If you are approaching retirement, it’s important to know about all your options. You probably already have an IRA or 401(k) for your eventual retirement. However, there is also the option of Social Security (SS). There are certain facts to know about it.
SS Isn’t Going Bankrupt
In spite of the rumors that SS is going bankrupt, the opposite is actually true. Generally, for decades, it has collected more funds than it’s paid out in benefits. This is largely due to Baby Boomers retiring more and more these days, with fewer people seeking SS benefits. Additionally, although the trust fund reserves may be depleted by 2034, SS will not go bankrupt.
Congress Will Likely Not Reform SS Soon
Republicans in Congress have repeatedly talked about reforming SS and its long-term funding issues. However, with the House of Representatives now completely reshaped after the 2018 midterm elections as Democrats won the majority, that will certainly not happen anytime soon.
Ideas to Reform Funding are Beginning to Take Shape
There has been a proposal about either eliminating or raising the wage cap on the amount of income that might be subject to SS payroll taxes. By next year, the cap would be $132,900, meaning that any employee who earns more than that per their annual salary wouldn’t be taxed. If the cap is eliminated, it would mean those in higher income brackets would pay a lot more into the system. Lawmakers have also discussed increasing the age for full retirement benefits or increasing the percentage of payroll tax.
Lawmakers Don’t Raid the Trust Fund
Politicians in Congress, as well as the president, cannot use the funds meant for SS to fund federal expenses. Instead, money that remains after the Social Security Administration (SSA) has paid benefits to recipients goes directly into the United States Treasury securities. If the government uses any of that money for securities, it is required to pay it back, along with interest.
Many Think SS Can be Better Run
Many people think that the SS system can be run better. As the SSA is such a large operation that includes 1,200 field offices across the country and 60,000 employees. As the number of people entering retirement has increased dramatically and quickly, it’s difficult for the SSA to keep up. There are fewer resources and too many people visiting their local SSA office have had to wait a long time to be seen in more recent years. Many have had to wait as long as an hour before an employee was able to assist them.
SS Benefits are Taxable
If a person receives a regular income in addition to SS, they may be required to pay federal taxes on their benefits. Generally, a person who earns over $34,000 in annual income may be required to pay up to 85 percent in tax on their benefits, while a couple who files jointly may have to pay the same if their combined income is greater than $44,000. As many as 13 states, including Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia, charge tax on SS benefits.
SS Isn’t Meant to Be the Sole Source of Income
For retirees, SS benefits are not meant to be the sole source of income. According to the SSA, if a person has earnings that are only average, SS benefits can only replace around 40 percent of their wages before they retire. Regardless of that statistic, 26 percent of people 65 and older who get SS benefits use it for the majority of their retirement income. Another 50 percent rely on the benefits for a minimum of half their retirement income.
SS’s Purchasing Power is Diminishing
The SSA annually releases a cost of living adjustment (COLA). This is an adjustment that allows individuals receiving SS benefits to keep up with inflation. Unfortunately, the method that is used to determine this number doesn’t take into account all of the health care costs the average senior citizen in the US has to contend with, which results in costs rising quickly. According to the Bureau of Labor Statistics, individuals 55 and older spend around 27 percent more money on health care costs than the rest of the population.
You Can Work and Receive SS
Although it’s possible to work and receive SS benefits, younger people will see a higher portion of their benefits withheld. By 2019, there will be a limit on earnings that states that a beneficiary cannot earn over $17,640 while getting SS benefits. If a person earns more than that, the government will withhold $1 from their benefits for every $2 their income is over the limit.
SS is Digital
SS is now digital so that people can easily track their benefits online.
SS Isn’t Just a Retirement Program
SS can be divided into four categories: retirement, dependent, survivor and disability. A person can qualify for more than one of those categories. Usually, SS only pays one benefit at a time to a recipient.
Most Get Back More Than They Put In
Surprisingly, most people get back more from SS than they put in. This is a rewarding fact that can help people from all financial backgrounds.