Dear Rusty: I have worked my entire life and contributed to Social Security. I have been single my entire life with no children. What happens to all that money I have contributed to Social Security if I die at age 62? Signed: Curious Worker
Dear Curious: From its inception in 1935, Social Security has always been a “pay as you go” program where current workers contribute money from which current beneficiaries are paid. That’s the way it has worked since the first Social Security payroll withholding occurred in 1937 and the first Social Security benefit was paid in 1940. And it works the same way today.
Social Security FICA payroll taxes collected from current workers are used to pay all those who are currently receiving benefits. Any excess collected which is not paid out in benefits is deposited into a special Trust Fund and held in reserve for the future. My hope is that understanding this will dispel a far too widely held myth that the money you pay into the Social Security program from your paycheck is deposited into a personal account for you – it is not. Rather that money is used to pay benefits to all those who are already collecting Social Security. And the extra money in the Trust Fund is invested in special interest-bearing bonds which contribute further to the Trust Fund’s reserves (more about the Trust Fund in a minute).
If you were to pass away at, or before, age 62, all the money you paid into Social Security via FICA payroll taxes will have already been spent to pay benefits to those already collecting Social Security. With no surviving dependents, there are no benefits to be paid from your lifetime work record. True you will have paid a great deal over your working career, but the system is designed so that when you retire your benefits will be paid for by those who are still working and paying into the system. Of course, it’s a game of averages and Social Security says the “average” longevity for a male today is about 84. So, unless you’re already in poor health, chances are pretty good you will live beyond age 62. Chances are also pretty good that if you do, you’ll get back much more in benefits than you have contributed. In fact, if you start collecting benefits at your full retirement age you will get back benefits at least equal to what you contributed within about 5 years (we’ve studied this carefully). Which brings us back to the Trust Fund.
The Social Security Trust Fund held about $2.9 trillion in reserves at the end of 2018. But over the years the ratio of workers to beneficiaries has declined from 16.5 to 1 in 1950 to less than 3 to 1 today, so there are far fewer workers paying for beneficiaries who are living much longer. Starting in 2019, Social Security will pay out more in benefits than it received from FICA payroll taxes, which means the excess paid out in benefits will come from the reserves in the Trust Fund. That will continue, according to the most recent Social Security Trustees’ Report, until the Trust Fund is depleted in about 2035, at which time Social Security will only be able to pay out about 80% of benefits due – unless Congress acts soon to resolve the issue. And the solutions are well known; what’s lacking in Congress is a serious bipartisan effort to fix the problem.
This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at [email protected].
There is money in the SS pot. The problem is that between the money coming in from current workers and the money already in the Social Security pot there is not enough to payout at current rates forever.
And no the government is not taking the money and not giving it back. And no it’s not being added to the deficit. And it’s not a Ponzi scheme though yes the reality is that time changed things. That applies to everything. No one knows what fifty years in the future will be like.
Yea, That the trouble, Congress “borrows” or “robs” $$$ from the fund, but NEVER pays it back!!!
I believe there is no money in the so-called trust fund as it has been spent on numerous other government boondoggles. The payouts are being borrowed and added to the deficit.
Wow! An actual, honest explanation of how SS works without any of the usual spin so many politicians put on the Ponzi scheme. Good for you Rusty! Most seniors refuse to acknowledge that every cent they paid into SS through their working lives has already been distributed to other already retired seniors long before they file for their own benefits.
Also the fact that the system never envisioned a decline in the number of workers per each retiree dropping to today’s levels should tell most people the system was poorly designed from the beginning. However, I am sure most fellow seniors don’t want to hear that either. Rather all we’ll see is the usual comments parroting the same false bromides as to how to quickly fix the system. Such is the state of discourse on this subject.