Image via Wikipedia
There has been a great deal of talk and speculation about the Social Security program lately — and for good reason. Social Security is projected to be insolvent relatively soon, and it does not help that government accounting practices are constantly “borrowing” from Social Security. As a result of some of the tricky math going on, we may not even have until 2037 before the system goes bust.
While Congress scrambles to try and fix the problem (which would be nice because 2037 shows up a little bit before I am likely to retire), here are 5 things for you to think about when it comes to Social Security:
1. It Was Never Meant to Replace Income
We have become extraordinarily dependent on Social Security as a society. Indeed, many people plan retirement around Social Security. However, when the program was first introduced, it was meant to be supplemental only — it was never meant to replace your income. Additions like adding disability and spousal benefits also came later, even though the original program was designed to pay benefits only to the retired worker. In light of this history, and looking to the future, it becomes especially important for you to plan your retirement without relying too much on Social Security.
2. The Self-Employed Pay Twice as Much Into the System
I love being my own boss, but being self-employed can have its challenges. One of those challenges is what is paid into the system. The self-employed pay 12.4% of their taxable incomes into the Social Security system. Others only pay 6.2%. Why? Because employers pay a matching amount for each employee. Before you quit your day job, consider the added cost of Social Security payments, and consider that lower pay in a regular job may be more about the benefits you get.
3. The Longer You Wait to Collect, the Higher Your Payment Will Be
One of the things to consider as you plan your retirement is how long to wait before you begin collecting Social Security benefits. You can begin receiving payments at age 62, but you will not be eligible for as much as you could get if you can wait until you are 70. For those closer to retirement, waiting longer can be a good thing. If you have a way of working part time, or using alternative income streams, it is possible for you to collect higher payments by waiting longer.
4. You May Not Get Cost of Living Increase
Before 1975, it took Congress to provide cost of living increases to Social Security payments. Now, Social Security is tied to the Consumer Price Index (CPI). But that does not mean that there will always be an automatic cost of living increase. If the CPI does not move higher, neither will Social Security benefits. Additionally, there is nothing to stop Congress from working some of its legislative magic and doing away with a cost of living increase each year. You will probably need to find some other way to protect yourself against inflation.
5. Social Security is About to Go Paperless
In an effort to save $300 million over five years, Social Security is about to go paperless. Paper checks will be abolished by March 1, 2013. You will need to set up a direct deposit for Social Security payments, or use the government’s Direct Express Debit MasterCard. The switch begins next year, on March 1, 2011.
1. Of course it wan’t meant to replace income, that is why we have pensions, 401K plans, IRA’s and savings accounts.
2. Self employed only pay twice as much because they don’t have an employer. A person who is not self employed has an employer who pays 1/2. The employee makes less cuz the employer is paying part of it.
3. That is only true because you did not collect earlier. It works out the same if you life to about 80. If you die sooner you lose and live longer you make out. But as a rule you make out to collect at 62 if you are not working and have healthcare and save your own money for later.
4. Rules on everything changes. That is why we have 401K’s, IRA’s, savings etc.
5. This was started years ago. It will be wonderful for those that live close to a bank, but it could be hard for the very old and those that live in the inner city. There will be charges for balances at some banks. This has to stop and also if has to be safe for the senior.
1. It was not meant to replace income—That is why we have IRA’s, 401K’s, pensions, and savings.
2.Self-employed pay more—. No they don’t. Employers pay 1/2 for employees. So employees are paid less.
3.Longer you wait—That is cuz you are getting fewer checks. Breaks even at about 80 years of age. If you die sooner you lose–live longer you make out if you collect at 62. Usually make out better if you collect at 62 if you are not working and have health insurance.
4. No talk of this ever in Congress. Congress would have to stop their COL inscrease every year. Won’t happen.
5.Paperless– Has been discussed for years. Just like direct deposit and the alternative Wednesdays. It is a good deal if you don’t want or have a checking account. Saves money.
I think your first point is so important. Many people will squander their money while they’re working, and count on good ‘ole uncle Sam to bail them out once they retire.
I think we should try to be as self-sufficient as possible in case things go downhill from here with Social Security!