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Social Security News
Social Security is Strange Political Animal
Surrounded by Myths
Do most of us pay in
more than we get back, or is that a myth?
 October 11, 2006 – While most aging baby boomers
eagerly await their first Social Security check, and most senior
citizens have learned to depend on theirs, the reality is most Americans
know little about this program. We know we pay for it while working and
we collect from it when we reach age 65, usually. But, we may fall
victim to some of the myths about the popular program that are explained
by ElderLawAnswers.com.
Myths about Social Security by
ElderLawAnswers.com
 If
you are wondering about your future Social Security benefits, you are
not alone. Social Security is a strange political animal. On the one
hand, it is politically sacrosanct -- both Democrats and Republicans
have kept it off-limits in their efforts to balance the federal budget.
At the same time, when polled, most younger Americans say that they do
not expect Social Security to be around for them when they retire.
Both attitudes towards Social Security reflect
misunderstandings about the program's funding. Those without faith in
the program should be assured that it will be around to contribute to
the retirements of today's workers, even if no one should depend on it
as his or her sole retirement income.
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 October
11, 2006 - As you approach retirement, you must decide when to begin
taking your Social Security benefits. You have three options: You may
begin taking benefits between age 62 and your full retirement age, you
can wait until your full retirement age, or you can delay benefits and
take them anytime up until you reach age 70.
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Social Security Private Accounts Not Likely to be
Supported in this Election
AARP survey finds
strong opposition among those 42 and older
 October 4, 2006 – One thing voters will not be
hearing about this election are the Social Security private investment
accounts that were so strongly promoted by President Bush and supported
by Republicans in Congress. That boat has sunk. Initially, the idea was
interesting to many younger voters but the most recent polls show 71
percent of Americans age 42 and older - the most likely voters - now
oppose the idea.
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The Rules have Changed
to Get New Social Security Card
September 5, 2006 -
A new law, which went into effect last December, requires specific
proofs of the age, identity and citizenship of anyone applying for either a
new or replacement Social Security card. Also, all documents used as proofs
of age, identity or citizenship must be either originals or copies certified
by the issuing agency.
Read more in the Social Security Q&A column.
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Social Security
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Social Security Q&A |
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Myth 1: The Social Security 'Trust Fund'
Although the Social Security Administration measures its surplus or
deficit in terms of a "trust fund," in fact no such entity exists. As a
result of this terminology, most Americans believe that their payroll
taxes go into an account to be drawn on when they retire.
In fact, their
taxes simply go to pay benefits to current retirees, with the surplus
going to pay other costs of government.
Currently, the payroll tax is bringing in more than
is necessary to pay current retirees and those on disability: In 1999,
there were revenues of $527 billion and distributions of $393 billion,
resulting in a $134 billion surplus. The federal government keeps track
of the surplus and in effect signs an IOU to repay the Social Security
system with interest when needed.
Myth 2: Workers get less out of the system than
they paid in
While the current Social Security payroll tax is 15.3 percent on
income up to $94,200 a year (2006 figure), the tax rates and the wage
base were much lower when most current retirees were working and
contributing to the system. As recently as 1972, the maximum payroll tax
paid (by the employee) was only $419 a year. Even including interest
earned since the contributions were made, most retirees receive back
significantly more than they contributed.
This may not be true for current workers, since
both the tax and the wage base upon which the tax is determined have
increased dramatically since the 1970s. Whether current workers will
recover their entire investment will depend in part on how long they
live, whether they are married and whether they earned a high or low
wage.
Myth 3: The Social Security system is bankrupt
Due to anticipated demographic developments, at some time in the
future Social Security benefits will exceed revenues from the payroll
tax. This means that benefits will have to be cut or postponed, or that
the difference will have to be made up from federal tax revenues, or
both.
The federal government can't go bankrupt like an individual or
company. It must meet its obligations, and it will do so. Additionally,
dire predictions abut the insolvency of the system fail to consider the
possibility of immigration or another "baby boom" increasing the number
of wage earners in future years, or the effect of an increasingly
productive economy.
Myth 4: Proportionality
While most people expect to receive retirement benefits proportional
to their lifetime earnings, this is not exactly how Social Security
benefits are determined. In calculating a retired worker's monthly
benefit check, the SSA determines a "primary insurance amount" (PIA)
based on the worker's earnings over 35 years. But it weights the first
few hundred dollars of average monthly income highest, and income over
$3,955 a month (in 2006) lowest.
The result is that low-wage earners
receive a higher benefit relative to their lifetime earnings than do
higher wage earners. (This is somewhat offset by the fact that the
payroll tax is based on only a portion of the higher wage earners'
taxable income.)
Myth 5: The system favors two-income couples
While the system of determining the PIA may seem to favor two-income
married couples, in fact single-income married couples do better in most
cases. This is because spouses of retirees are entitled at a minimum to
one-half of the benefits of the retired worker.
So, in effect, the
married worker with a non-working spouse receives 150 percent of the
benefits received by a non-married retiree with the same work history. A
working spouse must have an earnings history nearly comparable to that
of the main wage earner to receive benefits substantially exceeding what
he or she would be entitled to without having worked.
Myth 6: 'I can invest better'
Many people feel that they could do better if they took their
payroll tax (including the employer's contribution) and invested it on
their own. That's possible, but by no means assured. As is discussed
above, if you are married and the sole or primary wage earner, it would
be almost impossible to beat the extra 50 percent of benefits that come
to your spouse.
In addition, any calculation must take into account the
disability benefits and programs for disabled children and other
dependants in measuring the return on the Social Security investment.
Due to the redistributive nature of Social Security, it would be very
difficult for lower-wage earners to do as well investing on their own.
Social Security also has the advantage of forcing
workers to save. You and your employer have to make the contributions
each month. It's portable, meaning you lose nothing by changing jobs.
It's guaranteed against bankruptcy or an employer misusing the funds.
There's no risk that you'll dip into the funds prior to retirement for
other pressing needs.
Finally, for most Social Security beneficiaries,
the monthly checks come tax free. Finally, Social Security is not an
investment program. It's a system under which current taxpayers support
current retirees. If it is to be replaced with a forced investment
program, as some suggest, provisions need to be made for today's
retirees.
Conclusion
In short, the Social Security system provides a secure base income
for most retirees, and it will continue to do so in the future. Its
redistributive nature benefits lower-wage earners at the expense of
higher-wage earners, but they and their employers contribute a higher
proportion of their earnings as well.
Under any measure, most current retirees receive
back significantly more than they contributed. Due to significant
increases in the payroll tax and the wage base, this result cannot be
assured for future retirees. But that does not mean that the system is
at risk of going bankrupt, as many Americans fear.
Editor's Note: ElderLawAnswers.com has a
section that does a very good job of explaining the Social Security
program and helping readers make decisions about their Social Security
benefits.
Click here to this section.
Click
here to the ElderLawAnswers.com home page.
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