Social Security primer and update | Business

Date:

Jill Schlesinger

It’s been a while since I wrote about Social Security, so in honor of the 85th anniversary of the first time the U.S. government collected Social Security taxes—and, more importantly, made lump sum payments to retirees (President Franklin D. Roosevelt signed the actual legislation on August 14, 1935) – it’s a perfect time for a refresher on the popular benefit.

Social Security is a pay-as-you-go system financed by payroll taxes. That’s the Federal Insurance Contributions Act or the “FICA” line item you see on your payslip.

When it was first conceived, the taxes that came in were immediately converted into outgoing benefits for retirees. The system changed over the following decades in response to demographic shifts and economic conditions.

For years, more money came into the program than went out, creating a surplus.

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Those surpluses are shrinking as the mass baby boom generation retires. Alicia Munnell, the director of the Center for Retirement Research at Boston College, described this situation as “a rat being consumed by a snake.”

Munnell recently noted that, in addition to longer life expectancy, “the combined effects of baby boomer retirement and a slow-growing workforce due to the decline in fertility are reducing the ratio of employed to retirees from about 3 to 1 to 2 -to- 1 and increase costs proportionately.”

Those extra costs are causing social security to fall behind.

According to the Trustees Report 2022, the Retirement and Survivors’ Insurance Trust Fund, which pays retirement and survivors’ benefits, will be able to pay the planned benefits in a timely manner until 2034. At that point, the fund’s reserves will be depleted and continued tax revenues will be enough to support 77% of the planned benefits.

The trustees note, “Legislators have many policy options that would reduce or eliminate long-term funding gaps in Social Security and Medicare.”

The possible solutions could be a combination of: increasing the level at which FICA taxes are levied (also known as “the SS wage base,” which is currently $147,000); increase the current FICA tax rate, set by law at 6.2% for employees and employers each or 12.4% for self-employed Americans; or raising the retirement age at which you are entitled to Social Security pension benefits. In other words, a little tinkering here and there should help solve the problem.

Since Social Security isn’t going away, here are a few important things to know about claiming retirement benefits:

You must have worked for at least 10 years.

The age at which you can receive benefits depends on your date of birth. The full retirement age increases step by step if you were born in the period 1938 to 1960. After that, the age is 67 years.

You can file a claim as early as age 62, but it is permanently reduced by as much as 25%, which can also affect a non-working spouse.

Claiming early will negatively affect all earnings (including wages, bonuses, commissions, and vacation pay – or net earnings if you are self-employed, but not pensions, annuities, investment income, interest, veterans, or other government or military retirement benefits ).

If you’re still working and under full retirement age all year, the government will deduct $1 from your benefits for every $2 you earn over the annual limit ($19,560 for 2022).

If you delay retirement until after your full retirement age, you are entitled to “deferred retirement benefits”, or 8% more per year for each full year you delay, up to age 70.

When you’re ready to apply for retirement benefits, use the government’s online retirement application, the fastest, easiest, and most convenient way to sign up.

Jill Schlesinger, CFP, is a business analyst at CBS News. She welcomes comments and questions at [email protected]

Jill Schlesinger, CFP, is a business analyst at CBS News. She welcomes comments and questions at [email protected]

The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

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