Social Security taxes, or FICA (Federal Insurance Contributions Act) is generally just an item you see on every pay stub. These taxes cover both Social Security and Medicare benefits. We have become almost numb to the number because we can’t do anything about it. If you work, you will pay this tax. You can’t claim deductions to reduce it or generally get a refund at the end of the year. This tax has become a fact of life whether we like it or not. But, where does this money actually go?
85 cents of every Social Security tax dollar you pay goes to pay the monthly benefits to current retirees and their families and to surviving spouses and children of workers who have died. The other 15 cents is used to pay the benefits to people with disabilities and to their families. Excess contributions go into a trust funds that would be used when incoming tax dollars cannot support the benefits being drawn.
From these trust funds, Social Security also pays the costs of managing the Social Security programs. According to some sources, the Social Security Administration is one of the most efficient agencies in the federal government. While the state of Social Security may be in trouble, the costs associated with running the program seems very efficient for a government program. According to the administration, for each Social Security tax dollar you pay, less than one cent goes towards administration.
For the Medicare portion of the tax, every dollar you pay for Medicare pays for some of the costs of hospital and related care of all Medicare beneficiaries, with excess going into a trust fund. Medicare is managed by the Centers for Medicare & Medicaid Services, not Social Security.
So there you have it, your tax dollars at work. Will you ever see a benefit from the money you’ve been putting into these programs? Only time will tell and that is an entirely different discussion for another day. For more information feel free to visit the Social Security website which has a ton of information that you may find interesting.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
A few years ago I saw an article on social security and where the money was going in fact they had a pie graph and according to it only about 1/3 of the money going into social security was being paid out to social security. the rest was going to other things. It seem some bright eyed lawyer type congressmen saw all this money and devised a way to get their hands on it. So now social security is broke and everyone is deaf or dumb.
Just a fact to show the incorrectness of this post:
"In the Social Security Act of 1965, part of President Lyndon B. Johnson's "Great Society" program, the Social Security was changed to withdraw funds from the independent "Trust Fund" and put it into the General Fund for additional congressional revenue."
This article is utterly incorrect as it does not address the one most important trait of SS as administered today: i.e., that is THERE IS NO TRUST FUND. SS is a pay-as-you-go system that has always run a surplus, which IS ALWAYS SPENT BY EVERY GOVERNMENT regardless of the party in power. The 'trust fund' contains IOU's for this money that will have to be repaid when the INCOME IS NO LONGER SUFFICIENT to fund th OUTGO. Unfortunately, these virtual IOU's are not real bonds as they are NOT negotiable ON THE OPEN MARKET. Even worse, the financial pain will be felt long before the system 'goes negative' as the budget will suffer serious deficits way above those we have tolerated to date. GET IT?
There are new medicare plans for 2008. I would strongly recommend reviewing your current plan each year as there are sometimes dramatic differences. If you think outside the box you will find some great health plans. The big companies such as Blue Cross will charge whatever they want because they assume people will just go with the name and they spend a ton of money on advertising which reflects in the premiums and benefits. If you look at some other companies you may be pleasantly surprised with the benefits you will find.
It would be hard to count on these programs being available to us in our life time. The dollar is about to crash and even if we did benefit, by the time we withdrawal anything, the dollar will be so inflated it won't buy anything of value.
SS taxes will have to increase on our generation to consume the current burden of these Government installed entitlement programs. There really is no reserve of funds. Everything paid into the program now is an asset to the boomers and a liability to us. It is nothing more than a pass-through of cash, now. One generation piggy backing on another.
And this leads to something else. Kids are getting stupider and stupider. At the rate we're at and the high level of education standards, will there be enough workers by the time we retire to piggy back on?
There is going to be millions of boomers who have the entitlement mentality eager to withdrawal what they've put into this program all their lives.
My personal opinion of all this inflation is that it is a move towards a pre-planned recession by the FED to introduce a new Continentally dominated currency unit.
That way we can start this mess all over again on a new supply of currency.
I think it is safe to say that as a worker coming from 1965 plus, you're going to have a hard time in your retirement years.
The Capitalist Society we live in may even collapse in our life time resulting in something new. There could be a lot of war and even a Civil War. With the financial crisis that we're facing today, I can't see such a peaceful time as the boomers and generations before that had. When it gets into the workers consciousness of what the capitalist class is doing to the working class, which is pinching them out of existence, their could be a heavy revolution.
It would be good if we knew we were getting an honest accounting of Government spending on these social programs
Indeed mapgirl. The statements are full of interesting info, unfortunately for those of us with a few decades until we will be able to even touch SS benefits it is hard telling how much will be left. Hopefully we are surprised with something.
I think it's pretty nifty that the SSA will send you a statement every year with your estimated benefits and how much more you need to work to get your full allotment, etc. I find it a very informative piece of mail.
Of course, by the time I retire, there won't be much money left unless we fix it!