United States. The taxes that are withheld from our paychecks keep millions of retirees, disabled, and surviving dependents out of poverty.