Will Social Security run out of money?
Social Security master class
1. Why did it start?
The program began in 1935 the height of the Great Depression. The program was designed as insurance for old age. A guarantee that if you work for a lifetime you will be taken care of by the U.S. federal government.
The program included Old Age Insurance, Dependent Children Insurance and Unemployment Insurance.
2. When and so started it?
The Social Security Act was signed into law August 14, 1935 by President Franklin. D. Roosevelt.
3. How is it funded?
The program is primarily funded through payroll taxes called Federal Insurance Contributions Act Tax (FICA) or Self Employment Contributions Act Tax (SECA).
In 2021, the Social Security program received $981 Billion in payroll tax funding.
The Social Security program is not like your own personal savings account. Current working employees pay into the program and the money is then distributed to individuals that are Receiving benefits.
4. How do you qualify for it?
In order to receive benefits you need to work a minimum of 40 quarters or 10 years of gainful employment.
The more years you work the higher benefits you will receive.
5. When should you take?
You can start to take Social Security benefits at 62 years of age. “Full“ social security age is 67 years of age.
The longer you wait to take benefits the higher the benefits payments you receive.
6. What funding problem?
The change is happening.
Remember that I said current employees are working and paying taxes today and that funding goes to individuals that are currently retired.
When the program was created there were a lot more young employees than older individuals retiring. That ratio has changed over time. In 2018, the funding intake and payout was even. In 2019, the program paid out more than it took in.
As the US birth rates slow and more and more baby boomers retire the taxes paid into the program will no longer cover the amount of benefits paid out. The longer this happens the closer the program will get toward exhaustion.
7. Let’s hear some solutions
There are lots of options to make sure the program stays solvent.
1. The program deficit will be added to the US national debt.
2. Raise the payroll tax
3. Increase the age you can start taxing benefits
4. Increase the “Full“ benefits age - people will wait to take benefits.
5. Restrict who qualifies for Benefits.
8. How many people receive Social Security?
In 2020, 65,000,000 people receive social security benefits collecting $1.04 Trillion in benefits.