by AMAC Certified Social Security Advisor Russell Gloor Association of Mature American Citizens
Dear Rusty: I receive Social Security, but I still go in the hole to the tune of about $300 per month! I hear some people describing Social Security as “welfare” but I resent that description. Between my employer and me, we pay over 15% of every paycheck to Social Security, so it’s not “welfare”, it’s my hard earned money that I’ve paid these taxes on for 47 years. The Government has spent my money instead of investing it to make sure I could retire and not live under a bridge. I think that they should pay me back plus interest so I can live out my retirement! Signed: Disgusted
Dear Disgusted: You’re right that it’s your hard earned money that you’ve contributed to Social Security for many years, and it’s certainly not “welfare” by any definition. I do understand your frustration but I’d like to clarify a couple of things you are concerned about.
You’re correct that you and your employer have contributed over 15% of every paycheck to “FICA”, but not all of that goes to the Social Security Trust Fund. The breakdown is that 12.4% goes to the SS Trust Fund, and the rest – 2.9% – goes to help fund Medicare. The combined 12.4% Social Security contribution is evenly split – 6.2% each by you and your employer. Of the 6.2% you both contribute, 5.3% goes to the Old Age & Survivors Insurance (OASI) fund from which regular Social Security benefits are paid, and 0.9% goes to the Disability Insurance (DI) fund from which SS disability benefits are paid. Nevertheless it is, as you say, your money – and your employer’s – that goes into these funds.
Social Security really wasn’t set up as an individual retirement investment vehicle; rather it was designed so that current workers contribute to a fund from which “old age and survivor’s” benefits are paid to eligible seniors. Said another way, those working now pay for those now retired. Any excess – contributions over and above that spent to pay benefits – is deemed to be “surplus”. By law, the money in the Trust Fund can’t be used for anything other than Social Security & Disability benefits, and (also by law) any surplus money from contributions must be invested in “interest-bearing securities backed by the full faith and credit of the United States”. This is done via specialissue government bonds, which pay interest at “market rate” (currently 1.5%). As of the end of 2015, the Social Security Trust Fund had about 2 ¾ trillion dollars invested in those special-issue bonds, which are redeemable either at maturity or on demand as needed to pay benefits.
The Trust Fund’s revenues still exceed costs every year, although the amount of annual surplus is declining because the ratio of workers to retirees is declining. Current estimates are that Social Security’s “old age & survivor insurance” revenue will stop running a surplus about 2020, after which any income shortfall would be taken from the Trust Fund’s investments. The trust fund wouldn’t run out until about 2034, at which point benefits will be reduced unless Congress acts before then to improve solvency. AMAC has developed a “Social Security Guarantee” which we have been regularly promoting to Congressional Representatives in Washington, D.C. This is a common-sense plan which ensures that Social Security will be able to pay full benefits into the next century, and we plan to continue lobbying congress to adopt the AMAC plan, or something similar.
So, to recap, the money you contributed while you were working went to pay benefits for those already retired and, after you retire, contributions from those still working will be used to pay your benefits. And any surplus funds collected were invested in interest-bearing bonds for future use, and those funds cannot be used for any other purpose than Social Security benefits payments.