Social Security: 10 eye-openers
Every worker pays into it (almost). Every American (almost) can expect some form of benefits. Without reform, the system won’t last for each person currently living.
This much we know.
Beyond the basics, facts get muddled. Young adults, for example, must wait longer than do older generations, and can’t draw Social Security income before age 67, a number that will continue to climb. More surprising (or at least frustrating) are nine more facts collected from the Social Security Administration, AARP, and a variety of other sources:
1. Ten years could do it. For earnings to qualify requires only 40 “credits” — representing very minimal income, whether or not full-time. Of course, that would be a small payout; 35 years paying in is wiser. The benefit calculation formula (“average indexed monthly earnings”) is based on the 35 years in which you earned the most money, so less than 35 means “zero” years are included, which shrinks the average.
2. A millionaire pays in at the same rate as someone earning $118,500. That’s because taxable earnings are capped at $118,500 for 2016; no SS tax on annual income above that amount. One proposed fix for the program is changing this so all earned income is taxed.
3. The rate has already jumped more than 700 percent. When the program debuted in 1937, the tax rate was 2 percent, split evenly between employees and employers. Today it’s more than 15 percent. Yes, the population is much higher, and benefits broader.
4. Don’t count on living on it. The current average monthly benefit is about $1,348, and the maximum monthly benefit is $2,639 — that’s for workers who had highest incomes. Spouses who both collect have benefits reduced, so it’s not a times-two scenario.
5. Didn’t work? It may not matter. Spouses may help nonworkers collect up to 50 percent of their spouse’s benefits; widows and widowers can choose to start receiving 100 percent of their late spouse’s benefit instead of their own. Divorcees married 10 years or more may collect benefits based on the ex’s earnings if the collecting spouse hasn’t remarried.
6. Those unemployed and retirement age could collect both. Unemployment insurance benefits are not counted under the Social Security annual earnings test, so they don’t affect your receipt of Social Security benefits. However, the unemployment benefit may be reduced by the receipt of retirement income.
7. Religion exempts some (the “almosts”). Congress created participation exemptions, such as Amish and other religious groups who guarantee provisions for members throughout life and don’t believe in insurance policies, as well as some government workers. Of course, that also means no benefits, such as Medicare.
8. Don’t be fooled by the bigger check. As those occasional statements remind us, for each month you delay collecting Social Security past the first one eligible, your payment goes up until it flattens at age 70. But that’s because of the lesser overall payout across life expectancy. So you won’t likely be banking more money, just planning a slightly thicker retirement budget.
9. The system’s not bankrupt, yet. Scary rhetoric aside, between taxes coming in and the interest they generate, Social Security trust funds are running at annual surplus. However, that’s projected to stop in four years, when it technically shifts to deficit (more going out than what’s coming in) and they start pulling from the trust fund to keep it going. From that point the Social Security system can still rely on interest payments to cushion the deficit for a while longer.
If no changes are made, according to the latest trustees’ statement, by 2035 funds will be sufficient to pay about 75 percent of the program’s overall costs, declining thereafter. Those are all shifting numbers, as interest and incomes, the number of retired, and the number of workers are moving targets. In any case it’s a far cry from the year 2057, when the 1983 Trustees Report projected the program would still be stable and solvent.
For more information and a benefits calculator, see SSA.gov.
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Sholeh Patrick is a columnist for the Hagadone News Network who wishes company pension plans were still the norm. Contact her at Sholeh@cdapress.com.