Social Security is the key for retirement for most Americans. As much as 96% of workers are currently protected by Social Security. However, there’s an growing uncertainty about future Social Security benefits.
In this article, you will discover how Social Security works and how a scarcity in funding can affect the benefits.
How Does Social Security Work?
Every worker pay taxes, which are deductions from their earnings. These deductions go into the Social Security system. If you look at the stub of your paycheck or check your deposits record, you will see the amount deducted for Social Security. When you retire or if you cannot work because of disability, you can apply for Social Security benefits. However, the amount available to you will depend on three factors.
- the total number of years you worked at jobs which qualified you for Social Security
- the amount of money you earned at those jobs
- your age at the time you retired
The total number of years you work and the more money you make will result in higher Social Security benefits. To receive the benefits, you have to apply for them (i.e. application process). You also have to amass the correct number of credits and be 62 years old for the application to go through. Your spouse and dependent child/children and your survivors will eventually receive your retirement Social Security benefits.
Social Security Retirement Benefits how they work
The taxes you pay over the years will accumulate credits and these can go towards your Social Security benefits. Your date of birth and your age are critical to your application for your retirement benefits. For example, person born after 1929 will need 40 credits before they can apply for the benefits. This is the same as working regularly for ten years. If you stop work and didn’t reach the required number of credits, you cannot get the benefits, but you don’t lose them either. Your credits will start accumulating when you start working again, adding up until you have the required amount to qualify.
You can start calculating your retirement benefits by looking carefully at your Social Security Statement. Your statement is available online at www.ssa.gov/mystatement/. Every five years the Social Security department issues printed statements to persons who are not getting benefits, and yearly to persons over 60 years old.
Social Security Benefits Concerns
There is some concern about Social Security benefits running out in the future. The factors that have led to this concern include the biggest drop in history envisioned for the next decade of worker to beneficiary ratio. What also compounds the situation is the retirement of baby boomers, longer life span of people, and a decline in birth rate and the constant increase in the cost of living.
When Social Security was first initiated, the worker to beneficiary ratio was above 15:1 but currently it is at a whopping low of 3:1. The odds therefore, is that this will shrink further in the next decades. The concern then is that the Social Security system will receive less money while more distributed. The fact the forecasts indicate that by the year 2020, the federal government will be distributing more money in Social Security than what will come in through payroll taxes.
From an economically viewpoint this shortfall cannot be left to chance for long term and money from somewhere must be plugged into the system to avert the ensuing problems in the future. What are the present forecasts? If not addressed, there will be nothing left in the Social Security trust funds come 2035. When this happens, retires can expect about 75 cents on each dollar of reserved benefits. Why? No surplus will be left when the trust fund is exhausted. From then onward, the amount distributed in the form of benefits will match only that which comes into the Social Security system via taxes from employment.
What to do if you are about to apply for Social Security Retirement benefits
There is no cause for concern if your retirement is currently pending. The problems described above are not likely to affect present retirees or even those who will be retiring in the ensuing ten years. Furthermore, the SSA has indicated that it has no plans to curtail current benefits.
The Social Security Scene for Present 25-to-35-Year Olds
You only become concerned about your Social Security benefits if you are years away from retirement. It is highly likely that persons currently entering or those new to the workforce will see a very diverse Social Security system than the one currently in place.
If there are no changes, the current 25-to-35-year olds will face more than 25% reduction in benefits upon the depletion of the Social Security trust fund. Varying responses among educators, politicians and economists, is that there will be a slow recovery that will happen over time to correct the shortfall in the system when it’s time for this younger generation to retire. There are others also who believe that drastic action must be taken to avoid the obvious fall-out of the Social Security system.
Fixing the Social Security Problem
Globally, some countries are actually addressing their Social Security system. For example, in the government in the United Kingdom have started to prefund its Social Security plans. The United States is also considering prefunding and other solutions such as payroll tax increases and monies from the general revenue.
Millions in American workforce see Social Security as an important of a safety net and is not worth the risk of losing. Therefore, small changes must be made to the Social Security system now. If the changes are addressed immediately, they will ensure that future drastic measures will not be necessary.