Thread by @MesMitch

the Social Security system currently takes in more money than it pays out. Where does the excess money go? By federal law, the money must be invested in obligations, mostly bonds, backed by the federal government.

These bonds are essentially an I.O.U. from the federal government to Social Security.

When the government starts cashing in the bonds to pay SS benefits, it will have to raise the money somewhere else by increasing taxes or cutting spending on other government priorities.

Social Security surpluses started to build in the 1980s and continued to build until 2001. At first, Congress used this extra money for deficit spending, but eventually the idea caught on that it makes sense to separate

the Social Security surplus from the rest of the budget and put it in an imaginary “lockbox.” However, the “lockbox” idea took a back seat as the country recovered from the shock of September 11, 2001, and the recession that took a strong hold on our economy shortly afterward.

Deficit spending continued to grow after the terrorist attacks, as President Bush pushed through tax cuts and waged wars in Afghanistan and Iraq. Rebuilding New Orleans and the U.S. Gulf Coast following the damage done

by 2005 hurricanes Katrina and Rita, as well as the financing of the wars, will likely drive the need to continue this deficit spending into the foreseeable future.

In reality, whether the funds are put in this “lockbox” or are spent has no direct impact on the health of the trust fund. Bonds are set aside in the trust fund no matter how the government actually uses the cash.

The problem is these bonds are a future debt that will have to be paid out of general tax funds.

The “lockbox” idea was to pay down existing debt using the funds paid into Social Security. If Congress had been successful in keeping the lockbox in place, it would have increased national saving and domestic investment.

This would make it much easier for the nation to pay the future benefits to baby boomers.

The Social Security “lockbox” started as a Republican issue and was adopted successfully by President Clinton during his term. In 1996, President Clinton👊 promoted the “lockbox” using the theme “Saving Social Security First.”

President Bush campaigned on the issue of tax cuts rather than securing 🤔😱the “lockbox” in 2000. The “lockbox” idea died after the terrorist attacks of September 11, 2001, when increased government spending took priority over paying down debt

The “lockbox” is actually just a political tool being used by some to encourage less deficit spending and paying down the debt. By paying down the debt, the government doesn’t have to pay as much interest. It also frees up more capital for private investment.

84 percent of what is paid out in benefits comes from workers and their employers. By 2031, there will be only 2.1 workers for each beneficiary, compared to 3.3 workers for each beneficiary today.

The burden on those workers in 2031 will be much larger than it is today unless something is changed in how we foot the bill.

(It should be noted that some experts doubt that the U.S. workforce will really lose that many workers by 2031. They argue that the numbers, which are solely based on current population growth,

overlook the impact immigrants, who pay into Social Security, will have on the future U.S. workforce. Another unknown relates the to number of people who will decide to work longer or return to work after retiring.)

Making the burden for future workers even worse, these beneficiaries are expected to live longer than their predecessors. In 1940, when the first Social Security benefits were paid, the life expectancy of a 65-year-old was 12.5 years.

Today, that has risen to 17.5 years, and it is expected to go even higher. As you can see, there is good reason to be concerned.

The Social Security trustees said in their 2005 annual report that either a permanent 13 percent reduction in benefits or a 15 percent increase in payroll tax income (or some combination of the two) will be needed to make Social Security solvent over the next 75-year period.

A 15 percent increase in the current Social Security tax rate would be .93 percent for both workers and their employers, raising the Social Security tax rate to 7.13 from 6.2 percent for workers.

The gap for this shortfall could also be filled by raising the maximum income rate that is taxed for Social Security, which in 2006 was $94,200.

A 13 percent decrease in the 2005 average monthly benefit of $959 would be $124.67

less per beneficiary.

Let’s say you earn $100,000 per year and retire at age 66. Based on the 2005 numbers, your monthly benefit from Social Security would be $1,611, or $19,332 annually.

That’s only 19.3 percent of your current earnings. Social Security’s payment scheme is skewed to give higher benefits to lower wage earners. In fact, some folks are advocating even lower benefit levels for high earners to help fix the system

Spouses are also entitled to benefits as a survivor of a deceased worker. For example, if a husband dies, his widow can receive benefits beginning at age 60. If the widow was disabled, benefits can start as early as age 50.

The amount that can be collected depends on the survivor’s age when he or she begins collecting. Another factor is the amount the deceased worker would have been entitled to receive.

If the survivor begins collecting at age 60, he or she is entitled to 71 percent of the deceased worker’s benefit. If the survivor waits until full retirement age, he or she can get 100 percent.

The disabled survivor of a worker who begins collecting between the ages of 50 and 59 will get 71 percent of the deceased worker’s benefit.

I guess you have figured out by now you won’t get rich living on Social Security, but it does serve as a safety net so you don’t starve or end up homeless.

Here is how it works. Let’s say you earn $100,000 a year and work for someone else.

Your bill will be as follows:

$90,000 × 6.2 percent =

$5,580

$100,000 × 1.45 percent =

$1,450

________

Total Social Security tax =

$7,030

In 2006, the maximum amount taxable will increase to $94,200. This is how your Social Security taxes will increase in 2006 if you earn $100,000:

$94,200 × 6.2 percent =

$5,840.40

$100,000 × 1.45 percent =

$1,450.00

________

Total Social Security tax =

$7,290.40

Your treating doctor plays a key role in helping you obtain Social Security Disability benefits. This is because the Social Security regulations state that a treating doctor’s opinion will be given greater weight than the SSA’s consultative examiner in deciding a claim.

Therefore, at your very first opportunity, you should inform your treating physician that you have applied for Social Security Disability benefits. He or she will then enter this information on your chart.

Likewise, if you decide to retain an attorney, you should provide your doctor with your attorney’s business card so that it can be attached to your file.

Do Not Be Discouraged By Statistics

As you begin the initial application, it is important that you pay very close detail to all the information that is requested, with the understanding that over 75% of cases of initial claims are denied even if the claimant is represented.

In fact, only a very small percentage of claims are initially filed with attorney assistance.

Do not get frustrated. If you are disabled and meet the definition of disability, you must continue the appeals process. However, even at the first appeal step, the Request for Reconsideration, the majority of cases are denied again.

As you continue to appeal your claim it is expected that you will become frustrated, angry, and irritated, because even though you see your claim one way, the SSA has a completely different opinion.

After filing out form after form, and submitting medical report after medical report, most claimants report that they have jumped through too many hoops and need help.

Generally, financial planners assume you will need at least 70 percent of your current income to live approximately the same lifestyle as you do today. People are living longer, many even 30 years or more after retirement.

In fact, many planners separate retirement into three phases. The length of each phase is based on your life expectancy, your health, and your desired level of activity. The three phases are as follows:

Initial retirement phase. In the early retirement years, planners expect most people to be very active, travel, and do things they have always put off doing while they were too busy working. In this first stage of retirement, many experts recommend that you plan a retirement

budget closer to 90 percent of your current income level.

◆ Mid-retirement phase. In the mid-retirement phase, the retiree is expected to be active but slowing down. Health problems are creating the need to stay closer to home or do less. In this phase, a retiree may need

only 50 to 60 percent of their current income to maintain a similar lifestyle.

◆ Late retirement phase. In the later years, it is expected that the retiree’s budget will be eaten up by medical and assisted-living costs, possibly even in a nursing home or other facility.

In this case, budget figures could be back up to 70 percent of your current earning needs. It all depends on how well you’ve planned for this phase of life and whether you have long-term-care insurance or other protections in place to make your later years more comfortable.