Social Security makes up a major part of retirement income for many American senior citizens. The program has been in effect since 1935, and it’s paid an increasing amount to retirees and disabled Americans ever since. Here are some facts about the Social Security program everyone needs to know.
The Trust Fund Is Running Out
The Social Security system is funded by payroll taxes to the tune of 12.4% of every dollar a person earns from working up to the first $132,900 of wages. Self-employed folks pay the entire 12.4% while those who are employed by another person or entity will have their employer pay half of the tax. Over the history of the Social Security program, the taxes paid have exceeded the benefits paid out. That accumulated nest egg is now getting depleted at a greater rate than new taxes are going into the system. It’s expected that the Social Security trust fund will run out sometime around 2034. This means benefit cuts will be necessary to make the program operate on a pay-as-you-go basis unless there is a change to the tax code to make up for the shortfall. Therefore, future retirees should prepare for this possibility.
When To File
It’s important for future retirees to know when they can take full Social Security benefits. Those born between 1943 and 1954 can get their full Social Security benefit by claiming at age 66. The full retirement age goes up incrementally for people born after 1954. Those born after 1960 will have to wait until age 67 to receive the full benefit.
Americans who have enough retirement credits can start drawing early Social Security benefits at 62. However, those who file early will see a reduction in the number of their benefits when compared to those who retire at full retirement age. The amount of the reduction is based upon how early a person starts drawing.
It’s actually possible to get more than the full retirement benefit from Social Security. Those who wait until 70 to claim benefits could see their monthly payments increase by up as much as 32%. This could be a good idea for those who expect to have little income coming in from other sources. There is no additional benefit available for waiting longer than age 70 to file. That means everyone should apply to start receiving benefits no later than that age. Waiting longer will actually cost older Americans money they’re entitled to receive.