Can you count on Social Security?
This month: understanding
SS & Medicare taxes and benefits - along with
to plan for Social Security benefits continues
to be one of the toughest questions for both planners
and clients, especially for clients under the
age of 50.
month we will explore how the program started,
how it is paid for and the looming issues on the
horizon that are going to force some major changes.
of Social Security:
Security was signed into law by President Roosevelt
in 1935 as a result of hardships caused by the
Great Depression. In 1956 President Eisenhower
added disability benefits to the law and then
in 1965 President Johnson added Healthcare benefits
for retirees known as Medicare.
is it funded?
program is funded by payroll taxes or what we
refer to as FICA taxes (Federal Insurance Contribution
Act). You may also have noticed on your paystub
the letters OASDI which stands for Old Age, Survivors
and Disability Insurance.
you are an employee 6.2% of your paycheck goes
toward social security taxes.
employer also has to match that and pays 6.2%
of your pay to the government in social security
taxes for you.
Social Security wage base for 2009 is $106,800,
meaning that only this amount of compensation
is taxed for social security.
tax: 1.45% paid by you on all of your earnings.
employer has to match that and also pays 1.45%
in medicare taxes on all of your earnings.
So where is the problem?
to this point there has always been enough workers
and payroll taxes to run a surplus in Social Security
and Medicare, however as the baby boomer population
moves into retirement that will change. It is
estimated that 77 million boomers (almost 1/4
of the American population) will be moving into
retirement over the next 25 years. Another way
to think of this is more than 10,000 boomers will
become eligible for Social Security benefits each
day over the next 20 years.
you can imagine the unfunded liabilities of the
federal government regarding SS and Medicare make
the current recession and bailouts look like pocket
is the solution?
unpopular as it is, most of us realize what will
probably have to occur for these programs to be
sustainable in the future: payroll taxes and wage
caps will have to rise and/or benefits will have
to be reduced for future generations.
issue is definitely a political hot potato that
most politicans would prefer to avoid. However
the reality is that it will have to be addressed
over the next couple of years.
do you do?
Security is something that as individuals we do
not have direct control over, but there are things
you can do:
you have a number of years left in your working
career, plan your retirement strategy solely
based on your own savings (something you do
have control over).
to your elected leaders and ask that they begin
focusing on a solution to this issue for the
benefit of future generations.
encourage you to learn more at these websites: