No doubt youve heard of it, maybe in the context of politicians yelling about how to fix it.
But why is it broken in the first place, and what exactly is it all about?
Weve got your answers right here.
What Is Social Security?
When you get a paycheck, youve probably noticed a little cash going to something called FICA.
This is theFederal Insurance Contributions Act tax, and its what funds Social Security.
Your money goes into a pot, and current Social Security recipients (your grandparents, perhaps?)
are paid from that pot.
That money earns interest, the same way youmight back up your extra money at a bank.
What Happens When Youre Eligible
When you reach your 60s, youll probably start thinking about retiring.
That means applying for Social Security as a source of retirement income.
Hopefully its not your only source, though.
You may also have a pension.
But Social Security can be a helpful addition to your retirement income.
Similarly, if you retire after your full retirement age, you could get 8 percentmoreuntil age 70.
From there, they use a formula based on that number to decide how much youll be paid.
The SSA has auseful calculatorto help estimate what your retirement payments will be.
you’re able to also get an estimate of future earnings by signing up at theMy Social Securitywebsite.
The SSA offers prettystraightforward instructions here.
However, it doesnt mean things are completely rosy, either.
Thats not the problem either.
The problem is simple: we have more going out of Social Security than we do coming in.
At the same time, we have fewer workers paying taxes and funding Social Security.
So, we have less money coming in than going out: Investopedia calls it adeclining worker-to-beneficiary ratio.
It just means well run out of that surplus moneymoney in the piggy bank, if you will.
People are still paying Social Security taxes, so we still have money coming in.
For example, the piggy bank for Disability Insurance is projected to be depleted by next year.
And thats just disability.
The rest of Social Securitys piggy bankis expected to be empty by 2034.
This doesnt mean theyll stop paying benefits, but it does mean everyone will get less.
Thats a big problem, and it has seniors and pre-retirees concerned.
Theres currently a cap the amount of Social Security taxes taxpayers have to fork over.
By eliminating the cap altogether, high earners would be taxed more on Social Security.
On the other side of the coin, you could raise the retirement age.
Were already on course to raise the retirement age for future generations to 67 by 2027.
One group, the Business Roundtable, wants toincrease the age even further to 70.
Your best bet is tosafeguard your own retirementwith your personal savings.
Thats easier said than done, but its more reliable than trusting politicians to figure it out.
Themore you save(and the earlier you start!
), the better off youll be.
Image by Tara Jacoby.
