Will Your Children Ever Receive Social Security?

The three pillars supporting retirement have traditionally been your pension, social security, and other savings. These days, most companies can’t afford to guarantee pensions (defined benefit plans). But now, your children may not be able to count on social security either when they retire.

The Employee Benefit Research Institute (EBRI) just reported on future problems with social security. In light of this, you may want to consider helping your children prepare for their retirement. Let’s see what’s up.

Social security is funded through our taxes. We and our employer pay a social security tax (also called FICA – federal insurance contributions act). This money pays for the well known benefits of retirement - and benefits to the disabled and their dependents. Also, we both pay a Medicare Tax for medical benefits at age 65.

Employees in 2010 pay a FICA tax of 6.2% on income up to about $106,800 and a Medicare tax of 1.45% at all income levels. These together are called payroll taxes and our employers match these taxes. That’s a total of 15.3% of income going to FICA and Medicare Funds per year.

For the latest full year compiled, the expenditure of the Social Security and Disability fund (FICA monies) in 2008 amounted to 4.2% of our Gross Domestic Product (GDP). For reference purposes, Medicare expenditures for 2008 were 3.2% of GDP. They’re expected to exceed Social Security funds by 2028.

With the oldest baby boomers (born in 1944 and later) reaching 65 in 2009, a growing retirement population will be seeking Social Security and Medicare Benefits. And that’s where the problem begins. The social security trust fund can’t keep up paying for more expenses forever.

When a trust fund goes into negative cash flow (i.e. benefit payments exceed the income from payroll taxes and taxation of benefits) it marks the point at which the government must provide cash from general revenues to these programs – such as social security or Medicare. Government has been taking surplus cash from these programs to fund other current spending instead!

Based on intermediate projected expenses, the social security program expenses are expected to exceed income from taxes by 2017 and be depleted by 2041. A high cost projection put these dates at 2014 and 2031 respectively.

You should recognize, too, that present trust fund surpluses are simply bookkeeping entries showing how much the social security and Medicare programs have lent to the treasury! So when the fund goes into negative cash flow, government must supply this money from other programs.

These negative cash flow dates are not far off. Please contact us so we can help you choose how you may want to provide help for your children’s retirement.

These negative cash flow dates are not far off. Give us a call at (480) 987-9951 or visit us at http://www.wealthguardiangroup.com/ so we can help you choose how you may want to provide help for your children’s retirement.

Article written and provided by Javelin Marketing.

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[1] EBRI www.ebri.org and A SUMMARY OF THE 2009 ANNUAL REPORTS
Social Security and Medicare Boards of Trustees http://www.ssa.gov/OACT/TRSUM/index.html

[2] Social Security Administration News Release (October 15, 2009)