Demographic changes mean more retirees, less employees paying SS taxes. When will social security disability run out of money?
Understanding social security
The social security program is financed by the Federal Insurance Contribution Tax (FICA), a special payroll tax. You and your employer pay 6.2% of your earnings, up to a maximum of $ 137,700 taxable for 2020.
Self-employed persons pay a total of 12.4%; However, you can deduct half of the self-employed tax as business costs. By law, Social Security is financed from this designated tax, and any excess money that has not been paid out is used to purchase US government bonds in the Social Security Fund.
Money paid by taxes is not the same money you will receive later in life. Instead, Social Security is first and foremost a payment system based on actual use, in which the money that you and your employer are paying now is used to finance payments to people who currently receive benefits, including survivors, deceased, dependents and other beneficiaries of social security.
There may be an automatic limitation on benefits
If the disability trust fund ran out of money, it would automatically reduce benefits by 19%, unless Congress takes action. According to AP, the average monthly allowance for disabled workers and their families is USD 1,017, although the figure varies slightly in other reports. The average beneficiary will receive a reduction of USD 193 per month, which can be a significant blow to many people who rely on these benefits.
It’s time to change the way we view social security
This is not the first time Social Security has appeared in the news, warning us of potential shortcomings. However, even if constant concern about the fund’s solvency proves to be pointless, the conversation should open our eyes to one important fact: social security pensions are often not enough to live as a primary source of income. This Social Security Administration factsheet indicates that the average monthly allowance disability is merely enough to keep the beneficiary above the poverty level in 2014.
You should especially consider individual disability insurance if:
- You earn and are responsible for your own living costs
- You earn and are responsible for the costs of maintaining your mentees
- You are an employee who receives little or no disability benefits through your employer
- You are self employed
People often think that the amount of your pay determines whether you need disability insurance. However, you should protect your income, regardless of whether you are an official, doctor, truck driver or professional footballer.