With reports that Social Security is spending more than it takes in Social Security doesn’t seem so secure any more. It is predicted that the Social Security trust fund will run out in 2036. A lot could change by that time to make Social Security last longer or end sooner.
What Is Social Security?
Social Security was established and signed into law in 1935 by President Franklin D. Roosevelt. The first lump sum payment was made, shortly after, in 1937 and on-going monthly payments first began in 1940. Social Security was originally meant to be a retirement account during the Great Depression.
All of the businesses that failed during the Great Depression, had no funds to pay out the retirement accounts for their workers, so the government stepped in to help. The idea at the time was to have the people currently working help out and pay the retirement for those who were no longer able to provide for themselves.
This was great until the baby boomer generation came. This extremely large generation put a lot of money in to help out the older generations, but now there are far fewer people working than are retiring.
How Social Security Works
Social Security is often referred to as a Ponzi scheme, but it is actually a pay as you go system. There is a difference between the two. As you pay into Social Security, those funds immediately get paid out to the people currently eligible for Social Security. The reason this has been so hard to swallow for some people is due to the introduction of the 401(k) and personal retirement accounts. With the 401(k), the same amount of money put in will earn more interest than Social Security and the personal retirement account has your name on it, whereas there is no traditional account with Social Security.
How Much Will You Get Back?
You can go to the SocialSecurity.gov site and get an estimate of how much you will collect. This is based on the current rules staying in effect. There are also calculators that give a rough approximation based on your age and current income, but they are not exact.
It is likely that you will at least get something from Social Security since even after the trust fund dries up the amount being paid in will cover about 70% of benefits. Even if you were 100% confident that you would get your full Social Security payment it is best not to rely on it alone. Using additional methods of retirement planning, such as personal retirement accounts, is always a good idea.