looking forward

President Franklin Roosevelt signed the Social Security Act into existence in 1935. In response to the vast poverty in the 1930s, especially among senior citizens, the original intent of the Social Security Act was to provide a form of social insurance.  The hope was to bring provision to people in light of the many dangers tied to modern society such as longer life expectancy, job loss, disability, poverty, and the hardships that may fall upon widows and widowers.

Much has changed in the U.S. since the 1930s. Most Americans count on social security as a main source of income in retirement. We’ve been cautioned about the long-term solvency of social security for at least 40 years. Life expectancies continue to increase, and the number of seniors has never been greater.

Social security benefits are funded by payroll taxes collected by the IRS which are then placed into the Social Security Trust Funds. If you’ve ever looked at your pay stub and wondered what “FICA” is, it stands for the Federal Insurance Contributions Act. That’s your contribution to social security. You pay 6.2 percent of your income. Your employer matches your contribution. Those that are self-employed pay the entire 12.4 percent on their own.

Looking to the Future of Social Security:

looking forward to social security_what can we expect

1. The next decade will have the lowest number of workers compared to retirees of all time. At one time, there were 15 workers to each retiree. Now the ratio is 3 to 1. It will sink even lower. More money is removed from the program each year. Currently, the Social Security program is paying out more money than it’s taking in.

2. It’s estimated that the Social Security trust fund will run dry by 2034. To put things into context, from 1983 until 2010 the social security program was running a surplus. That excess money was placed in a trust fund. Normally, the social security payments are made to retirees using social security taxes from current workers.

  • Social security is beginning to dip into that excess due to a short fall. More money is being paid in benefits than the government is collecting in social security taxes.
  • At that point, the current workers will only be able to cover about 75-80% of the necessary payments.

3. The outcome is unclear. The current law doesn’t permit greater payments than the amount supported by social security taxes and the surplus. Congress could intervene and change the law. It’s also possible that social security taxes could be raised.

  • Current proposals seek to raise the retirement age even higher, pay less in benefits, or increase taxes on the wealthy. The issue is a political hot button, and it’s likely that Congress will continue to kick the can until the Social Security trust fund is closer to depletion.

4. At this time, about 15% of the population is over the age of 65. That number is expected to rise to 23% by 2080. The percentage of working-age people will drop by 6% over the same time.

This just highlights the fact that retirement planning is so important. Younger citizens can probably expect to work longer before being able to utilize their benefits. With proper saving and investing habits, social security should be treated as the icing on the cake. It will be wise to rely on yourself for most of your retirement funds, and encourage younger generations to become financially literate and begin their planning process early.