GOVERNMENT HELP FOR YOUR RETIREMENT
Social Security can be referred to as
America’s Family Protection Plan. We’ve already dis- cussed how the program provides disability benefits in the previous chapter. And although most people assume that Social Security just sends out retirement checks, nearly 1-in-3 Social Security recipients is not a
help future generations, we need to discuss how social security is financed, and its solvency.
Social Security’s Financing The benefits paid to Social Security recipients come from the payroll taxes of those people who are still working today. Many people believe that the social security and Medicare taxes that are taken out of their paycheck (generally listed as FICA taxes, which is roughly 7.65 percent of income) are then set aside for their own use when they retire. This would be like another personal retirement account. However, that’s not the case. Today’s workforce is the one financing today’s retirees. And so, the program is designed to continue throughout perpetuity. Not only do employees pay into the system, so do employers. The employee pays in the 7.65 percent, which the employer matches. That is one reason why self-employed people pay double the amount of social security tax than other “regularly” employed people. The government sees a need to make up for the fact that self-employed people are their own bosses. For those who are self-employed, the FICA tax rate is about 15.3 percent. However, the government then allows them to take one-half of that amount as a tax deduction from their gross income.