Are President Trump’s Economic Policies Saving Social Security?

The other day, a piece of economic data came out that is good news for the longevity of the Social Security trust fund. It could mean that the fund DOES NOT RUN DRY in 2034 as was previously forecast. I’ll tell you what it is and why its so important to watch this moving forward.

The other day, a piece of economic data came out that is good news for the longevity of the Social Security trust fund. It could mean that the fund DOES NOT RUN DRY in 2034 as was previously forecast. I’ll tell you what it is and why its so important to watch this moving forward.  

Are The Headlines Right About Trump Fixing Social Security?

Not long ago I saw a headline that said something like “Trump Administration policies are fixing Social Security.” I couldn’t find the exact one I was looking for but it’s no secret that President Trump has long advocated that the fix is neither benefit cuts nor tax increases, and instead it’s a simple matter of growing the economy and everything will fall into place.  And there’s truth to that but we are getting so close to the point where even record setting economic numbers will be too little too late. But what we are seeing is promising!

The specific number I’m referencing is the unemployment rate. Economists believe this to be one of the most important economic indicators because of its far-reaching effect.

Unemployment Rate as a Factor

In the Social Security trustees’ report, they list the unemployment rate as one of the factors that will determine how long the funds last. In a very simplified explanation, this impacts the trust fund because with more people working, there are more taxes being paid into the social security trust fund. Thus, the retiree to worker ratio is improved.

Now, in this report they forecast an intermediate cost, high cost, and low cost scenario for all of the various factors.

The other day, a piece of economic data came out that is good news for the longevity of the Social Security trust fund. It could mean that the fund DOES NOT RUN DRY in 2034 as was previously forecast. I’ll tell you what it is and why its so important to watch this moving forward.

The intermediate cost is where they get the assumption that the SS trust fund will be dry by 2034. If the cost goes down, the trust fund will last longer. If the costs go up, it won’t last as long.

The intermediate cost assumption they are using for the unemployment rate is 5.5%. The lowest cost scenario they show is 4.5%. But, for the first time in a very long time, the unemployment rate has dipped below 4%.

As of the last report it was at 3.8%. If it stays down here for long, the Social Security trustees will have to revise their estimates.

What Does This Have To Do With President Trump?

So what does this have to do with President Trump?

Well, he’s the president while unemployment rates have been pretty impressive.

The other day, a piece of economic data came out that is good news for the longevity of the Social Security trust fund. It could mean that the fund DOES NOT RUN DRY in 2034 as was previously forecast. I’ll tell you what it is and why its so important to watch this moving forward.

Since 1969, unemployment rates for the year end have only gone under 4% twice. 2002 and 2018. The question is, is this a result of the policies of Donald Trump?

Yeah…I’m not about to answer that.

If you look at unemployment rates for the last decade, you can see that except for an increase at first, they’ve been coming down for the last nine years.

Is this because of the policies of President Obama? Could it be because of President Bush’s policies before President Obama was in office are finally being felt? We could take this back for decades.

The truth is, I think the President has less to do with the economy than we think. I mean, they don’t control monetary policy, so at best they have short term impacts on the stock market and an indirect effect on the economy.

The point is not to play politics or any of that nonsense. Its to remind you that these trustees’ reports are using assumptions THAT CAN and do CHANGE.  And as things change, you can count on me to let you know.

It’s Your Retirement!

Before we go, I want to thank you for taking the time to get informed. So many people rely on hope that everything will work out. Sometimes it does, but sometimes a lack of planning can ruin what should be your best years. This is your retirement! Please continue to stay informed! 

Before you go…be sure to get your FREE copy of my Social Security Cheat Sheet! This handy guide is like getting the essential information from the 100,000 page SSA website condensed down into just ONE PAGE!

Thanks for reading…have a great day.

How To Calculate Your Social Security Benefits

Today, I want to show you how to easily calculate your Social Security benefit without a fancy calculator, software or help from someone who doesn’t really care if the information they give you is correct or not (like you may get at the Social Security Administration). With this article, you’ll know how to do this calculation on your own in just a few simple steps.

Today, I want to show you how to easily calculate your Social Security benefit without a fancy calculator, software or help from someone who doesn’t really care if the information they give you is correct or not (like you may get at the Social Security Administration). With this article, you’ll know how to do this calculation on your own in just a few simple steps.

Why Do I Need To Know How To Calculate My Benefits?

So you may be thinking, “Why do I need to know how to calculate my own Social Security benefits? After all, the SSA will give me an estimate at any time.”

That’s true! You can go to your My SSA account online and see an up-to-date copy of your benefits estimate. So why would you need to know how to do this calculation on your own?

It’s important for a few reasons.

First, it never hurts to understand the mechanics behind an income stream that’ll probably be a large part of your overall retirement income.

Secondly, the SSA makes projections about your future income as part of your benefits estimate.

On the benefits statement they say plainly that they assume your earnings will continue at the same level until your retirement age, and if they are different, your benefit will not match the estimate AND they “can’t provide your actual benefit amount until you apply for benefits.”

This all means that if your earnings are different than their projections, your benefit will not match the estimate.

So, understanding how to do this calculation is especially important if you plan to retire early or later than “normal” or if you have a significant earnings change in the last few years of working. 

Only Three Steps To The Calculation

To do this calculation, there are only three steps. Each step has some sub-steps as well.

First, you’ll need to find your Average Indexed Monthly Earnings, or AIME. Then you apply that AIME to the benefit formula and then adjust for filing age.

How To Calculate Your AIME

So let’s jump in with calculating your AIME. To do this, you’ll need to get set up with a tool like Excel, Google Sheets or just a notepad.

You’re going to need six individual columns with plenty of room underneath for your information. Set up your columns with the following headings: Year, Age, Actual Earnings, Indexing Factor, Indexed Earnings, Highest 35 Years

Today, I want to show you how to easily calculate your Social Security benefit without a fancy calculator, software or help from someone who doesn’t really care if the information they give you is correct or not (like you may get at the Social Security Administration). With this article, you’ll know how to do this calculation on your own in just a few simple steps.

The first two headings are the year and your age. Go all the way back to the first year you had earnings that were taxed for Social Security. You can find a complete record of this by going to your online SSA account and click the link that says “view earnings record.” If you don’t have an online account, it’s very easy to set one up.

Today, I want to show you how to easily calculate your Social Security benefit without a fancy calculator, software or help from someone who doesn’t really care if the information they give you is correct or not (like you may get at the Social Security Administration). With this article, you’ll know how to do this calculation on your own in just a few simple steps.

This may seem a little redundant to put the year and your age, but it’ll make another step a little easier.

Now you just need to copy down the information from the SS earnings history. You’ll want to use the part that says “your taxed Social Security earnings.” Don’t skip a year, even if there were no earnings. Just put a zero in.

Once you have all of your historical earnings recorded, it’s time to adjust them for inflation. The SSA uses an indexing factor to make sure your future benefit has kept up with inflation, but still based on your earnings.

Important note here…only your earnings through age 59 are indexed. All earnings at age 60 and beyond are used in the calculation at face value with no inflation adjustment applied.

Also…When you’re getting your indexing factors, you have to be careful to use the factors specific to your age. The easy way to get these is to visit the SSA web page on indexing factors.

At the bottom there is a box where you’ll put the year you turn 62. I know I said your earnings at 60 and beyond are not inflated, but their system is designed to give you your factors based on your age of first eligibility. So be sure to put the year you attain age 62 in this box. When you do, you’ll get indexing factors that you’ll need in the next step.

Indexing Factors

You’ll notice that the factor is 1 for the years you are 60 and 61.

Now that you have your indexing factors, just copy them on to the sheet. Be sure to keep your years matched up.

Once you have your indexing factors written down, you simply need to multiply your actual earnings by your indexing factor. This will give you your indexed earnings.

Now, all you have to do is extract the highest 35 years of indexed earnings.

NOTE: If you don’t have 35 years, and don’t plan to continue working, you’ll have to use zeros.

If you’re still working and don’t have 35 years, you’ll need to estimate what your future earnings will be and apply the indexing factors just as you would for actual historical earnings. This is where you can start to play around with the numbers to see the various impacts of retiring early, or working later or maybe having variable earnings close to retirement.

Your Highest Earnings

Once you have your highest 35 years in the last column, you just need to sum them up and divide by 420. You divide by 420 because that’s the number of months in 35 years and we need to get your average earnings expressed as a monthly number.

Once you do this, congratulations…you have your AIME and have finished the first (and hardest) step of the calculation. It’s downhill from here. 

Today, I want to show you how to easily calculate your Social Security benefit without a fancy calculator, software or help from someone who doesn’t really care if the information they give you is correct or not (like you may get at the Social Security Administration). With this article, you’ll know how to do this calculation on your own in just a few simple steps.

To keep walking through this example, I’ve assumed a certain amount of wages and years of work. When I do that calculation I get an AIME of $5,726.02. Yours will be different! This was simply the result of my example calculation and I needed an example to continue explaining this calculation. 

NOTE: If you die before accumulating 35 years of earnings, there is an alternate calculation. See my article “If You Die Early: How To Calculate Social Security Survivor’s Benefits.”

Time To Apply The Formula

Now that you have your AIME, it’s time to run it through the formula to see what your full retirement age benefit amount will be.

IMPORTANT NOTE HERE: This formula is calculated in the year you turn 62. That’s important because this formula is made up of two numbers that’s often referred to as bend points. These numbers change EVERY YEAR AND YOU HAVE TO USE THE BEND POINTS FOR THE YEAR YOU TURN 62 TO GET AN ACCURATE RESULT.

Let me show you a 2019 example and then I’ll talk you through how to get these for yourself if you don’t happen to be exactly 62 in 2019. 

Bend Points

In 2019, the bend points are $926 and $5,583. But the formula is calculated based on three separate percentages of different portions.

First you have the amount up to $926, then the amount between $926 and $5,583 and then the amount over $5,583. Three separate portions, but only two numbers.

Then you take your average indexed monthly earnings and apply it to the grid. Using the AIME number from my example, the first $926 would be used at 90%. The amount from $927 to $5,583 would be used at 32%. Anything over $5,583 would be used at 15%.

Today, I want to show you how to easily calculate your Social Security benefit without a fancy calculator, software or help from someone who doesn’t really care if the information they give you is correct or not (like you may get at the Social Security Administration). With this article, you’ll know how to do this calculation on your own in just a few simple steps.

Once I’ve ran my AIME through that grid, I simply sum up the far right column and the result is my full retirement age benefit also known as my PIA or primary insurance amount.

But what happens if you aren’t 62 yet? In that case you’ll have to forecast what bend points will be in the year you turn 62.

Thankfully…it’s not that hard because I have a calculator on my website.

The first thing you’ll want to enter is your year of birth. This will do the math for you to figure out how many years until you turn 62.

Then you need to put in the current year bend points. I’ve left this field unpopulated since they change every year.

To get the current year numbers, just click on the link for the SSA page that has these numbers. Just be sure to use the bend points for the PIA formula and not the family benefit formula.

Once you have the current bendpoints plugged in you need to decide how much inflation will occur. In my calculator you can choose 2, 3 or 4%. The Social Security trustees believe the average wage index will increase at around 4% per year, and this index is what controls the bend points, but you may choose to believe that’s too optimistic and want to use a lower number. This is completely up to you.

Once you hit calculate, you’ll see the future bendpoints below. This is what you would use in your formula. Keep in mind that the bendpoints change every year, but the percentages stay the same. 

One other thing…if you are beyond age 62 you can find the bend points for the year where you were 62 at that same link.

Now that you’ve calculated your average index monthly earnings and applied them to the PIA formula, you simply need to figure out how your filing age will impact your benefit amount.

Discovering Your Filing Age

The easy way to look at it is to think about it in annual numbers.

Your benefit will be lower if you file at 62 and higher if you file at 70. But there are three separate bands with different adjustment amounts.

The red line is your full retirement age. This is where you receive the amount of the benefit you calculated plus any cost of living adjustments that happen between now and then.

If you file after your full retirement age, your benefit will increase by 8% per year. If you file in the 3 year window immediately prior to your full retirement age your benefit will decrease by 6.66% per year of early filing. For anything more than 3 years before your full retirement age, your benefit will decrease by an additional 5%.

A lot of people don’t want to retire on their birthday so it’s important to break this down by a monthly amount.

Monthly Increase/Decrease Percentages

After your FRA, your benefit will be increased by .667% per month you delay. For the 36 month period before full retirement age your benefit is reduced by .556% and for more than 36 months it is reduced by .417% per month. 

Today, I want to show you how to easily calculate your Social Security benefit without a fancy calculator, software or help from someone who doesn’t really care if the information they give you is correct or not (like you may get at the Social Security Administration). With this article, you’ll know how to do this calculation on your own in just a few simple steps.

And that is it!

It’s your retirement!

Before we go I want to thank you for taking the time to get informed. So many people just float into retirement hoping everything will work out. Sometimes it does, but sometimes a lack of planning can ruin what should be your best years. This is your retirement! Please continue to stay informed! 

I’d recommend staying connected with my content so you won’t miss anything. In many cases I’ll publish my newest stuff on YouTube and then share it on my Facebook page. Then my content team does their magic and cleans it up into an article for those who enjoy reading. (Again…the article is shared on my Facebook page.)

Be sure to subscribe to my site so you won’t miss any of the new content coming out, plus you will receive the blueprint version of my book for free. Alternatively, you can just head over to Amazon and buy the full version. I can’t guarantee this, but I’m pretty sure you’ll get more value than the $12 it costs.

Thanks for reading…have a great day. 

The Republicans’ Plan To Save Social Security

How do the Republicans plan to save Social Security and keep it solvent for the generations to come? If you think a possible Social Security fix may only impact those with a high income, you need to check this out. This is a plan that will affect EVERYONE!  

Changes Are Necessary

Whatever your political affiliation is, I’m sure you’ll agree that SOMETHING needs to be done about Social Security. We are now within 15 years of facing the real possibility of benefit cuts. Most projections suggest that benefits will have to be cut by around 25% if nothing is done. Most people CANNOT afford this! 

In 2018, the average monthly social security benefit was $1,413. If that was cut by 25%…the average benefit would go down to $1,088. That’s only $77 dollars above the poverty line.

Needless to say, something needs to be done before this cut happens. While the wheels of change are moving PAINFULLY slow, both parties have suggested multiple fixes in an effort to ensure these cuts DO NOT happen. 

Which Way Will it Go?

In all of these proposals that have been suggested there are two that continue to come up over and over as the individual political party’s favorite:

How do the Republicans plan to save Social Security and keep it solvent for the generations to come? If you think a possible Social Security fix may only impact those with a high income, you need to check this out. This is a plan that will affect EVERYONE!

The Democrats would like to increase the taxable earnings cap. This would be a tax increase on higher income individuals. (More detail on this shortly.)

The Republicans’ plan that is most popular is to increase the full retirement age. Their rationale for this is that the full retirement age hasn’t been adjusted since the 1983 amendments and the system needs to adjust for increasing life expectancies. 

When you look at the data, they have a valid point. In 1940, life expectancy for a 65 year old was 76.9 years for a man and 78.4 years for a woman. Since that time, life expectancy has risen by more than six years for 65-year-olds, to 83.1 years for men and 85.6 years for women. So, a promise to provide retired workers with a certain monthly benefit for the rest of their lives is significantly more expensive than the same commitment made to recipients in 1940. 

Consequences of Change

Individuals are living longer and these payments are being paid for a lot longer. If you stop there, it makes lots of sense to raise the full retirement age as the Republicans are suggesting. However, as with everything, there would be a few unintended consequences.  

For example, if the full retirement age is increased, this means that the corresponding reduction for filing early would be much steeper as well.

Currently, if your full retirement age is 67, and you file at 62, you’ll receive 70% of your full retirement age benefit amount. If the FRA is raised to 70, and the reductions stay the same, an individual would only receive about 55% of their full retirement age benefit at 62. 

To put this into numbers, imagine that an individual’s full retirement age benefit is $1,413. If the FRA is 67, the penalty for filing at 62 would be $424 which would result in a benefit of $989. If the FRA was increased to 70, the penalty for filing at 62 would be $636, which would result in a benefit of $777. 

One of the big questions here is whether the filing behaviors would change. Currently, about 33 percent of all retirees simply file at the earliest age possible…age 62. If the increased penalties didn’t change this behavior, and individuals continued to file at the earliest age possible, we’d see more seniors with household incomes under the poverty line and possibly a further drain on other government programs to help meet their needs.  

How to Mediate the Issue

Some have suggested that the fix for this is to increase the minimum age of eligibility to around 65. If this happens, you could see a scenario where more individuals may begin to file for disability benefits—which are not reduced for filing age. This is because nearly half of all workers leave work earlier than they expected and 61% of those individuals cite health reasons.

This means that 30% of all workers are leaving work earlier than they want to for health reasons. If the only Social Security benefit that’s available in your early 60s is disability, I would expect those applications to skyrocket. IF the SSA saw a big uptick in the number of disability cases, it could easily dampen the effect of having increased the full retirement age.  

How Your Income Could Be Affected

Those opposed to the idea of increasing the full retirement age say that though raising the retirement age affects everyone  equally in a rough sense, as it affects  incomes  unequally. This is because those with a low income tend to depend on the income from Social Security MORE than those with a high income. 

(This is one of the reasons that the Democrats say they will not accept this as a standalone plan because the impact would be greatest on lower income individuals.)   

My opinion is that the full retirement age WILL BE increased as part of the overall solution to shore up the trust fund. How much it will increase is likely the only question that remains. I suspect that it will only be raised by a small amount and will take several years to get there.  So you can probably see by now that the fix isn’t as easy as it seems on the surface. But as new proposals are made, I’ll be sure to keep you informed.  

Stay Informed!

I want to thank you for taking the time to get informed. Being informed gives you choices – and can make a big difference in YOUR RETIREMENT! Please continue to stay informed! 

I’d recommend staying connected with my content so you won’t miss anything. In many cases I’ll publish my newest stuff on YouTube and then share it on my Facebook page. Then my content team does their magic and cleans it up into an article for those who enjoy reading. (Again…the article is shared on my Facebook page.)

Be sure to subscribe to my site so you won’t miss any of the new content coming out, plus you will receive the blueprint version of my book for free. Alternatively, you can just head over to Amazon and buy the full version. I can’t guarantee this, but I’m pretty sure you’ll get more value than the $12 it costs.

Thanks for reading…have a great day. 

2021: The Year Social Security Changes Forever

Social Security benefits are changing forever at the end of 2020. Once the calendar rolls over to 2021, you’ll never be able to get as much in benefits.

Social Security benefits are changing forever at the end of 2020. Once the calendar rolls over to 2021, you’ll never be able to get as much in benefits. 

Here’s what’s going on.

Let’s Start with a Critical Factor: Your Full Retirement Age

Under the original Social Security Act of 1935, workers had to reach age 65 to receive a full retirement benefit.

This “full retirement age” was actually simply based on the fact that many state pension systems and the Railroad Retirement Benefit system used age 65, so, the Committee on Economic Security – the group that designed the US SS system – decided to go with an age that was already commonly used. 

They also considered using age 70, but ultimately decided that age 65 was more reasonable. Bottom line? Their choice was pretty subjective!

This full retirement age didn’t change from the beginnings of Social Security all the way until 1983.

This was the other time in history where, like today, the Social Security trust fund faced a crisis and nearly ran out of money! To keep this from happening, The NATIONAL COMMISSION ON SOCIAL SECURITY REFORM (which is more commonly referred to as the Greenspan Commission) made a series of recommendations to Congress about how to keep the program solvent for the next 50 years. 

Full retirement age matters to you because it impacts when you can claim your full Social Security benefit amount without having it reduced or impacted by the earnings limit.

How Changes to FRA Impact Your Ability to Get Full Social Security Benefits

One of the Greenspan Commission’s big recommendations was to increase the full retirement age to age 67. To make this change a little easier to digest, they recommended that the change only impact those who were more than 20 years away from full retirement age and that the change would gradually phase in over a period of 22 years. 

The first changes began by changing the age from 65 to 66. It stayed at 66 for 11 years. But now… it’s going up again. 

For those born between 1955 and 1959, the full retirement age will be somewhere between age 66 and 67. For everyone born in 1960 or later, the FRA will be 67 (for now). 

This takes us back to the beginning where I said that you’ll never be able to get as much in benefits in 2021 or later. Here’s why. 

Why You’ll Never Get As Much in Benefits After 2021

For years we’ve used nice round numbers when calculating the impact of filing for social security benefits early, or later. We’ve said if you file at 62 you’ll get 75% of your FRA benefit amount and if you wait until 70 you’ll get 132% of your benefit amount.

Well, guess what? Not anymore!

Because the increases and reductions are calculated on a monthly basis, once FRA increases, there will not be as many months for benefits to increase by.

The inverse will also be true, the reductions for filing at the earliest age will be steeper because there will be more months between age 62 and full retirement age.  

This is why I stress understanding how to calculate the reductions and increases on a monthly basis.

How The 2021 Changes Will Affect Social Security Benefits

Social Security benefits are changing forever at the end of 2020. Once the calendar rolls over to 2021, you’ll never be able to get as much in benefits.

Here’s how this changes the benefits and reductions if we look at filing at the earliest age and at the latest age. 

Currently, the SS filing window is between 62 and 70. You can’t file before 62 and it doesn’t make sense to file after 70. 

So, for those born between 1943 and 1954, the FRA is 66, you are entitled to 100% of your benefit.

You can file as early as 62, but you’ll only receive 75% of your benefit. If you file at 70 you’ll receive 132% of your benefit. Once the FRA starts moving up, it all changes.

You’ll still be able to file at 62, but you’ll only receive 70% of your FRA and if you delay…your benefit will increase to 124% instead of 132%. 

Social Security benefits are changing forever at the end of 2020. Once the calendar rolls over to 2021, you’ll never be able to get as much in benefits.

Don’t Just Hope Everything Will Still Work Out — Get Proactive and Plan Now!

Many people just hope everything will work out in retirement. Sometimes it does, but sometimes a lack of planning can ruin what should be your best years. This is your retirement! Please continue to stay informed.

If you still have questions, you could leave a comment below, but what may be an even greater help is to join my FREE Facebook members group. It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too. 

You should also consider joining the 100,000+ subscribers on my YouTube channel! For visual learners (as most of us are), this is where I break down the complex rules and help you figure out how to use them to your advantage.

One last thing that you don’t want to miss: Be sure to get your FREE copy of my Social Security Cheat Sheet. This handy guide takes all of the most important rules from the massive Social Security website and condenses it all down to just one page.

Is Social Security a Good Investment?

We're talking about what kind of value you actually get from your Social Security taxes. Is this a good investment? If you could stop paying in your part to SS and invest it instead, could you create as much income? We’ll do a side by side comparison of your SS benefits vs. investing and find out...the results may surprise you…

If you had to replace your Social Security benefits with another form of income, how much would you need to save up in order to live off of in the future?

It’s probably more than you think.

The fact is, the income you receive from Social Security may deserve more respect than it currently receives. It’s easy to dismiss your benefits as “too little” or “not enough.”

And it might sound crazy to call Social Security a good investment.

Can We Call Social Security a Good Investment?

But to be honest with you, in all the years that I’ve helped folks with retirement planning, Social Security income is the only income stream that I’ve seen with the following attributes:

  • It’s adjusted almost every year for inflation
  • It’s not 100% taxable
  • It’s backed by the US Government
  • It will pay you for as long as you live

That’s a long string of benefits for one income source. So how much would you need to replace your benefit? Another way of asking that question is, what kind of value you actually get from your Social Security taxes?

Or, even better: is Social Security a good investment?

If you could stop paying into the Social Security system and just invested that money on your own instead, could you create as much income for your future self?

We can do a side-by-side comparison of the Social Security benefits you can expect to receive and the result of investing the money you have to pay in on your own instead to determine if it’s true Social Security a good investment.

What’s Better: Investing the Tax You Have to Pay on Your Own, or Paying In and Receiving Social Security Benefits?

This isn’t just a random question to ask. I receive a lot of comments about opting out of Social Security, and investing the money you’d normally have to pay in to the system on your own instead.

Since my research tends to be driven by curiosity, I decided to take a deeper look at the numbers and see which would work out better…

To get the results I made a few assumptions.

We're talking about what kind of value you actually get from your Social Security taxes. Is this a good investment? If you could stop paying in your part to SS and invest it instead, could you create as much income? We’ll do a side by side comparison of your SS benefits vs. investing and find out...the results may surprise you…

First, I assumed that your goal would be to create income in retirement as opposed to buying a vacation house or something else that would require a lump sum.

Second, I assumed that you took only your part of the Social Security tax you currently pay and invested it.

Why? Because the total FICA tax is 15.3%. If you are an employee you only pay half of that, or 7.65%.

Of that amount, 1.45% goes to Medicare and 6.2% goes to Social Security. It’s that 6.2% that I assume you invest for the purposes of these calculations.

We could chase the rabbit trails of investing the full Social Security tax, but if opting out were allowed, I hardly think an employer could be compelled to give you the other 6.2% to invest on your own.

And ultimately, I wanted to look at “what if you could invest the dollars that you currently have to put into the system?”

Next, we assume a 7% return. Obviously you may do better (or worse) than this.

This in itself raises another assumption to consider: Would you continue to get a 7% return on your investment in retirement, or would you move your money to an investment that may have less market risk when you actually needed to rely on being able to withdraw from your nest egg for income?

If you did, you’d most likely get a lower return at some point in the future. So, in the calculation, I modeled out two rates of return after retirement: 7% and 3%.)

Then, at your full retirement age, the invested balance would be used to fund an income stream that would be equal to the amount of Social Security income for which you would have been eligible.

There are multiple ways to illustrate the withdrawal, but this is the only way to keep it apples to apples.

Finally, I looked at multiple income levels while working in a job from age 19 to 66. To get a baseline, I used the national average wage index which is published by the Social Security Administration:

  • The first income level was for an individual at 50% of the national average wage index.
  • Then I looked at 100%, and then at 150%.
  • For a maximum SS benefit, I also looked at an individual who would’ve earned the maximum taxable wages for every year he or she was working.

With these earnings figures, I used the calculator on the Social Security website to calculate what the benefit for each of these income levels would be at full retirement age.

I then increased that amount by 2% per year to keep up with the cost of living adjustment provided by the Social Security Administration, and that’s the number that I illustrated withdrawing from the portfolio accumulated from the invested Social Security taxes.

Now that you know all of the parameters and assumptions, are you ready for the results?

Here they are…

Do the Numbers Say Social Security Is a Good Investment? The Results

For an individual at 50% of the average wage index, the portfolio value of the money invested would last beyond the expected 85 year life expectancy if invested at 7%.

But if that portfolio received a 3% return instead, this person would run out of money at age 80.

This is because a lower income individual would have a larger Social Security benefit relative to the amount of taxes they’ve paid in, and the withdrawal percentage would be higher for them.

We're talking about what kind of value you actually get from your Social Security taxes. Is this a good investment? If you could stop paying in your part to SS and invest it instead, could you create as much income? We’ll do a side by side comparison of your SS benefits vs. investing and find out...the results may surprise you…

Next I looked at an individual at 100% of the national average wage index. At a 7% return, their invested money would last well beyond age 100.

But they too would run out of money if they only received a 3% return, although they’d at least get a few more years out of it. The money would run out at age 84.

This is where things change… If an individual had earned 150% of the NAWI they would see their benefit increase and would have more in their account when they died than when they started. At 3% it would still last until around age 90.

We're talking about what kind of value you actually get from your Social Security taxes. Is this a good investment? If you could stop paying in your part to SS and invest it instead, could you create as much income? We’ll do a side by side comparison of your SS benefits vs. investing and find out...the results may surprise you…

And finally, an individual who had earned the maximum wage base on an annual basis would see similar results except this time they would never run out of money in either scenario during a normal life expectancy. 

We're talking about what kind of value you actually get from your Social Security taxes. Is this a good investment? If you could stop paying in your part to SS and invest it instead, could you create as much income? We’ll do a side by side comparison of your SS benefits vs. investing and find out...the results may surprise you…

To make sure my numbers were right, I spoke with Dr. Brandon Renfro. Dr. Renfro is a finance professor and a numbers guru. Things checked out!

If You’re Wondering Is Social Security a Good Investment… It Depends on Your Income

Considering we don’t actually have the option to withdraw ourselves from the system regardless of what these results tell us, it’s fair to ask: what’s the point of all of this?

Hopefully you can see that, depending on your income level, Social Security provides a better chance of having income throughout your life than investing on your own and hoping for a big enough return.

If you’re a lower income earner, then investing on your own may leave you in a worse spot than paying into the Social Security system and receiving benefits. And if you earn more income? Then you have a better shot of your own investments providing more money — but again, that depends on your investment choices and your returns. It’s certainly not guaranteed the way a Social Security benefit can be.

Take Action!

Remember: this is your retirement. Stay curious and STAY INFORMED.

You’re making the right moves by reading articles like these, but don’t use this as specific advice for your own situation. Do your research and talk to your own advisors. Most importantly, continue to educate yourself.

If you still have questions, you could leave a comment below, but what may be an even greater help is to join my FREE Facebook members group.

It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too. 

You should also consider joining the 100,000+ subscribers on my YouTube channel! For visual learners (as most of us are), this is where I break down the complex rules and help you figure out how to use them to your advantage.

One last thing that you don’t want to miss: Be sure to get your FREE copy of my Social Security Cheat Sheet. This handy guide takes all of the most important rules from the massive Social Security website and condenses it all down to just one page.

The Social Security 2100 Act

Sweeping Social Security reform could happen SOON! I’m not talking about some minor adjustment to an obscure clause in the regulations, I’m talking about nearly everything changing. I'm going to break down the 6 BIG Changes that’s likely to affect YOU.

Sweeping Social Security reform could happen SOON! I’m not talking about some minor adjustment to an obscure clause in the regulations, I’m talking about nearly everything changing. I’m going to break down the 6 BIG Changes that’s likely to affect YOU.

April, 2017

This bill was first introduced in April of 2017. Since the house was still controlled by the Republicans, it died a quick death. Now it’s back. This time, the Democrats are in control of the house and there is gossip that President Trump may be on board with his support.

This is one you need to watch! It already has nearly enough co-sponsors to pass it through the House.

The Senate is still controlled by Republicans, so it’s not as certain there, but at the very least, this proposal will show you what’s on the mind of the Democrats and give us a hint at how much support the Republicans are likely to give to a bill with these sorts of provisions. 

This proposal would include both tax cuts and tax increases, a change in the way cost of living adjustments are calculated, and an across-the-board benefit increase.

Noteworthy

After reading the Bill I want to share with you the 6 things I think will have the most impact on the majority of Americans. Just understand…this is not a deep dive into each of these topic areas. It’s likely to change as the process moves forward and we’ll save the deep dive for a series when and if we get a final signature-ready Bill. Also, the purpose of this post is not to share my opinion of the proposal. Although I’m certainly not scared to do so, there are a few things that need working out before I can decide if I view this bill favorably or not. What I intend to do is give you a quick summary of this proposal that is devoid of the hyperbole that I’m sure you’ll hear from each side. Let’s get started with the 6 Big Changes that’ll come from this Bill.

Sweeping Social Security reform could happen SOON! I’m not talking about some minor adjustment to an obscure clause in the regulations, I’m talking about nearly everything changing. I'm going to break down the 6 BIG Changes that’s likely to affect YOU.

Number one: A benefit increase.

There will be an across the board increase to benefits. This will be retroactively applied to everyone who is currently receiving benefits as well. The way they’ll accomplish this is by a slight change to the Social Security formula.

Currently, your historical earnings are applied to a crediting formula at age 62 to determine your benefit amount. The only change is that the top number in this formula will change from 90% to 93% credit to your benefit amount for the earnings in that range. The estimate is that benefits will increase by an average of 2%. 

Sweeping Social Security reform could happen SOON! I’m not talking about some minor adjustment to an obscure clause in the regulations, I’m talking about nearly everything changing. I'm going to break down the 6 BIG Changes that’s likely to affect YOU.

Number Two: The second big change is a switch to CPI-E.

Currently the cost of living adjustment is calculated with the CPI-W. This methodology has been criticized for not taking into account that a retirees expenses are not the same as a working person.

The BLS has kept up with an experimental inflation number for the past several years called the CPI-E. In this measurement, they use households over the age of 62. From December 1982 through December 2011, the CPI-E rose at an annual average rate of 3.1 percent, compared with increases of 2.9 percent for the CPI-W.

Sweeping Social Security reform could happen SOON! I’m not talking about some minor adjustment to an obscure clause in the regulations, I’m talking about nearly everything changing. I'm going to break down the 6 BIG Changes that’s likely to affect YOU.

When you look at a side by side comparison, it easy to see where a retiree’s expenses are different. The green bars represent the expenses of individuals over the age of 62. You’ll quickly see that housing and medical care take up a lot more of a retirees income. If those categories increase at a rate faster than inflation, the current method just doesn’t keep up. 

Sweeping Social Security reform could happen SOON! I’m not talking about some minor adjustment to an obscure clause in the regulations, I’m talking about nearly everything changing. I'm going to break down the 6 BIG Changes that’s likely to affect YOU.

Number Three: Increase the Minimum Benefit

Big change number #3 is to increase the minimum benefit. Now there’s not much said about the Social Security minimum benefit. This is the lowest amount an individual can receive who worked a certain number of years.

It’s meant to offer a base income for those who had very low paying jobs. In 2019, the minimum is $872.50 for those who worked for 30 years. The new minimum benefit will be 125% of the poverty level for those who worked for 30 years. 

Sweeping Social Security reform could happen SOON! I’m not talking about some minor adjustment to an obscure clause in the regulations, I’m talking about nearly everything changing. I'm going to break down the 6 BIG Changes that’s likely to affect YOU.

Number 4: A decrease to social security taxes.

This needs to happen! The numbers haven’t been modified since they were introduced in 1983 and 1993. This is one of the areas of the bill that is somewhat unclear to me. But I think I’ve got it.

Currently there is a grid system that your benefits move through. For the married filing jointly, there is no tax if your provisional income is less than $32,000.

For the amounts between $32k and $44k, 50% of your benefits are included as taxable income. For amounts over $44k, 85% of your benefit is taxable income.

It appears that they are going to simplify this, and let’s say if your provisional income is less than $100k, there is no taxes on your social security benefits. If it crosses over, 85% of your benefits are taxable.  

Sweeping Social Security reform could happen SOON! I’m not talking about some minor adjustment to an obscure clause in the regulations, I’m talking about nearly everything changing. I'm going to break down the 6 BIG Changes that’s likely to affect YOU.

Number 5: To increase the maximum wage base.

Currently, you only pay social security taxes on the first $132,900 of earnings. For earnings over that, you do not pay the 12.4% tax.

The new law would put a gap in how this is taxed. If an individual’s income exceed $400,000, the FICA tax would kick back in. Those “excess earnings” as this bill calls it would not be applied to your benefit calculation at the same rate as they currently are. Instead, a new bracket would be added to credit your benefit by 2% of the excess. 

Sweeping Social Security reform could happen SOON! I’m not talking about some minor adjustment to an obscure clause in the regulations, I’m talking about nearly everything changing. I'm going to break down the 6 BIG Changes that’s likely to affect YOU.

Number #6: An increase to payroll taxes.

It would happen gradually, only .05% per year, but by 2043 employees and employers would each be paying 7.4%. This means that the total FICA tax would increase from 14.3% to 17.7%. 

SO that sums up what I think are the BIG changes that could come from the Social Security 2100 Act. As it is written currently, these provisions would eliminate the much discussed insolvency of the social security trust fund in 2034. That’s a good thing! The publicity pieces around this bill say that it would extend the solvency of social security into the year 2100 (hence the name).   

This is a Bill that I will be watching VERY carefully. When something big happens, I plan to let my subscribers know about it quickly!

Take Action!

I want to thank you for taking the time to get informed. So many people just float into retirement hoping everything will work out. Sometimes it does, but sometimes a lack of planning can ruin what should be your best years. This is your retirement! Please continue to stay informed! 

I’d recommend staying connected with my content so you won’t miss anything. In many cases I’ll publish my newest stuff on YouTube and then share it on my Facebook page. Then my content team does their magic and cleans it up into an article for those who enjoy reading. (Again…the article is shared on my Facebook page.)

Be sure to subscribe to my site so you won’t miss any of the new content coming out, plus you will receive the blueprint version of my book for free. Alternatively, you can just head over to Amazon and buy the full version. I can’t guarantee this, but I’m pretty sure you’ll get more value than the $12 it costs.

Thanks for reading…have a great day. 

Bernie Sanders’ Plan For Social Security

Senator Bernie Sanders proposal to expand Social Security

We’re talking about Senator Bernie Sanders’ proposal to expand Social Security. He’s already announced he’s running for president in 2020 so this proposal is one you need to watch. Let’s take a closer look.

A few days ago, Senator Bernie Sanders released his proposal to reform Social Security. It can really be summed up in three words:

Scrap The Cap

This is not the first time he’s proposed such legislation.

A Major Platform Piece

This was one of his key platform pieces when he ran for president in 2016. Now that he’s announced he’s running again in 2020, you’re probably going to see this a few more times so you need to make sure you understand this.

In fact, I would say that even if he drops out of the race early…you’ll see Social Security reform as a central part of any candidate’s platform in the upcoming election.

And just a side note to the Republicans…WAKE UP if you don’t want to be known as the party that doesn’t care about social security! In the past few weeks there have been two serious proposals to reform social security and they were BOTH sponsored by Democrats. Enough of the political stuff…

5 Key Changes Proposed to Social Security

There are 5 key changes in Senator Sanders’ proposal that deserve the most attention. As of the time of this recording, the text of the Bill has not been released, so I’m depending on summaries and fact sheets mostly published by Senator Sanders’ office. If you watched my video on The Social Security 2100 Act, you’ll probably notice some similarities, but there are some big differences too and I plan to do a side by side comparison at a later time.

The most notable difference is going to be number 5. For anyone that files as an S corp, or if you just have an investment account that produces interest, dividends or capital gains, this could be huge. 

#1 – Benefit Increase

Senator Bernie Sanders proposal to expand Social Security

The first change is a benefit increase. Without the text of the bill its hard to tell how this will be accomplished but I’m sure it will be through a change to the SS formula where the lower earnings get credited to a benefit at a higher rate.

This is also a feature of the SS 2100 Act and it will increase benefits by about 2% on average.

#2 – Cost Of Living Adjustments

Senator Bernie Sanders proposal to expand Social Security

The second change is how the cost of living adjustments are calculated.

Currently the SSA uses the CPI-W. There is another inflation measurement that isn’t official, but the Bureau of Labor statistics has been updating it for some time on an experimental basis. It’s called the CPI-E and it is meant to track expenses for households where at least one member is 62.

If you look at a comparison of these two measurements, there are certain categories that are higher for older Americans, which means that the CPI-W, the current method, isn’t keeping up.

#3 – Children’s Benefits

Senator Bernie Sanders proposal to expand Social Security

The third notable change is to increase the age for which children are eligible for a benefit.

Currently, a child is eligible for a benefit if a parent retires, is disabled, or dies. However, that benefit stops when the child turns 18, or 19 if they are still in high school. This would extend that age to 22 if the child is in college or vocation training.

#4 – One Trust Fund

Senator Bernie Sanders proposal to expand Social Security

The fourth change is to to combine the two SS trust funds into one trust fund.

Currently, there is a trust fund set up for retirement and survivor benefits, known as the old age and survivors insurance fund or OASI, and then there is the disability insurance fund, known as DI.

When you pay your 12.4% SS taxes, 10.6% goes to the retirement and survivors fund and 1.8% goes to the disability fund. Unless you’re self employed, you only pay ½ of that and your employer pays the other half.

The rational behind combining the two trust funds is that even though these two trust funds are already collectively referred to as the OASDI fund, there are arguments among the politicians when transfers need to happen between the funds. Combining these would simplify the accounting.

#5 – Increase to the Maximum Wage Base

Then there is the big change… And that is to increase the maximum wage base. But this one has a twist. Currently, you pay SS taxes on the first $132,900 in wages or self employment income. Amounts above that are not subject to SS taxes. Senator Sanders’ proposal has the tax kick back in when income reaches $250,000. But this isn’t just for wages…This will also include all investment income. And it’s not clear whether an individual will receive any credit to his or her SS benefit from the excess taxes they’ll have to pay. 

That is the quick summarized version of the Bernie Sanders’ plan, but as new details come out, I’ll be sure to keep you informed. 

Take Action!

Before we go I want to thank you for taking the time to get informed. Being informed gives you choices – and can make a big difference in YOUR RETIREMENT! Please continue to stay informed! 

I’d recommend staying connected with my content so you won’t miss anything. In many cases I’ll publish my newest stuff on YouTube and then share it on my Facebook page. Then my content team does their magic and cleans it up into an article for those who enjoy reading. (Again…the article is shared on my Facebook page.)

Be sure to subscribe to my site so you won’t miss any of the new content coming out, plus you will receive the blueprint version of my book for free. Alternatively, you can just head over to Amazon and buy the full version. I can’t guarantee this, but I’m pretty sure you’ll get more value than the $12 it costs.

Thanks for reading…have a great day. 

Taxing the Rich Will NOT Fix Social Security

It’s no secret that the Social Security Administration is staring down a big problem: funding for the program is set to run out, and fast.

That’s a scary thought if you’re approaching retirement or plan to rely on Social Security benefits to handle your living expenses in the future.

And it’s tempting to think that what sound like common sense solutions could actually fix the problem.

One such “common sense” answer is also one of the most popular suggested fixes for Social Security that I hear. What is it?

Simply increase or eliminate the maximum taxable wage base, and make high-income individuals “pay the same as everyone else.”

The truth is that while “scrap the cap” makes a great political rally chant, it is not the conclusive fix for Social Security’s funding problems.

Can’t We Just Make The Rich Pay More in Order to Fix Social Security?

Many, many people believe that the Social Security system is broken thanks to income inequality. Others think that the Social Security program, something that was designed to help the poor, is actually stacked in the favor of the wealthy.

Do these claims have any merit?

While it’s true that income inequality does exist, I wanted to find out if the insolvency of the Social Security trust fund could really be fixed by raising taxes on the wealthy.  

Thankfully, I didn’t have to launch my own research project or hire a room full of Ph.Ds. The Congressional Research Service has already done the heavy lifting for me in a report that was last updated in late 2019.

Before we get into their findings, let’s take a look at what the issue actually is. In 2020, the first $137,700 dollars in wages are subject to a 12.4% social security tax. Wages over that amount are not subject to that tax.

The maximum wage base for 2020.

The fact that wages over a certain amount aren’t taxed led (and still leads) lots of politicians and talking heads to suggest that the easy fix to all of the Social Security funding issues can be found within two options, both of which involve raising the amount of maximum taxable earnings:

  1. Option 1: Completely Eliminate the Minimum Wage Base: In other words, this solution essentially says, “if you make a million dollars you should pay Social Security taxes on that full million in income.”
  2. Option 2: Have A Gap On Taxable Income: In this scenario, the current maximum would stay in place but there would be an earnings gap where the tax would not apply. Once earnings exceeded a certain level the tax would become applicable again. This method is really the same as completely eliminating the wage, it just takes more time to get there. Because the first number is generally increased every year to keep up with the annual increase to average wages, and the second number would not change, it would only be a matter of time before the first number caught up to the first number thus eliminating the gap.

Social Security Wage Base with a gap in the amount of earnings that are subject to the Social Security portion of FICA/SECA taxes.

Why Taxing the Rich Will Not Fix Social Security

One of the big unanswered questions of increasing the wage level at which Social Security taxes are applied is that, if the cap is modified, do increased taxes add to Social Security benefits?

For example, if I begin having to pay additional taxes for social security… do I get credit for that? Will the additional taxes increase my future social security benefit?

Currently, there are at least three suggested methods for calculating how these additional tax will, or will not, contribute to a future social security benefit.

Option one is where there is no credit given for the additional taxes paid in beyond what the maximum taxable cap would have been under the old calculation method. If there is no credit given to benefits, and those tax dollars paid in have no benefit returned, it would fix 83% of the 75-year shortfall.

Option two is to continue crediting the higher earnings to a future benefit the same way it is now. Currently, an individuals earnings history is broken into three bands. The lower earnings are credited to a future benefit at the rate of 90%, the mid earnings are credited at a rate of 32% and the higher earnings are credited to a social security benefit at a 15% rate. In this scenario the 15% crediting rate would be applied to all of the additional earnings.

Using the current formula, this would fix 68% of the shortfall.

The third option is to use a new formula, which would credit the increased taxes above what the maximum taxable cap wou;d have been to your benefit at a 2-3% rate. This option would fix 76% of the shortfall.

Does it seem like something is missing? The closest that any of these get to fixing the shortfall is the super-harsh method where the taxable wage base is completely eliminated and there would be NO credit to the contributor’s future benefit amount. 

Is it likely that a Social Security payroll tax increase will be part of the overall solution? Yes, but by itself it will not fix the problem.  Next time you hear someone shouting that, tell them you know better. 

It’s Your Retirement. Shouldn’t You Take Control?

Before we go, I want to thank you for taking the time to get informed. Don’t be one of the people who just float into retirement and hope everything will work out.

Sometimes it does, but sometimes a lack of planning can ruin what should be your best years. This is your retirement! Please continue to stay informed! 

Be sure to subscribe to my site so you won’t miss any of the new content coming out, plus you will receive the blueprint version of my book for free.

Alternatively, you can just head over to Amazon and buy the full version. I can’t guarantee this, but I’m pretty sure you’ll get more value than the $12 it costs.

If you still have questions, you could leave a comment below, but what may be an even greater help is to join my FREE Facebook members group. It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too. 

You should also consider joining the 100,000+ subscribers on my YouTube channel! For visual learners (as most of us are), this is where I break down the complex rules and help you figure out how to use them to your advantage.

One last thing that you don’t want to miss: Be sure to get your FREE copy of my Social Security Cheat Sheet. This handy guide takes all of the most important rules from the massive Social Security website and condenses it all down to just one page.

How Bill Clinton Almost Privatized Social Security

How Bill Clinton Almost Saved Social Security (and lessons we can learn to prevent disaster)

The push to privatize Social Security hasn’t been discussed much lately. That’s too bad. It’s probably the best (and least intrusive) option to save Social Security that NO ONE is talking about.

This option was almost used in the late 90s and if it would have been implemented, we probably wouldn’t have the issues with the solvency of Social Security that we have today. But it may not be too late!

Over the past 10 years its been often repeated that the solvency issue of the Social Security trust fund can only be fixed by either increasing taxes or cutting benefits. Without one of these, there will be a 20% shortfall by the year 2034.

Wrong!

There is a third option that’s rarely discussed. In fact, its become a bit of a third rail. If you touch it your political career may be over. That third option is to privatize Social Security by investing part of the assets in the trust fund. 

So how would it help to privatize Social Security? The quick answer is that there is a 2.9 trillion dollar balance in the trust fund that’s earning a measly 2.7%. If the rate of return could be increased, the funds would last longer.

This huge balance was built up by having more workers than retirees. Thus, since Social Security collects from current workers to pay current retirees, there was an imbalance in the amount of money that came in vs. what needed to be paid out. This money built up over the years until it grew to its current massive size.

Now, the tables are turning and there are projected to be more retirees than workers. This means that to make the promised Social Security payments the Administration will have to start taking withdrawals from the trust fund. By the year 2034, this trust fund will be been depleted unless something changes. At that point, benefit payments will be funded solely by payroll taxes from current workers and a few other small sources. In short, there won’t be enough money to make 100% of benefit payments.

But what if we could make the trust fund last longer by increasing the rate of return?

The Clinton’s Disagreement on Privatized Social Security

Let me give you some reasons this hasn’t happened yet. Back in 2016, when Senator Hillary Clinton was running for President, she loved to bash the “Republican” idea of investing Social Security. But ironically, it was her husband, President Bill Clinton, who actually proposed the privatized version of Social Security.

During the late 90’s he had a study group that suggested multiple fixes for Social Security. The one he really liked? Invest part of the Social Security trust fund. This made perfect sense! In multiple academic papers that followed it was found that the deficit would be closed completely by doing this.

How The Blue Dress Stopped The Plan To Privatize Social Security

But then something happened that stopped everything. Monica Lewinsky and her blue dress. At this point, President Clinton’s political survival forced him to align with his party and abandon several of his big objectives. Putting safeguards in place that would protect Social Security and Medicare for the long term was one that had to be pushed aside. The push to privatize Social Security died alongside his pride.

It’s too bad it went that way. In retrospective data, a paper from the Boston College’s Center for Retirement Research illustrated that this plan would have been effective, and we would not be in the place where we are today. In this same report, they say that investing the trust fund would still fix the issue. At the same time, reports from the SSA say that it wouldn’t have much of an impact this late in the game. So there’s some disagreement there about whether or not this will work at this point. After all, the time value of money needs TIME to work and we’re waiting until the 11th hour to get something done. 

My Perspective

So let me tell you where I stand. I’m a conservative and find most of my views to align with our conservative legislators. However, no one gets a blank check for my approval.

Even though I have comments on my YouTube videos saying I’m a flaming liberal, and other comments on the same video saying I’m a crazy right winger I think that I have a responsibility to support the legislation that makes sense… even if it is from the ‘other’ party. But everything is framed as good or bad, liberal or conservative, black and white.  We’ve gotten to a point where we feel bad for agreeing with a proposal from a party we don’t like and feel like we have to agree with everything our chosen party likes. There is an in-between here. And unless we find it, were going to have a disaster on our hands with Social Security.

If we keep waiting the only way to fix it will be drastic benefit cuts or tax increases. Increased taxes on the rich do not create ANYTHING! Instead, the often-unintended consequence is of targeting rich people with more taxes will be a BIGGER gap between the rich and the poor. This is because companies, who are more often than not owned by rich people, are not likely to take a reduction to their net profit or pay. Instead, the increased costs of higher taxes get passed on to employees through pay and benefit cuts.  

It’s your retirement!

Before we go I want to thank you for taking the time to get informed. So many people just float into retirement hoping everything will work out. Sometimes it does, but sometimes a lack of planning can ruin what should be your best years. This is your retirement! Please continue to stay informed! 

I’d recommend staying connected with my content so you won’t miss anything. In many cases I’ll publish my newest stuff on YouTube and then share it on my Facebook page. Then my content team does their magic and cleans it up into an article for those who enjoy reading. (Again…the article is shared on my Facebook page.)

Be sure to subscribe to my site so you won’t miss any of the new content coming out, plus you will receive the blueprint version of my book for free. Alternatively, you can just head over to Amazon and buy the full version. I can’t guarantee this, but I’m pretty sure you’ll get more value than the $12 it costs.

Thanks for reading…have a great day. 

The FICA Tax: Your Ticket to Social Security Benefits

Today I want to talk about FICA taxes. It’s really important to understand this because it’s the FICA taxes that serve as your admission ticket to Social Security and Medicare benefits. Keep reading to learn more.

Today I want to talk about something you probably don’t think of very much — but that makes a big impact on your paycheck and take-home pay.

I’m talking, of course, about FICA taxes …which can sound really boring.

While I understand that initial reaction, it’s also important that we focus on this topic if you’re serious about better understanding the Social Security system and your potential benefits.

FICA stands for Federal Insurance Contributions Act, and the taxes this act imposed are used to fund federal benefit systems. Workers pay in through the tax now in order to receive their own benefits in the future.

In other words, FICA taxes are like your admission ticket to your eventual Social Security and Medicare benefits. 

How the Taxes Withheld from Your Pay Break Down

Have you ever looked at the federal income tax brackets and wondered why the taxes taken out of your paycheck seem so much higher than the rates published by the IRS?

Seems awfully unfair, right? But the mismatch is due to the fact that the federal income tax rate — which is what we usually hear about when discussing taxes on a broad scale — is a relatively small part of the overall taxes most people pay.

Take a close look at your paystub when you receive it next. You’ll see the deduction from gross pay due to federal withholding, and depending on your state, you may also see state withholding:

Today I want to talk about FICA taxes. It’s really important to understand this because it’s the FICA taxes that serve as your admission ticket to Social Security and Medicare benefits. Keep reading to learn more.

If you keep moving down your stub, you’re going to see a line for FICA taxes. Let’s take a closer look.

Understanding the FICA Tax

Again, the FICA tax is what you contribute to the federal government to pay current recipients of Social Security and Medicare benefits. Participation is required for most workers; the FICA tax is a mandatory payroll tax.

The tax collected for both programs could show up on your paystub as two separate line items, one for Social Security and another for Medicare.

Or the Social Security portion could be labeled “OASDI” for the Old Age Survivors Disability Income fund.

There are a few occupations groups that do not pay FICA, but 96% of all workers do pay it — so chances are good that includes you!

How the FICA Tax Breaks Down

I want you to understand more about what this tax is (since you’re obligated to pay it!) and how your money goes to fund Social Security and Medicare.

We know there are two components for the two programs. Here’s how the tax breaks down between the two:

The Social Security portion: This is also the largest part of Social Security. The total is 12.4%.

However, the tax rate is only applied to your first $132,900 in wages (for 2019; the limits do change yearly). In other words, you do not pay the 12.4% on your wages once you cross this limit.

Also, you actually only pay for half of the 12.4% you owe. Your employer is responsible for paying the other half.

The exception, of course, is if you’re self-employed. In that case, you’re on the hook for paying the full amount of FICA tax.

The Medicare portion: This is a total of 2.9% in taxes. It’s also split 50/50 between you as the employee and your employer (but again, self-employed folks are responsible for paying the entire amount themselves).

This means that in total, 15.4% of your wages are paid in to the Social Security and Medicare programs in order to fund the benefits going out to current recipients. 

Today I want to talk about FICA taxes. It’s really important to understand this because it’s the FICA taxes that serve as your admission ticket to Social Security and Medicare benefits. Keep reading to learn more.

I hope that next time you look at your paycheck you’ll have a better understanding of what those lines mean and what they do.  

Need More Info? Here’s Where to Go

If you still have questions, you could leave a comment below, but what may be an even greater help is to join my FREE Facebook members group.

It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too. 

You should also consider joining the 100,000+ subscribers on my YouTube channel! For visual learners (as most of us are), this is where I break down the complex rules and help you figure out how to use them to your advantage. 

And one last thing that you don’t want to miss: Be sure to get your FREE copy of my Social Security Cheat Sheet. This handy guide takes all of the most important rules from the massive Social Security website and condenses it all down to just one page.