Social Security in the USA is massive, and the benefits it provides are also humongous. It pays nearly $93 billion in a month to around 65 million retirees and people with disabilities. Social Security receives the support of almost 90% of the American Populace. Yet, there are some of them who have already formed an impression about social security disability.
They are concerned about the present and the future scenario of Social Security disability, and how much does SDI pay in California? Here we are going to clarify certain myths that these people hold in their minds. After reading this clarification, it is unlikely that you will doubt this concept again.
Myth 1: Social Security is running out of funds
Fact: Many people wonder if Social security would continue paying or it is turning broke at this point. However, the fact is that if the workers and employees keep paying their taxes, it is unlikely that there will be any shortage of funds.
This is a pay-as-you-go system. This implies that funds come from the Federal Insurance Contributions act and Self-employed contribution act taxes and are used for social security pay-outs. If you are confused about how this is done, Social Security Disability Lawyers in North Myrtle Beach can guide you out.
However, Social Security still has funding challenges. For many years it only received funds, and thus, a surplus was created. This surplus will be exhausted in 2034. Yet Social Security will still not be entirely broken as it will use the tax revenue and pay benefits which will pay some but not all beneficiaries.
To avoid this situation, Congress will have to pump up Social security finances. It did that in 1983 when the situation was again pretty grim. At that time, it raised the retirement age, imposing income tax on benefits, and increased the payroll tax rate.
Myth 2: The retirement age in Social security is 65 years
Fact: It is easy for people to get confused about the retirement age in Social security. It has always been assumed to be 65 years, but that is not the correct figure. The full retirement age or the FRA is 66 years and two months. Those who were born in 1955 will attain that milestone this year. In the next five years, this threshold would keep rising by two months each year.
This means that those who were born in 1960 should be 67 years to avail the benefits. Sixty-five years is a past truth that has long been forsaken. Social security was started in 1935. At that time, the authorities decided on 65 as the eligibility age. As the decades passed, this age was lowered to 62 years. This was done to accommodate maximum people to get this benefit.
Still, 65 remained the threshold and continued being so till 1983. During the overhaul done in 1983, the retirement age was raised to bring a reduction in Social Security costs. In fact, 2002 was the last year in which people could claim the benefit at the age of 65 years.
Myth 3: Members of Congress do not pay for the Social Security benefits
Fact: People often complain that Congress does not want to fix social security as they do not have anything to do with it. However, the truth is that Congress also falls under the umbrella of Social Security. It was included in the year 1984, along with the rest of the workforce. This happened because of the changes that were added to the system a year prior.
Before 1983 however, the senators and representatives did not pay social security. They were actually covered by a pension plan. This plan was known as the Civil Service Retirement scheme. People who were employed till 1St January 1984 remained a part of this Civil Service Retirement scheme. They had to, however, stay in conjunction with Social security.
All those who were elected after this date were covered by social security and the pension program that took the place of the Civil Service Retirement scheme. Whatever it is, Congress people also have to pay into social security. They do not remain devoid of that obligation.
Myth 4: The Government will use Social Security for other programs
Fact: There are two trust funds that pay for these social security disability benefits. One trust pays for the retirees while the other for the people who have any kind of disability. These two funds have never been a part of the Government’s Federal fund. Social security, in reality, is a separate and self-funded program. Yet, the Federal government borrows money from Social Security.
Now we will tell you what exactly happens. The tax revenue that Social security gets is further invested in US Treasury securities. Just like the other treasury bonds, the Government could invest this earning on many programs it already has. However, just like the other bondholders, even the Government has to pay this money and that with interest it has accumulated.
This kind of borrowing has led people into believing that the Government is stealing funds from social security. The Government has to pay all the money that it borrows. Apart from the interest that the government pays multiplies the earnings of Social security. Hence we should not worry about the money that social security has and how it is further used.
Myth 5: The annual cost of living adjustment is fixed and guaranteed
Fact: Since 1975, it was decided that the benefit amounts are adjusted so as to keep in terms with the inflation prevalent. However, there is no requirement that this cost of living adjustment will increase every year. This adjustment is tied up with the price index of certain consumer goods, also known as the CPI-W.
Every year the benefits are adjusted manually based on the changes made in CPI-W. This is measured from the third quarter of the first year into the third quarter of the following year.
In the year 2020 this index showed a hike of 1.3 % in the prices. Naturally, the benefits in 2021 had to grow accordingly.
However, if there is no significant change in the prices, that is, there is almost or no inflation, then the benefits will not change. This happened thrice after the formula was adopted, that is, in 2010, 2011, and 2016. The process of adjustment is automatic, and no one has any control over it.
Myth 6: Immigrants that are not documented can drain the social security
Fact- Some people feel that the drain of Social Security’s funds is because of many immigrants whose presence is not documented. Though it is quite a valid complaint that people feel yet there is no ounce of truth in it. Non-citizens of the USA can qualify and earn the social security benefits just like those who were born and brought up in America.
Undocumented people cannot claim these benefits. However, it is these undocumented workers that add to the social security bottom line. There are some who furnish false data in order to claim the benefits. For such people, their payroll taxes are stopped despite the fact that they are not eligible to get these benefits.
Social security data reveals that the immigrants contributed nearly $12 billion in 2010, and therefore, their earnings would continue to add to the fund.
Myth 7: Social security can be your retirement savings account
Fact: Do not think that the Government is storing all your payroll tax payments in an account so you can take it when you retire from service. The money you get out of the system is not how much you gave to the system. Instead, it is based on how much you earned over your working life. These contributions will provide benefits to retirees or those with disabilities. So, when you retire, people who are still working are going to take care of you.
In other words, you must not think of it as your retirement savings. On the other hand, you can consider it as a benefit that the government gives to you so that the rest of your years pass peacefully.
However, it cannot replace your entire income. It usually provides only 40% of what you were earning before. The formula with which the calculation is done is decided. It ensures that the money given can compensate for a higher percentage in the case of lower-income workers and a lower percentage for higher-income workers.
Myth 8: You don’t have to pay any taxes on the Social Security earnings
Fact: This was actually true until 1984. Congress and President Ronald Reagan did a complete overhaul of the entire system. Post that; they included a clause where a portion of your Social security benefits become taxable. This amount was dependent on your income level.
Suppose your income lies in the slab $25,000 to $34,000 for an individual filer and $32,000 to $44,000 for a jointly filing couple you have to pay around 50% of tax of your benefits.
If the income was above these slabs 85% of the benefits will become taxable. However if your income was below these slabs you do not have to pay anything to the IRS.
But remember, you might still have to pay state taxes on the Social security benefits. This is true if you are a resident of Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Vermont, Utah, or West Virginia. Just contact your state authorities to know what your taxable slab is.
Myth 9: You lose all the benefits if you continue to work
Fact: The truth is a bit confusing here. Social security has a rule or “earnings limit” that could reduce the benefits of a person who is still working. But this rule will not apply to all the people and is also not permanent. This rule is only for those who start claiming their benefits and yet continue working.
In 2021, the benefit you get will be reduced by $1 for every $2 in your income that is above $18,960. This is if you won’t attain your retirement age until 2022 or post that, But if you will reach your FRA in the year 2021, the formula is $1 less in benefits for every $3 in your earnings above $50,520.
Social security can actually withhold a part of your benefits if the earnings post-starting benefits exceed a specific limit. This portion changes every year and is also dependent on the closeness of your age to the retirement age,
On the day you achieve your retirement age, this earning limit will automatically go away. There will be no reduction in the benefits regardless of whatever your income is at present. Social security will then also adjust your benefit in a manner that you get back whatever was taken from you in the past.
Myth 10: The benefits of an ex-spouse will also come from your benefits
Fact: If you have got divorced, then your ex-spouse can also claim a part of the benefits that you will receive. Just like in the case of a current spouse, it can be around 50% of the amount you are entitled to. However, such kinds of ex-spouse benefits will not reduce what you get. These are separate and distinct payments and have nothing to do with your earnings.
Even if you have a current spouse, a former spouse, or multiple former spouses, there is nothing to worry about. You will still get the benefit that you deserve based on your past income and other factors. Nobody’s presence or absence can change what you are going to get from social security. You can be pretty relaxed about that.
Conclusion
Social security is a boon for retirees as well as people with disabilities. But, it is very easy to get confused about how it operates. Hopefully, the above details will clarify all your doubts. At any point, you can contact a social security disability lawyer to provide you with the right advice and guidance.