In 2015 Gallup conducted a poll and found that 66% of workers between the ages of 18-49 did not believe Social Security would be there when they retire. Social Security is a government-run program that is implemented to limit the market failure of information failure and income distribution. Information failure takes place because many people do not know how social security works/do not know they still need to save even though they will receive SS. Income distribution is needed because the retirees still need to receive some sort of compensation because they are not working anymore.
SS works by replacing a percentage of your working income based on your lifetime earnings. The amount is more or less depending on your lifetime earnings and when you receive your benefits. If you wait until full retirement age, SS can replace up to 75% of your income for very low earners, 40% for medium earners, and about 27% for high earners. Every year you delay filing for your benefits, until age 70, this percentage gets larger. In SS you earn credits that qualify you to earn benefits when you retire. In 2021, you receive one credit for $1,470 up to a max of 4 credits annually. Although retirees receive compensation once they are retired and file for their benefits, SS was never supposed to be the only source of income for this demographic.
“In 2021, $0.85 of every Social Security tax dollar you pay goes into a trust that pays monthly benefits to current retirees and their families, and to the surviving spouses and children of workers who have died. The remainder goes into a trust that pays benefits to people with disabilities and their families, and a small portion is used to cover the costs of managing the Social Security programs”. Recently The Treasury predicts the trust funds will be depleted by about 2023. The interest in these trust funds is not a major source of funding for these benefit payouts. Most of the benefits social security pays out are funded by taxes which are not expected to lower. When the benefits paid out exceed the taxes collected the SSA will cover the gap by dipping into the trust funds. Wallace states in the article that the government will need to make some sort of change in SS to adjust for benefits exceeding revenue. This is not uncharted waters for the government to alter SS, in 1983 Congress raised payroll taxes and cut benefits building up a larger fund reserve. I do not think it is very likely that social security will be gone by the time I retire or in the foreseeable future. SS is needed to help correct a market failure that would be apparent if it went away. Although a person is set to receive money when they retire they should start saving as soon as they can and put off filing for SS for as long as possible. By saving early and filing for SS later allows you to have the most money possible and makes the transition from working to retirement less stressful.
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By Karen Wallace
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It is concerning that the trust funds for social security programs have been running with benefits exceeding revenue and that the funds will be depleted by 2023. First of all, the majority of the funding is from tax collection. However, the nation is aging. By 2040, about one in five Americans will be age 65 or older, up from about one in eight in 2000. Thus, there will be fewer taxpayers but more people to take care of. Besides, the senior citizens are demanding more. According to Yahoo News, a senior citizens advocacy group asked Congress to send $1,400 stimulus payments to Social Security recipients who are struggling with the rising cost of living. As a result, Social Security recipients are expected to get an about 6% jump in payments next year.
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