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
Click the link to pick up a copy of A Social Security Owner's Manual or if you'd prefer the Kindle version (and let's face it, ALL the cool kids do!), you can find that at this Kindle version link.
I can learn from you, you can learn from me - please leave your comments and links!Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 25 years of experience in the industry. Read more from this author
And if you've come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed "advisor's advisor".