LOS ANGELES – Fil-Am Lanie Berrei knows this is the time to save money.
At the age of 50, Berrie, who works at an oil and gas company, doesn’t want to just rely on social security when she retires.
“I’m not even sure if there will be any money left in social security by the time I am at that age,” she said with a worry on her face. “There might be nothing.”
Berrei is not alone feeling that way.
Many Fil-Ams retiring today are part of the first generation of US workers who have paid more in Social Security taxes during their careers than they will receive in benefits after they retire, the Associated Press reported.
And for Berrei and other future retirees, it will only get worse, the AP added.
“For the early generations, it was an incredibly good deal,” said Andrew Biggs, a former deputy Social Security commissioner who is now a scholar at the American Enterprise Institute. “The government gave you free money and getting free money is popular.”
Established in 1935 by President Franklin Roosevelt, Social Security initially was a retirement system that helped the elderly with a source of income. The program has since expanded to retirees, disabled people, and retirees’ spouses and children.
Social Security is best described as a “pay-as-you-go” program in where current workers fund benefits for current retirees and disabled Americans.
There is only one requirement to collect social security and that is workers usually must have 10 years of “covered employment” - 10 years of paying social security taxes (or their employers) - to be eligible for these benefits.
According to CNBC, an estimated 56 million people received Social Security benefits and 158 million workers were paying into the system in 2011.
The average monthly Social Security benefit for a retired worker was about $1,177 at the beginning of 2011, according to the Social Security Administration.
AP reports that as recently as 1985, workers at every income level could retire and expect to get more in benefits than they paid in Social Security taxes.
But over the years, the fund has dwindled.
AP, using a study conducted by the Urban Institute, reported a married couple retiring last year after both spouses earned average lifetime wages paid about $598,000 in Social Security taxes during their careers. They can expect to collect about $556,000 in benefits, if the man lives up to age 82 and the woman lives to age 85.
Most high-income workers started getting less in benefits than they paid in taxes in the 1990s, according to data from the Social Security Administration.
AP reported the shift among middle-income workers is happening just as millions of baby boomers are reaching retirement, leaving relatively fewer workers behind to pay into the system. It’s coming at a critical time for Social Security, the federal government’s largest program.
Social Security trustees told the AP its funds, which have been built up over the past 30 years with surplus payroll taxes, will run dry in 2033 unless Congress acts. At that point, payroll taxes would provide enough revenue each year to pay about 75 percent of benefits.
To cover the shortfall, future retirees probably will have to pay higher taxes while they are working, accept lower benefits after they retire, or some combination of both.
“Future generations are going to do worse because either they are going to get fewer benefits or they are going to pay higher taxes,” said Eugene Steuerle, a former Treasury official who has studied the issue as a fellow at the Urban Institute.
Saving money
Similar to Berrie, Lyn Rodriguez, a 59-year-old Fil-Am (who did not want to use her real name), was forced into retirement after 30 years at a large healthcare company.
Though she has a hefty severance package, she’s looking for work because like Berrie, she’s not counting on social security to make ends meet.
“The economy is bad right now,” she said. “I’m trying to save as much money as I can even if it means collecting unemployment or looking for a low income job.”
AP said the only way to get a better return on your Social Security taxes is to live longer since most benefit estimates are based on life expectancy.
But the younger generation, those that are barely entering the workforce are the ones most worried about what’s going to happen when they reach that retirement age.
Mackenzie Millan of Los Angeles told the Associated Press, she has even greater doubts about whether Social Security will be a good deal for her.
“The money that I put aside now, it’s not like that money is going to be waiting for me. That money is going toward someone else,” the 22-year-old recent college graduate said to the AP. “If I wanted Social Security 50 years from now, when I wanted to retire, I would have to hope that someone else is still working and putting money aside in their paychecks to pay for my Social Security at that point.”
source: asianjournal.com
