Social Security 101
Today, Social Security covers 163 million workers with 49 million people receivng benefits. Did you know that 6.2% of your salary is withheld from every paycheck to fund the Social Security Program. You may think that your Social Security contributions are held in interest-bearing accounts to be used for your future income. That’s not the case. In reality, your contributions are used to fund benefits for today’s retirees.
This was no problem when the program was created. Life expectancies were shorter and the ratio of workers to retirees was higher. In 1945 there were 42 workers for every retiree. In 2006, this ratio dropped to 3:1. As it stands today, Social Security will begin to pay out more in benefits than it collects in taxes within the next ten years.
To ensure you’re receiving credit for your hard work, check you statement annually for errors. The statement should be verified against your tax returnes and W-2 forms. If there are any discrepancies, you have up to 3 years, 3 months and 15 days to make corrections (for the taxable year in which the error was found).
Retirees can elect to begin receiving Social Security payments as early as age 62, but the amount of benefit received will be reduced by 20%. Retirees who begin receiving benefits at age 65 will receive their full benefit, and those who delay benefits to age 70 will receive 127% of their scheduled benefit.
Regardless of when you plan to retire, it’s important to prepare supplemental income streams to enhance your monthly income. IRAs, Roth IRAs and annuities can be extremely helpful tools in planning for the retirement you want.