Lately, several factors affecting our country today have stirred much talk about the health and well being of the Social Security Retirement, Survivors and Disability programs. Particularly, the concern that Social Security is “running out of money” has arisen quite frequently. Although the economic downturn has seen a rise in applications for disability benefits, this rise will have a minimal impact on the programs, and here is why.


First, it is important to understand how exactly the Social Security Retirement, Survivors and Disability program is funded. There is a common misconception that the taxes individuals pay into Social Security now, are the funds they will collect when they either retire or become disabled. This is simply not true. Social Security is not a pension fund into which one puts their money when they are young and from which it is taken out once an individual has reached retirement age or has become unable to work. In fact, it is an immediate transfer of taxes paid by workers today to retirees today. This constant cycle is the only way the program could work! Therefore, when the time comes for the current generations to retire or find themselves unable to work, it will be future generations that will be providing the funds to allow this.

Recently, much talk has been about the proposed cutting of benefits because of the belief that Social Security is going bankrupt by the year 2017. Again, there is no possible way for the Social Security programs to bankrupt as there will always be money put into the system as money is taken out. However, because the amount that is being paid out is beginning to exceed what is being brought in ever so slightly, there is a possibility that reductions in benefits could occur.

The biggest question is, how severe would those benefit cuts be, and when would this happen? We currently have two projections – one by the Social Security Administration and one by the Congressional Budget Office. According to SSA’s projections, the trust fund, which is a 2.6 trillion dollar fund accumulated over the years by Social Security, will be depleted by 2042. This is the first possible date that Social Security benefits might be reduced, not stopped. After that, the system would be able to pay about 73 percent of currently promised benefits, and that would be reduced to 69 percent in the year 2075. The Congressional Budget office estimates that the trust fund would not be depleted by 2052, and that benefits would only be reduced to 78% in the years following. This means that those benefits under the current system would remain exactly where they are for another 41 years. Therefore, while the focus on the issues is understandable and important, it should not prevent you from applying for benefits or thinking your benefits will immediately be reduced.

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