Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Dec 31

    President Roosevelt signed Social Security into law on August 14, 1935. Also known as a social insurance program (a governmental old-age pension program), it was designed as a safety net to provide retired individuals age 65 or older a continuing source of income after retirement. Over the years this law has been through many amendments, changes, and transformations.

    There are 11 all-important facts that everyone should know about the current situation with social security no matter your age, working or economic situation.

    1. Right now you, as an employee, pay 4.2 percent of your wages in social security tax up to a maximum of $110,000 in wages. This percentage will return to 6.2 percent starting January 1, 2013.
    2. Your employer pays a 6.2 percent social security tax on each employee’s wages. So currently a total of 10.4 percent social security tax is paid on your wages. Starting January 2013 this increases to 12.4 percent.
    3. An average employee will pay $2,522 into social security this year. A maximum wage earner (wages of $110,000 or more) will pay $4,624 in social security tax. A self-employed maximum wage earner (wages of $110,000 or more) will pay $11,450 in social security tax. (Note these totals exclude the Medicare Tax)
    4. In 2010, fifty four million people received benefits totaling $701 billion.
    5. In 2010, the annual shortfall of the Social Security trust fund was $62 billion and that amount is expected to grow each year.
    6. The ratio of workers to retirees has dramatically decreased over the years. When the program first began there were more than 40 workers for every retiree. In 1955, there were 8 workers to each retiree. As of today, the ratio is 2.9 to 1. It is predicted that in 2030, there will be 2.1 workers per retiree.
    7. When the Social Security Act was created, life expectancy was 67. So only a few people collected Social Security for more than two years. The life expectancy today is considerably different. The average life span of a man is approximately 81 years and the average woman lives to be approximately 84 years old. Therefore many people are now collecting Social Security for decades. Life expectancies are projected to increase, so later retirement ages are an attempt to offset this.
    8. Currently Social Security has enough funds to pay scheduled benefits through 2032.
    9. Social Security is currently paying out more than it is receiving and this is expected to persist for the next 75 years. At this rate, Social Security will be out of money by 2033.
    10. The trustees forecast inflation rates to increase from 1.8 percent to 3.8 percent. If this occurs, Social Security will run out of money faster.
    11. In 2033, taxes will only cover 75 percent of promised benefits. When the trust fund reserves are depleted, it will not be allowed to borrow money. The current law states that the benefits paid should match the income received.

    Reform of the Social Security Act is desperately needed for the future workers of America. Hopefully a solution can be found, before we have to resort to an increase in tax or a decrease of benefits to the recipients. As a working American, you should closely monitor the Social Security Act and explore additional options of saving for your retirement.