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Social Security – Is It Real Security?
Social Security is funded through the Federal Contributions Insurance Act (FICA.) There are two parts to the contribution, Social Security and Medicare. If you earn wages 6.2% is deducted for Social Security, your employer also pays 6.2% of your wage into the fund. The first $106,800 of annual wages is taxed, after that Social Security taxes are not levied. Medicare tax is paid on all wages. Self-employed individuals pay FICA tax on the first $106,800 of earnings at a rate of 15.3% multiplied by .935, an effective rate of 14.3%. Again, the Medicare tax is paid on all earnings. Most of us think of the retirement age as being 65, but full benefits are not paid at age 65 for anyone retiring now. If you were born after 1937 the full retirement age is 65 plus some months up to those born in 1960. If you were born after 1960 the full retirement age is 67. Like me for example, I was born in 1959, so my full retirement age is 66 and 10 months. Will Social Security make you secure? I have paid in not at the maximum amount, but near it for most of my working life. My estimated monthly benefit at retirement is $2,366. Given the inflation that will happen over the next 16 years, that doesn’t look like a lot of money. Also, my earnings are about double the median income, so half of $2,366, or $1,200 is certainly not much money in 16 years. Is Social Security secure? Benefits are paid out of current tax collections. There is no fund of social security money to pay future benefits. When the program was created in 1935 there were about 40 workers to support each beneficiary. In 1950 the ratio was 16:1, and it is currently 3.3:1. The ratio will continue to shrink until it is estimated in 40 years it will be 2:1. The ways that the program remains viable are 1) increasing the payroll tax, 2) raising the retirement age further, 3) decreasing the monthly benefit, 4) means testing, or 5) using general revenues. None of these options are politically palatable, but one or a combination of them will have to be used. Social Security is a large investment for each of us. However, the return on that investment will not be significant. Supplementing retirement income is necessary for everyone. Article Directory: http://www.articledashboard.com Get free instant access to information on personal financial issues, click here personalfinancialmanagement.net . Free newsletter just for joining. |
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