The other day in the mail I received an envelope, off white in color with the familiar green return address.
It was the Social Security Administration (SSA) periodic letter telling me what I have to look forward to when I retire.
You probably get one too, at least once a year(or you should).
Why do we get this letter, which is a BRIEF statement of future benefits earned? The SSA is trying to keep you informed concerning any future payments you will have coming based on how many years you have been paying into the system and the amount of those payments.
It does so to aid you in planning for your glorious retirement.
So how did this account come to accrue these benefits for you? Take a look at your paycheck.
The numbers in this statement are funded by your FICA deduction each pay period.
Currently the deduction is pegged at 7.
65% of your gross pay (the number before you pay your taxes and other payments).
Your employer also pays the same amount to the SSA.
It is a cost of doing business.
If you are one of the lucky ones who is self employed you get to pay both sides of those payments totalling 15.
3% of your earnings.
You should know that there is a cap on the amount of FICA that can be deducted for any one person.
Currently that amount is $106,000 and rises each year.
Once that threshold is reached the FICA portion of your deduction stops but the portion of your deduction that helps to fund medicare and medicaid continues no matter how much your income is in any given year.
Now that you and your employer are sending off all of this money, how do they determine what your benefit will be upon retirement? Back to the letter you received.
They take the highest 35 years of earnings, adjust for wage inflation, then pay 90% of the first $680 average earnings, 32% of the amount between $680 and $4100, then 15% of any amount over $4100.
(Source: http://www.
ssa.
gov) Social Security also provides cost of living adjustments (COLAs) to account for inflation.
In 2009 the COLA will be non-existent because inflation has been in negative territory.
Well, with all of this information, let's revisit the question: Will it be there? Politicians know that senior citizens vote and they need those votes so they have done all they can to protect Social Security payments.
That is not to say that there haven't been some eroding of the benefits over the years.
As an example, some benefits are now subject to taxes.
The future does not look bright.
With a deficit growing at an ever increasing speed it will soon be impossible to pay the benefits unless it is with printed money that could become worthless.
It is important to know that the money you and your employer pay in is not set aside in an account with your name on it.
It is placed into a fund that has been borrowed against to fund the general operations of the government.
What remains is a stack of IOU"s.
While it is difficult to say how long the system has left, it is easy to say that you should not depend on it.
While you are still working you should be saving with a vengeance.
At least you will have something to live on besides an empty, unfulfilled promise.