One of the biggest misconceptions about Social Security 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 a while the Social Security system has had a surplus over current expenses, with the surplus amounts being placed in the trust fund. In 2020 it is expected that current benefits being paid out will become greater than the payroll taxes are bringing in, so the difference will 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.
Sterling Raskie, MSFS, CFP®, ChFC®
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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”.
We have the funds needed to wait until 70 but decided to take SS at FRA for me and 2 years early for my wife. We decided we’d rather have the money to spend now and control where we invest it. I know it’s been said you earn 8% a year by waiting but we’d rather have the money now than wait until our early 80’s to break even. We don’t expect we’ll be spending as much then. I also read recently that the return on SS by waiting isn’t really 8% a year, but that had nothing to do with our decision.
The bottom line is you have to do what works best for you.
Best wishes to you!
Great article John. We are relatively healthy and had the funds to hold us over until we turned 70. As such, we are both happy to have waited for our 132% of FRA. While many articles discuss this ad nausem, it still seems like a simple analysis. Do you think you have a good chance to live until your late 80s or 90s? Can you afford to live off savings until 70? For us, waiting has let us spend money after 66, knowing we had a larger SSA benefit coming later. Thanks for your advice and guidance.
You’re welcome – glad to hear things are working out well for you. And it’s Jim, by the way, not John. :)