In 2019, 64 million people collected monthly Social Security benefits. It’s one of the oldest and most efficient social programs in the U.S. (created in the 1930s). While all American workers pay into it, many don’t really know what this program does or how it benefits them.
What is it Really?
Social Security is a government program that we all pay into when we’re working. It pays you monthly benefits when/if you:
- Become disabled
- Lose a spouse or parent
Working and paying taxes earns you Social Security credits. As of 2020, you get one credit for every $1,410 you earn. You can earn up to four credits each year.
Social Security benefits only replace some of your income. The amount you receive depends on how much you earned during your career.
Should You Be Worried About Social Security Running Out?
Social Security is funded through payroll taxes. As long as employers and workers keep paying payroll taxes, the program won’t run out of money.
Even self-employed people pay these taxes.
Still, the program does have funding issues. Until 2019, Social Security collected more than it paid out. But now, it’s paying out more than it’s taking in. That’s because the retiree population has exploded.
People are living longer, and more people are retiring.
Social Security’s surplus is set to run out by 2035. At this point, it will only be able to pay out 79% of the scheduled benefits.
This isn’t the first time the program faced funding issues. In 1983, Congress increased the retirement age, boosted the payroll tax rate and imposed income tax on benefits to keep the program up and running.
Congress may take similar steps in the coming years to solve current funding problems. If not, Social Security may wind up being severely underfunded in the near future.
Can Social Security Really Benefit You?
Yes. If your spouse dies or you become disabled, Social Security benefits can help you make ends meet until you get back on your feet. In fact, more than 10 million disabled workers and their dependents receive Social Security benefits each year.
If you’re at or close to full retirement age, you can use your monthly benefits to fill financial gaps.
Benefits are guaranteed every month, so you always have a reliable source of income.
Still, you shouldn’t count on Social Security being your only source of income when you retire. Instead, it’s important to pay into a retirement plan while you’re still working, such as:
- 401(k) plan
- IRA account
Paying into a retirement plan will ensure you have savings once you reach retirement age. Whether or not Social Security is still around, you will be taken care of financially.