Social Security: Ask Rusty
Social Security Isn't Welfare; Raiding the Social Security Trust Fund; & Government Pension Offset (GPO) & Maximizing Benefits
By RUSSELL GLOOR,
June 08, 2017
(SitNews) - Social Security Isn't Welfare
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 special-issue 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.
Raiding the Social Security Trust Fund
Dear Rusty: I would like to know how much money has been taken out of Social Security by presidents, and was any paid back with or without interest on the withdrawal? Signed: Wants to Know
Dear Wants to Know: The idea that any President or Congress has taken money out of the Social Security Trust Fund is simply not an accurate description of how the Social Security system works. I know these accusations abound on the Internet, normally promoted by someone or some organization trying to further a political agenda. But the reality is that the Social Security program has, since its inception in 1935, been a "pay as you go" system where current workers pay Social Security taxes to fund benefits for current beneficiaries. Over the years, when there were many more workers than beneficiaries, considerably more was taken in than was paid out in benefits and the surplus each year is placed in the Social Security Trust Fund, which as of June 2016 had a value of 2.81 trillion dollars. By law, Social Security is required to invest that surplus in special issue U.S. Treasury securities, not unlike those available to private investors, which are backed by the "full faith and credit of the U.S. Government", but these special issue securities are redeemable at any time at face value. These securities typically yield interest of about 1.5 - 2.375 percent (2016 rates), and this interest aids in growing the value of the trust fund. Now, yes, investing in those securities is technically loaning money from the Trust Fund to the U.S.Treasury, where the money can be used for any purpose the Government sees fit, just like all other revenues the Government collects from anywhere. But that loan and those securities can be called for payment at any time by the Social Security Administration when it needs money to pay benefits to Social Security recipients. So when you read or hear something about Congress or one or the other President "raiding" the Social Security Trust Fund, it is simple hyperbole designed to stir emotion and promote an agenda. The reality is that Social Security must, by law, invest surplus funds in interest-bearing special issue Government securities, essentially loaning money to the U.S. Treasury which must be repaid upon demand.
It's worthwhile to note here that there are actually two parts to the "trust fund"; one for Old Age and Survivors Insurance (OASI) benefits and another for Disability Insurance (DI) benefits. Although there is now 2.8 trillion dollars in both of these funds, the current lower ratio of workers to beneficiaries means that both of these funds either already are (as with DI) or soon will (as with OASI) start to be depleted to pay benefits. This is why you are now hearing concerns about Social Security's financial solvency. Current projections by the Funds' Trustees are that the Disability Insurance fund will be depleted by about 2022 and the OASI fund will be depleted about 2034. If Congress does not act before then to reform the program, benefits at that time would be limited to paying out only as much as was received in Social Security revenue, which could mean about a 21% reduction in benefits. However, given the intensity of the spotlight on this issue today, it's probable that Congressional action will be taken in sufficient time to ensure the program's solvency for the foreseeable future.
Government Pension Offset (GPO) & Maximizing Benefits:
Dear Rusty: I recently retired from my job after 35 years at the U.S. Department of Defense. I know I'm not eligible for Social Security because I was part of the CSRS pension program and never had FICA taxes withheld from my paychecks. My husband, on the other hand, has worked his entire life in the construction business paying FICA taxes and has earned more than enough credits to collect Social Security when he reaches that age in a few years. He is 58 and I am 59 years of age. He doesn't have a traditional pension plan through his employer, but does participate in an employer-sponsored 401(k). We are quite financially secure at this point, but as we look forward I'd like to make sure we can maximize any Social Security benefits available to us so we can continue to live comfortably as we age. So my question is, how can my husband maximize his Social Security benefit, and will I be able to collect any Social Security benefits as his spouse? Signed: Looking Ahead
The Foundation welcomes questions from readers regarding Social Security issues.
©2017 Russell Gloor, AMAC Certified Social Security Advisor http://amacfoundation.org
The information presented in this article is intended for general information purposes only. The opinions and interpretations expressed in this article are the viewpoints of the AMAC Foundation's Social Security Advisory staff, trained and accredited under the National Social Security Advisors program of the National Social Security Association, LLC (NSSA). NSSA, the AMAC Foundation, and the Foundation's Social Security Advisors are not affiliated with or endorsed by the United States Government, the Social Security Administration, or any other state government. Furthermore, the AMAC Foundation and its staff do not provide legal or accounting services.
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