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Social Security has
been changed several times over the years to meet the needs of the
people and it will be changed again in the future as the peoples needs
change.
Social Security provides a steady income for older Americans and
automatically adjust for cost of living changes.
The earliest age for drawing retirement Social Security is 62, but the
benefits will be paid out at a lower rate at this age. If you wait for
full retirement at the age of 67, then you will receive the full
Social Security benefit. The retirement age is gradually going up and
the 67 year cutoff is for people who were born after 1959.
One third of the elderly rely solely on Social Security, while the
other two thirds draw Social Security as a major portion of their
retirement income. As a statistic, 9 out of 10 retirees receive Social
Security benefits each month.
Social Security
is more than a retirement program.
About 1 in 3 Social
Security Beneficiaries are not retirees, which means younger workers
and their families receive disability and survivors insurance
protection. This is fast becoming America’s family protection plan.
Here is a break
down. A total exceeding 8 million workers and their families get
disability benefits and about 7 million people get monthly survivor
benefits. Here is an example of how the benefits might be applied.
If a 35 year old worker had an average income of $40,000 a year over
the period of their lifetime and had a spouse and children, they could
expect to receive $1,800 a month in disability benefits if they were
to become disabled. If this same person were to die, then the family
could receive up to $2,400 a month in Social Security Survivors
benefits.
Social Security
provides a foundation on which to build retirement security.
For most, a
comfortable retirement depends on several different incomes – Social
Security, savings and pensions.
Of all the employed
workers today, only about half are receiving an employer-sponsored
pension plan and the rest are not saving as much as they should. Most
financial advisors recommend saving about 70% of pre-retirement
earnings to live comfortable and Social Security is only supplying
about 40% of pre-retirement earnings. Even if you have a pension, you
are still going to have to save for retirement. If you do not have a
pension, then you will have to save more and start earlier in life.
Every year the
Social Security Administration mails out statements to people age 25
years and older. This statement shows you earning to date and
estimates your future retirement, survivors and disability benefits.
This statement should be used to help prepare for retirement and plan
for your future savings.
Issues concerning
Social Security.
Demographics plays a
huge role in Social Securities long-range financial problems.
Americans are now living longer and healthier lives than ever before.
Back in 1935 when Social Security was created, an average American was
expected to live to about 77 ˝ years old; today they are expected to
live to 82 ˝ years old and this age continues to rise.
In 2008 over 78
million baby boomers will begin to retire and in about 30 years, the
number of retired people is expected to double. If this isn’t bad
enough, the number of people paying into Social Security is expected
to drop from about 3.3 to 2.1 in the year 2032.
These demographics
are certain to put a strain on the future of Social Security Benefits.
The current
Social Security system is unstable in the long run.
A popular
misconception is that the Social Security taxes that you pay is held
in an interest bearing account just waiting to be paid back to you
when you retire. The sad truth is that Social Security is a pay as
you go retirement system. The taxes you pay today go to pay for the
current retirees and other beneficiaries.
A small relief is
that the amount of money being paid in now exceeds the current needs
and the remaining amount paid is going into a giant trust fund, just
waiting for the day to be paid out. This is a small relief, because
even with this reserve buildup it won’t be enough to sustain future
benefit payments. In a short time to come, 2017, the amount owed will
be more than the amount collected and the reserve fund will start to
be depleted. By the year 2040, the trust fund will be gone. If
changes are not made soon, then by 2040 Social Security will no longer
be able to sustain benefit obligations.
There are several
ways to prepare for the future of Social Security.
There are several
ways that Americans can prepare for the future needs of Social
Security benefits. The options that are chosen have different trade
offs. If these options are implemented soon, they will have less of
negative impact later.
One example is that
people think benefits should be reduced or slowed. In order to do
this the government would have to increase the retirement age, to
receive full retirement benefits. People are living longer in their
retirement years, because they are living longer and healthier lives.
The opposition to this says that most Americans are choosing to retire
early and it would be difficult for some people to live past the
current retirement age because of health issues or demands of the job.
Other people say
that Social Security taxes should be raised to cover future needs.
They want to increase the current combined payroll tax rate higher
than the current 12.4 percent. Payroll taxes have already been raised
20 times since the program started in 1935. At that rate taxes would
have to be raised 50 percent to pay for benefits owed.
Some believe that
the problem can be solved without raising taxes or reducing benefits.
This group favors “pre-funding” benefits for younger workers, this way
they can save in their own voluntary Social Security savings account.
They believe that by investing in stocks and bonds, workers could
receive higher benefits. This would also create a nest egg that could
be left to their heirs.
The problem with
personal retirement accounts is that there is a higher risk for the
workers. If the investments are not doing well at the time of
retirement then plans would have to be changed and the cost to
administer these accounts could be high.
Others seem to
believe the government should invest the Social Security funds in
stocks and bonds, not the individual. Some disagree and say that the
government should not be investing in private companies, because they
could be the largest share holder in a company.
These are a few of
the proposed options that are currently being discussed. No matter
what is chosen, something has to be done sooner rather than later in
order to prepare for the Social Security benefits short fall.
Data and Stats
supplied by the Social Security Administration
Copyright 2005 www-socialsecuritydisabilityinfo.com
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