SUMMARY: Social Security Retirement benefits are one thing that people know of, but often what they know isn't always accurate. Here are some answers tp questions people have about Social Security to help dispel common myths of the program:
Social Security Retirement benefits are one thing that people know of, but often what they know isn't always accurate. First, the Social Security Trust Fund was created in 1939 as part of Old Age and Survivors Insurance by the Social Security Administration (OASI). The goal of this legislation was to help American workers have financial resources in retirement. But since its inception, there have been myths surrounding Social Security. Here we will answer questions people have about Social Security to help dispel common myths of the program:
Q: Can the U.S. Government borrow money from the Social Security reserve fund?
The government does not borrow money from the Social Security Reserve fund, and by law, is unable to tap the fund, regardless of the U.S. deficit. There has never been any change in how the Social Security program is financed or how the federal government uses payroll taxes to fund the program.
Q: Since a tax funds Social Security, can I deduct it when I file my taxes?
There was never any provision of law making the Social Security taxes paid by employees' deductible for income tax purposes. The 1935 law expressly forbid this idea in Section 803 of Title VIII. - SSA.GOV
Q: Are Social Security retirement benefits taxed?
President Reagan signed the taxation of Social Security benefits into law in April 1983. In 1993, additional legislation was enacted, increasing the benefits subject to taxation from 50% to 85%.
Q: Can immigrants and non-U.S. citizens collect Social Security retirement benefits?
Legal immigrants and non-U.S. citizens can qualify for Social Security retirement benefits if they earn enough work credits over their careers. They must also have a social security number and have had employment at some time in the United States. Like domestic-born citizens, they must accumulate 40 Social Security work credits by earning one credit for every quarter of earning at least $1,470 for 2021 ($1,510 for 2022) to a maximum of four credits per year. This formula applies to everyone born since 1929, and 40 credits are the equivalent of 10 years’ worth of work.
Q: How is Social Security funded?
Social Security retirement benefits (OASI) collect from today’s worker and employer payroll taxes to pay current retirees. The collected revenue is used to pay today's recipients, and the additional revenue is invested into the Social Security Trust fund.
Q: Does Social Security ever raise the monthly benefit?
Since 1975, Social Security has given the cost of living (COLA) raises to keep up with inflation. Typically, the higher the inflation rate, the higher the increase. In 2021 and 2022, the COLA increase was 5.9%, the most significant increase since 1981, when the average inflation rate was 10.32%.
Q: Is there a benefit to waiting until full retirement age to collect Social Security?
Life expectancy tables indicate that men turning age 65 today have a life expectancy of 84.3 years, and women turning age 65 today have a life expectancy of 86.6 years. While it may be tempting to take your retirement benefit early, waiting until your full retirement age will result in a larger payout over time.
However, there are other factors for those nearing retirement to consider when it comes to when to take their benefits. For Americans that will retire after 2035, the future of receiving their projected full retirement monthly benefit looks bleak – the Social Security Administration estimates the ability to pay 77% of promised benefits at that time.
What is Social Security's present situation?
- $2.6 Trillion in the fund earning 2.3% in Special Treasuries (redeemable at face value like cash)
- Currently Supports 50 Million beneficiaries through 150 Million workers paying social security payroll tax
- Inability to borrow funds to pay obligations. Benefits only payable out of reserves and current payroll tax inflows (UNDER CURRENT LAW)
- By 2032 - 2037 (without changes), the Reserve is estimated to be exhausted
- Continuing payroll taxes are only enough to pay 73-78% of scheduled benefits
- Declining U.S. population of a 2:1 ratio of workers to retirees (beneficiaries)
Work with a financial professional
While there may not be as much in benefits as we expected, we can do things to prepare for the shortfall. We can plan and replace it with other investments to make up for the shortfall. Together we can review your options, look holistically to the future, and get organized to see the big picture of how retirement may be for you. Contact our office today to review your situation and develop a plan for your retirement strategy.
Content in this material is for educational and general information only.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
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