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Offbeat Here's how Social Security generated $1 trillion in income last year

15:26  14 june  2018
15:26  14 june  2018 Source:   fool.com

Social Security is still in trouble -- here's how we can fix it

  Social Security is still in trouble -- here's how we can fix it Social Security is expected to run out of money in 2034, but there’s still time to solve the problem.This may seem odd. After all, Social Security has run at a surplus in recent years. In 2017 alone, the program's income exceeded its expenditures by more than $44 billion.

The three ways Social Security generates revenue. Last year alone, the Board of Trustees report shows, the program essentially generated $ 1 trillion in income -- 6.6 billion, to be precise. How did Social Security come up with so much cash for beneficiaries? Let' s take a closer look.

The three ways Social Security generates revenue. Last year alone, the Board of Trustees report shows, the program essentially generated $ 1 trillion in income -- 6.6 billion, to be precise. How did Social Security come up with so much cash for beneficiaries? Let' s take a closer look.

Two Social Security cards lying on a W-2 tax form that highlights payroll taxes paid. © Getty Images Two Social Security cards lying on a W-2 tax form that highlights payroll taxes paid. For better or worse, Social Security is America's most important program with regard to providing a financial foundation for seniors. Each month, nearly 45 million senior citizens receive a Social Security benefit.

A majority of them are eligible for the retired worker benefit. And despite this average benefit totaling just $1,411, it proves to be more than enough to keep more than 15 million seniors out of poverty.

Another overlooked fact about Social Security is that it's a program that can stand the test of time. Even with the latest Social Security Board of Trustees report signaling troubled waters ahead for the program (Social Security's $2.9 trillion in asset reserves are projected to be completely exhausted by 2034), it is in absolutely no danger of running out of money.

Social Security Expected to Dip Into Its Reserves This Year

  Social Security Expected to Dip Into Its Reserves This Year Social Security’s cost will exceed its income this year for the first time since 1982, forcing the program to dip into its nearly $3 trillion trust fund to cover benefits. This is three years sooner than expected a year ago, partly due to lower economic growth projections, according to the latest annual report the trustees of Social Security and Medicare released Tuesday. The program’s income comes from tax revenue and interest from its trust fund.

Last year , in 2016, Social Security collected 7.5 billion in income , of which But have you wondered how exactly the Social Security program is able to generate nearly $ 1 trillion in income Now, here ' s the issue: The initial thresholds established in 1983 have never been adjusted for inflation.

More:Funding source: Here ' s how Social Security generated $ 1 trillion in income last year . Social Security with a 0,000 average income . Since Social Security is based on 35 years of your earnings, there's no way of knowing what your benefit will eventually be because you're earning 0

In fact, short of Congress changing how the program is funded, Social Security can never go bankrupt. That's a pretty comforting feeling if you're a current retiree or a working-age American looking to retire in the years or decades ahead.

The three ways Social Security generates revenue 

Last year alone, the Board of Trustees report shows, the program essentially generated $1 trillion in income -- $996.6 billion, to be precise. How did Social Security come up with so much cash for beneficiaries? Let's take a closer look. 

1. The payroll tax: Social Security's saving grace 

The importance of Social Security's payroll tax simply can't be overstated. Without this tax on wage income, Social Security wouldn't be a time-tested social program. In 2017, the payroll tax generated $873.6 billion of the $996.6 billion collected. On a percentage basis, that's 87.7% of all revenue collected in 2017, up slightly from the 87.3% of the $957.5 billion collected in 2016.

5 dangerous myths about Social Security

  5 dangerous myths about Social Security A new warning that the program is dipping into its reserves fuels misconceptions many have about its futurePlenty of workers may take this development with a grain of salt because of the widespread belief that they'll never see a Social Security check in their lifetime. More than half of working Americans don't think they'll receive a benefit when they retire, according to a Gallup poll in 2015.

I retired last year , and started receiving social security payments. Do I have to pay taxes on my social security benefits? They don't include supplemental security income (SSI) payments, which aren't taxable. The net amount of social security benefits that you receive from the Social Security

Social Security paid benefits to 61,859,000 people in November. That's up by almost 1 million recipients just in the past year alone. Here ' s How Social Security Generated $ 1 Trillion in Income Last Year .

Though the maximum taxable earnings cap is often adjusted annually, on par with the increase in the National Average Wage Index, the 12.4% payroll tax applies to earned income up to $128,400, as of 2018. This means those relatively few people who earn more than $128,400 in 2018 will escape Social Security's payroll tax on any income above this level, while more than 90% of working Americans pay into Social Security on every dollar they earn.

It's also worth pointing out that Social Security's 12.4% payroll tax isn't entirely applicable to most people. If you're employed by someone else, your employer covers half your liability (6.2%), with you responsible for the other half (6.2%). Only folks who are self-employed are responsible for the full 12.4% payroll tax.

A Social Security card lying next to IRS tax form 1040, a pair of reading glasses,and a twenty-dollar bill. © Getty Images A Social Security card lying next to IRS tax form 1040, a pair of reading glasses,and a twenty-dollar bill.

2. The taxation of benefits: Social Security's necessary evil 

Social Security ran a $44 billion surplus in 2017. Why is it in trouble?

  Social Security ran a $44 billion surplus in 2017. Why is it in trouble? Despite a big surplus and multitrillion-dollar reserve balance, Social Security isn't in good shape.Unfortunately, there isn't much to smile about beyond that. In fact, the report confirmed last year's finding that Social Security is on a path to insolvency. Here's a rundown about Social Security's 2017 performance, and why things are expected to go downhill quickly.

In the United States, Social Security is the commonly used term for the federal Old-Age, Survivors, and Disability Insurance (OASDI) program and is administered by the Social Security Administration.

Here ' s something to genuinely worry about. Beginning in 2022, Social Security is expected to begin paying out more in benefits than it's generating in revenue for the first time in four decades. If these asset reserves disappear, that means Social Security 's annual interest income disappears, too.

On the other end of the spectrum is Social Security's smallest revenue contributor: the taxation of benefits. In 2017, taxing Social Security benefits allowed the program to generate $37.9 billion in income, or 3.8% of total revenue.

In 1983, Congress overhauled Social Security, and among the changes made was the introduction of a tax on Social Security benefits above a certain adjusted gross income level. If one-half of your Social Security benefits, plus all your earned income, totaled above $25,000 as a single taxpayer, or $32,000 as a couple filing jointly, up to 50% of your Social Security benefits could be taxed. In 1993, a second tax tier was added that allowed up to 85% of a person's or couple's Social Security benefits to be taxed if one-half of their benefits plus earned income was more than $34,000 or $44,000, respectively.

One of the biggest complaints against the taxation of benefits is that the aforementioned income thresholds haven't been adjusted in 35 years! Not to mention, taxing benefits could be hurting middle-income seniors and couples who rely on Social Security to make ends meet.

Concerned about Social Security cuts? Here's a bigger worry

  Concerned about Social Security cuts? Here's a bigger worry The problem goes well beyond a potential reduction in benefits.But troubling as that news might be, an even greater concern is that 34% of current recipients rely on Social Security to provide 90% to 100% of their income. And the fact that nearly half of households have no retirement savings means that millions of Americans will come to depend on those benefits just as heavily. And that's a mistake that could ruin them in retirement, even if benefits don't get cut at all.

Social Security income is practically considered a guarantee by eligible seniors, meaning the SSA isn't at liberty to take major risks with its more than .9 trillion in asset reserves. Therefore you won't see any stock market investments or crazy derivative plays here . Instead, nearly all of the money (all but

Here ' s how to estimate how much you will get from Social Security in retirement. Social Security payments are calculated using the 35 highest earning years of your career, and are adjusted Factor in income tax withholding. Many retirees have to pay income tax on their Social Security payments

Then again, the taxation of benefits is a necessary evil that helps put cash into Social Security's coffers. As much as seniors would like to see this archaic tax go away, doing so would create an immediate revenue shortfall for the program, likely leading to a much sooner asset-reserve depletion date.

3. Interest income on asset reserves: Social Security's disappearing income stream

A fanned pile of hundred dollar bills atop a fanned stack of Treasury bonds. © Getty Images A fanned pile of hundred dollar bills atop a fanned stack of Treasury bonds. The third and final revenue source is the interest income earned by Social Security's asset reserves. In 2017, the program generated $85.1 billion in revenue, or 8.5% of total revenue.

Rather than let these asset reserves -- built up over the past 35 years -- simply sit there, the Social Security Administration takes this excess cash and purchases special-issue bonds, and to a lesser extent certificates of indebtedness, from the federal government. In doing so, the federal government is able to fund its general activities (selling bonds is a common way it does this), and Social Security is able to generate interest from the U.S. government. It's a win-win for both parties. As of the most recent update, Social Security's asset reserves were earning an average of 2.9%.

Unfortunately, this source of income isn't as guaranteed as Social Security's payroll tax and the taxation of benefits. It relies on there being asset reserves with which to earn interest. With the program already spending more than it's generating, it's estimated to be just 16 years until Social Security's asset reserves are completely gone. When these disappear, so will the program's interest income.

Report: The federal government is spending less on children and more on the elderly

  Report: The federal government is spending less on children and more on the elderly A new report concludes that federal spending on children is declining while the amount of money going to programs for the elderly is on the rise.You’re not a high priority for the federal government, a new report concludes.

Think last year produced a tsunami of red ink for the federal government? Well, a .3 trillion deficit is nothing to sneeze at. But, seriously, how much is $ 1 trillion ? To help you wrap your head around that Median household income in the U. S . (half the families earn more, half earn less) was

The bill, which is expected to cost $ 1 .4 trillion over 10 years , would be paid for by taxes on financial transactions and top earners. The EITC, introduced in 1975, has won plaudits from liberals and conservatives as a cost-effective way of lifting millions out of poverty each year (only social security

The bottom line: Social Security is here to stay, even if its current payout schedule isn't sustainable.

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Preparing for poverty: America will face a retirement funding crisis .
Unfortunately, those most at risk are also the least prepared to save for retirement because of an ongoing student loan crisis.Load Error

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