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The Truth about Social Security

by Ron Holdraker
July 17, 2020

After an exchange on social media concerning Social Security, I thought it was time to break some long misconceptions on the federal program. 

The first “rumor” is that the government has taken funds out of the program to bolster spending and that is the reason there is talk about it going bust.

NOT TRUE

The Social Security trust fund has never been “put into the general fund of the government.” It is a separate account, and always has been.

For every dollar that comes in from Social Security taxes, a special-issue Treasury bond takes its place. These bonds earn interest — which is a good thing. If the program did not do this, it would be already broke and worth less than a third of what it actually is. For instance, if a government entity borrowed any money, it would be paid back with interest.

The Social Security Act, signed into law by President Franklin D. Roosevelt in 1935, created Social Security, the federal safety net for elderly, unemployed and disadvantaged Americans.

Times have changed since Social Security was developed. The now aging population is paid out by funds currently deposited. Unfortunately we are living longer than when the program was developed.  

The worker/retiree dynamics have shifted with more people retiring, while taking out more than the current input.

Some politicians have suggested changes in the system to have the retirement age increased to make the adjustment to what is referred to as an “entitlement”, or increase SS taxes to make a further adjustment.

People loudly voice disapproval of these changes feeling their entitlement should be left alone. Ironically, those protesting the most are ones who would not be effected by long term changes, the current retirees.

The public hears that SS will go broke by 2035, when it reaches a point where there simply will not be enough contributions deposited to offset our aging population.

The projections show that will only generate 76% of what’s needed to pay all benefits. That is why politicians and the public have come to the realization that we have to adjust the program as soon as possible. Unfortunately, the voters turn on any politician with enough balls to admit we have to grab the horse by the tail.

Another long falsehood is that immigrants can come to the U.S. and just start collecting money from SS. Eligibility to collect SS benefits are the same for everybody. Retirement payments are made by the amount of money you contribute to the program. That is why you may receive more or less than your neighbor.

Members of congress must pay into SS, the same as everybody and again, only get out what they pay into the system.

People question whether they will get out what they paid into the system. Actually, the taxes paid in are nowhere near  the average benefits paid out. Also remember that you only paid in half of the SS benefit, the rest is paid by your employer. FICA tax withholding refers to the money your employer takes out of your paycheck to cover the Social Security and Medicare taxes (1.45%) imposed on earned income by the federal government. The SS program also adjusts for cost of living changes. Bottom line -- it only takes a few years to get out what you actually contributed.

Like any program there are some snafus. Just because you get a statement showing a benefit amount, that  doesn’t mean that you’ll eventually get that benefit. The government can change the rules, but some adjustments must be made.

Also, people think SS is tax free. Also a myth, since you must pay income taxes on the amount you take in, depending upon your total income, but at a reduced rate due to your age.

Please prepare and understand SS benefits. It is best to talk to a financial advisor before retiring.

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