Just the Facts...About Social
Security
by Tenille Martin
An easy to understand outline of social security
For most of us, Social Security is the check our grandparents receive, or the
chunk of money taken out of each paycheck. It's the elusive pot of gold that we
will receive during our retirement. Well, maybe not gold...loose change?
When President Roosevelt created Social Security (SS) during the Depression, it
was considered one element of a secure retirement plan for Americans. Though a
large part of the plan, SS was meant to join with personal savings and the
private pension supplied by employers. Unfortunately, since its inception SS has
become the primary retirement savings for many citizens. The question is...will
it be there when they retire?
How does SS work?
Social Security taxes are collected by the IRS and are "deposited" into a trust
fund that is used to pay benefits to current retirees. Now, don't let that
confuse you. It is not a bank account that the government withdraws and deposits
payments from. Instead, in simplest terms...it's a piece of paper.
In 2000, SS tax was taken out of the first $76,200 earned by every employee.
(Compared with $7,800 in 1971.) In fact, 75% of Americans spend more in SS than
income taxes! SS provides a lifetime monthly income to workers and their spouses
when the reach retirement age (65). The income is based on the length of time
they were employed and the amount of money they earned. Obviously, lower income
workers are especially hit hard and are rarely able to live on SS alone.
Where Does My Money Go?
In a speech before the Senate in 1999, US Comptroller General David Walker
estimated that the cost of the existing form of SS would more than double by
2034. What does that mean? Well, in 1950, there were sixteen people paying into
the system for every one retiree. In 2000, that number was down to three; and
it's estimated that in 2030, there will only be two workers for every one
retiree. Why? There are several reasons for the increasing demands on SS. * With
the increase in life expectancy, SS recipients are drawing more out of the
system. * Interest rates earned on SS are between 1-2% after inflation per year
Options?
There are many officials pressing for SS reform in both parties. According to
the Social Security Administration 1999 Annual Report, if Congress does nothing
to reform SS, deficits on the system will begin in 2017.
Two options widely supported are personal retirement funds and government
savings funds. Yes, it's pretty much what it sounds like... you saving for
retirement or the government saving for you. Some of the positive features of
personal retirement funds are: + Higher interest rates + More control for
retirees + Better for the economy However, they would also be harder on those in
lower income brackets who are already getting less from the system; As well as
those who aren't comfortable handling investments.
Tenille is currently a freelance writer and editor. She is a former
professional ballet dancer and actress.
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