Will You See Your Social Security Check Throughout Your Life?
Social security is one of those things we all hear a lot about, but most of us don’t fully understand . You may know that there is a problem with the depletion of social security funds, but that probably doesn’t mean what you think.
How Social Security Works
When you pay a portion of your salary goes to the so-called the FICA, the law of the federal insurance contributions tax that finances social security. Your money goes into a pot that pays people who are currently receiving Social Security – perhaps your parents and grandparents (or people with disability insurance ).
When you are ready to retire at 60, you will apply for Social Security yourself and you will be paid from the same basket. But by then, future generations will fund your welfare.
Social security problem
In fact, the money we pay goes to a completely different generation, and this complicates the situation. The problem right now is that baby boomers are retiring, which means we have a lot of retirees, which means we have a lot of money coming out of this social security basket.
If that’s not enough, we will also have fewer workers financing social security at the same time. In short, there is more going out now than going in.
But good news! The Social Security Administration has a surplus that they receive when this happens. This surplus accumulated when we received more money than we exited – as opposed to what is happening now. Surplus money earns interest, just like you could save extra money at the bank . In addition, the government is allowed to use this money in the same way that your bank can use your savings for loans. This surplus serves as a buffer, like an emergency fund, that can save you if you lose your job and have to pay for basic living expenses.
But again the bad news. Unfortunately, this surplus is running out, which is why you constantly hear that social security funds are running out. Social security itself does not end , but the surplus we used to pay is running out. In fact, this surplus is expected to be empty by 2034 . Does this mean future generations won’t see the check? Not really. According to Kiplinger , “As long as payroll taxes exist, Social Security will never go broke.” However, it is estimated that we will receive about 20% less than the recipients of the payments receive now . This is a big deal.
Fidelity recently released a Social Security Benefit Calculator for people between the ages of 40 and 69 to help you determine exactly how much you will receive based on when you start claiming benefits.
The future of social security
The current problem with social security is often misunderstood, but despite the myths, some people still worry that social security is at the brink under the current administration.
President Trump has opposed cuts in welfare, but his administration has taken steps that seem to support the opposite . For example, Trump named Mick Mulvaney as director of the Office of Management and Budget, and Mulvaney has been quite outspoken about social security cuts .
However, even without this threat, the problem of social security remains large. And politicians are proposing a variety of solutions, such as raising the upper income cap to pay for Social Security or raising the age at which people can receive benefits .
Of course, this is not only a problem for retirees, but also partly because retirement savings are so important . At least you want to be prepared. And that means when the time comes, make sure you have a nest egg large enough, because even if you see a Social Security check, it might not be big.