![]() The future is uncertain in many respects, and based on new information, projections of the financial status of the Social Security program vary somewhat over time. ![]() This article describes the financial status of the Social Security program, including an analysis of the concepts of solvency and sustainability and the relationship of Social Security to the overall federal unified budget. Further modifications of the program are a certainty as the Congress continues to evolve and shape this program, reflecting the desires of each new generation. The program now provides benefits to over 50 million people and is financed with the payroll taxes from over 150 million workers and their employers. Social Security provides a basic level of monthly income to workers and their families after the workers have reached old age, become disabled, or died. Since the inception of the Social Security program in 1935, scheduled benefits have always been paid on a timely basis through a series of modifications in the law that will continue. The Social Security Board of Trustees project that changes equivalent to an immediate reduction in benefits of about 13 percent, or an immediate increase in the combined payroll tax rate from 12.4 percent to 14.4 percent, or some combination of these changes, would be sufficient to allow full payment of the scheduled benefits for the next 75 years. Thus, the Congress will need to make changes to the scheduled benefits and revenue sources for the program in the future. 1 At the point where the reserves are used up, continuing taxes are expected to be enough to pay 76 percent of scheduled benefits. Per a recent Social Security Trustees’ report, future recipients can expect a 21% benefit cut that can grow to 27%. Current new recipients are likely to experience a reduction in future payments if they live long enough (at least around age 84). In conclusion, maximizing savings by contributing as much as possible to a 401(k)/403(b) account, an IRA, and also even a taxable account is imperative for a future in which social security will be a smaller component of an individual’s future retirement resources.Old-Age, Survivors, and Disability InsuranceĪs a result of changes to Social Security enacted in 1983, benefits are now expected to be payable in full on a timely basis until 2037, when the trust fund reserves are projected to become exhausted. Social security will likely exist in the future. However, one should expect a noticeably smaller payment than what current and past recipients receive or have received. In 1997, Congress thought about young workers and their retirement future. Pensions are slowly disappearing, and it is relatively rare for a young employee to get a pension from an employer. Therefore, via the Taxpayer Relief Act of 1997, Congress passed the creation of the Roth IRA. This particular IRA is advantageous for a young investor. A young investor is not at his/her earnings peak, and consequently will not be in a top or higher tax bracket. You contribute after tax income into a Roth IRA. The contribution must be earned income. The appeal of the Roth IRA is that when you take funds out of the Roth account, all of the proceeds are tax and penalty free, with one condition. The condition is that the account has to be open for at least 5 years and you have to be at least age 59 ½. This article will not cover the tax or penalty exempt withdrawals form a Roth IRA. Note that all contributions, which are all after-tax, are available tax and penalty free.
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