The Inner-Workings of Social Security: How You Get Yours

One of the biggest misunderstandings about the Social Security system is that each individual has a specific “account” which holds all the money you’ve had withheld from your paycheck over the years.  Nothing could be further from the truth… as we’ve mentioned before on this blog, the Social Security system is a pay-as-you-go system (largely) where withholding today is used to pay benefits for current recipients.

It is for this reason that much consternation has been brought about in recent years with regard to the question of the Social Security system’s running out of money.  You see, for quite some time now the Social Security system has run in a surplus over current expenses, with the surplus amounts being placed in a trust fund.  During 2010 the current benefits being paid out have become greater than the payroll taxes are bringing in, so the difference has come from the trust fund.

No Pile of Money

The point is – there’s not a pile of money sitting somewhere with your name on it, although your “contributions” are tracked through the years, as a matter of adminis-trivia.  There is no guarantee at any point in time that the money you’ve put into the system will ever be returned to you, but then again you may receive far more in benefits than you paid in.

For example, if you were single with no dependents and worked all your life paying in to the Social Security system but died just prior to starting to receive your Social Security retirement benefit, it would all be for naught (for your benefit).  There’s no residual that goes to your estate.

On the other hand, to consider an extreme example at the other end of the spectrum:  Ida May Fuller, the individual who received the first ever Social Security benefit check in January of 1940, had worked for only 3 years under the Social Security system, paying in a total of $22.54 in Social Security taxes during that time.  Mrs. Fuller lived to age 100, and she received benefits in the amount of $22,888.92 over the course of the 35 years.

Photo by swanksalot

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

An IRA Owner's Manual
A Social Security Owner's Manual

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Copyright 2014   About Us   Contact Us   Our Advisors       Login