1. "Long-term deficit? We can hardly afford our
Worried about the future of Social Security?
You're far from alone. The Social Security
Administration itself has said that unless something
is done to reform the system, it will burn through
its funds within the next few decades. Less talked
about, perhaps, is the concern about the present:
the program is having a hard time paying its bills.
In 2010, the Social Security Administration
collected less revenue in taxes than it needed to
cover its benefit payments — the first time
expenditures have exceeded income since 1983. As a
result, the program had to tap its $2.5 trillion
trust fund, sooner than some had expected. The same
is expected to happen this year. "The depth of the
recession has slowed down revenues to the system,"
say Eugene Steuerle, an economist with the Urban
Institute, a non-partisan think tank in Washington,
A Social Security spokeswoman points out that
interest income from the Treasury bonds held in the
trust fund will allow it to keep growing until 2022
— even if the agency has to siphon off some money to
offset any shortages in tax revenue -- and won't be
exhausted until 2036, when the first Gen Xers begin
retiring. But that's already one year earlier than
previous projections. After that, the agency says
tax income under the current system will only cover
about 75% of benefit payments through 2085.
2. "The more you make, the less you get back."
It's common to think of Social Security as an
individual account of sorts — what you pay in, you
get back, more or less. That's far from accurate. By
design, the Social Security Administration says, the
system is tilted in favor of lower-income workers
who have fewer resources to save for retirement. In
practice, that means that the more money you make,
the less you get back, at least as a percentage of
your salary. For example, a single, 66-year-old man
who earned $50,000 per year on average and retired
in 2011 would get an annual benefit payment of about
$22,800, or about 45% of his annual salary. If he
had earned $150,000 per year, he would get annual
benefits of about $30,670 — just 20% of his annual
salary. "People act like the percentage of benefits
of your salary you get is the same for everyone and
it really isn't," says Jo Anne Barnhart, former
Social Security Commissioner.
That's particularly true for the highest earners.
Benefits are calculated on a maximum average salary
of $106,800, which means anyone who made that much
or more — whether by a few dollars or by a few
hundred thousand dollars — gets the same annual
Social Security payment. To be fair, earnings over
that threshold aren't taxed, either, and the agency
spokeswoman says benefits are meant as supplemental
retirement income, not full freight.
3. "This used to be a much better deal."
Today's workers — boomers, Gens X and Y — like to
carp about Social Security, but it's not all sour
grapes or skepticism about paying into a system with
an uncertain future. Employees today pay more in
Social Security taxes than previous generations did.
They're also likely to get smaller benefits when
it's their turn to retire.
Over the years, as the Social Security
Administration has come to grips with the cost of
its benefit program — and the ranks of eligible
beneficiaries has swollen — taxes to fund the
program have gone up and up, a trend that experts
say is likely to continue over the coming years. As
a result, workers now pay 6.2% in payroll taxes
(reduced to 4.2% in 2011) — nearly double the 3.6%
tax rate workers paid in 1965. Over the same time
period, the maximum earnings eligible for taxation
have also increased from $4,800 (equivalent to about
$34,500 in 2011 dollars) to $106,800.
For example, a single man who retired in 1980 at
age 65 after earning an average wage of $43,500
would have paid about $96,000 in Social Security
taxes, and probably received $203,000 in lifetime
benefits, according to a study by the Urban
Institute, a non-partisan policy think tank in
Washington D.C. By contrast, a single man making the
same average wage today and retiring in 2030 will
likely pay $398,000 in lifetime taxes but receive
just $336,000 in lifetime benefits — about 16% less
than he paid in. "People who were first in the
system got a great rate of return," says Alan
Gustman, chair of the economics department at
Dartmouth College. "It's the younger generation that
is going to be in the most difficult position."
The agency spokeswoman says the imbalance is
partly due to the fact that the earliest
beneficiaries only paid taxes in the later stages of
4. "Want a bigger check? Go back to work."
Most people within ten years of age 62 have
already started doing the Social Security math
problem: How much do I get if I wait one year to
take payments? How much if I wait two years? To get
the biggest bump in benefits, workers have to delay
their benefits beyond full retirement age — around
66 for people born before 1957, closer to 67 for
people born after. (To find your exact date, see
Social Security Online.) For every additional
year you wait, you'll get an 8% increase in payments
until you hit age 70. Someone who earned, on
average, $50,000 per year over their working life
would get $1,900 per month at 66, but $2,505 if he
waited until age 70 — a 32% boost. "You'll get a
bigger benefit amount for the rest of your life,"
says Dennis Marvin, a financial planner in
If you've already started collecting benefits and
you're under full retirement age, it's not too late
to get a raise. One strategy: Go back to work. If
you earn more than $14,160, the Social Security
Administration will dock $1 in benefits for every $2
you earn. But once you reach full retirement age,
your benefits will be recalculated to account for
the money you didn't get while working. So, for
example, someone who took their benefits at 62 — at
a 25% reduction compared to full benefits — but went
back to work from ages 63 to 66 and earned enough to
zero out his entire Social Security check could end
up collecting close to full benefits at age 66.
5. "Good luck qualifying for disability."
More than 8 million people receive Social
Security Disability Insurance, which is awarded to
people who are unable to work because of a long-term
physical or mental disability. But qualifying is no
easy task, says John Roberts, manager of Myler
Disability, an advocacy group. Only 30% who applied
in 2009 were awarded benefits, down from 44% in
1999, according to agency data.
Some of that change can be attributed to more
people applying for benefits — 2.8 million in 2009
compared to 1.5 million a decade earlier. That's
common when the economy is tough, says Gustman: The
number of applications rises, along with an increase
in claims that fall short of the agency's standards.
Even for people with true and serious disabilities,
it can be difficult to qualify. The process can take
years and often requires legal help. Most people
have to wait for a hearing, says Roberts: "Best
case, it is 18 months before you get approved." In
some cases, the battle goes to federal court.
To improve your chances, Roberts recommends
applying for benefits as soon as you become
disabled. Waiting too long could leave you in a
situation where you haven't worked long enough to
qualify for disability benefits. You must generally
have worked at least three to ten years before you
became disabled, depending on your age. The
spokeswoman for the Social Security Administration
says it does not pay benefits for partial or
short-term disability and taxpayers must be able to
show that they cannot do work they did before or
adjust to other work because of their medical
6. "You can be unemployed and retired."
A growing number of people in their 60s are
collecting unemployment and Social Security benefits
at the same time. Since 2002, seventeen states have
changed the rules to allow people to qualify for
more unemployment benefits while they receive Social
Security, according to the National Employment Law
Project, which has advocated on behalf of allowing
seniors to claim both. It's perfectly legal; you
just have to report the income to both agencies.
There is no clear data on how many people are
drawing both. About 10% percent of people who
collected unemployment benefits in 2010 were 60 or
older, according to the Department of Labor; the
minimum age to collect Social Security retirement
benefits is age 62. For those who qualify, the
option has obvious appeal for older Americans
struggling to find work in today's weak job market.
"We are generally talking about older workers who
lose their jobs involuntarily, who are trying to
survive," says George Wentworth, an attorney with
the National Employment Law Project.
Receiving unemployment benefits doesn't affect
your Social Security payments, but the reverse is
not always true: In some states, collecting Social
Security can reduce your unemployment checks. In
Illinois, Louisiana, South Dakota, Utah and
Colorado, your unemployment benefits can be reduced
by half of your monthly Social Security benefit.
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