Social Security and you

Working helps secure your retirement

By RUSSELL GLOOR, National Social Security advisor for the AMAC Foundation
Posted 12/29/21

In my work as National Social Security Advisor for the AMAC Foundation, I sometimes hear from younger and middle-aged workers who resent paying Social Security (SS) FICA (Federal Insurance …

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Social Security and you

Working helps secure your retirement


In my work as National Social Security Advisor for the AMAC Foundation, I sometimes hear from younger and middle-aged workers who resent paying Social Security (SS) FICA (Federal Insurance Contributions Act) or self-employment taxes from their earnings.

Some who are self-employed even seek ways to lower their reportable earnings so that they pay less Social Security tax. But almost all older Americans are looking for ways to increase or maximize their Social Security benefit.

These objectives are at odds with each other.

Your Social Security benefit, when you claim it, will be computed using your lifetime average monthly earnings, adjusted for inflation. Social Security will use the highest-earning 35 years over your lifetime to calculate your “primary insurance amount” (PIA), which is what you get if you claim at your full retirement age (between 66 and 67, depending on your year of birth). Said another way, the amount of your reported earnings over your lifetime establishes your SS retirement benefit.

Minimizing your reportable earnings (or delaying your return to work after the pandemic) can hurt your future retirement, while working and paying SS taxes on your earnings now is an investment in your future retirement comfort.

For clarity, you only pay SS tax on your earnings up to the payroll tax cap for each year ($142,800 for 2021), and only your earnings up to each year’s SS tax cap are used to compute your benefit. If you don’t have a full 35 years of earnings, Social Security still uses 35 years to compute your benefit by putting in enough “zero-earnings” years to get to 35.

So, if you don’t have 35 years of earnings, your benefit will be smaller due to the zero-earnings years, but every year you report earnings, that will add to your benefits. Your retirement benefit will be more.  

Some who contact me believe that Social Security won’t be there when it’s time for them to retire. To them, I say that Social Security has fully met its benefit obligations since payments started nearly 82 years ago and there is no reason to believe that will not continue indefinitely. While it’s true that the program currently faces some financial challenges, Congress already knows how to fix those issues and will surely do so before any benefits are cut. At the end of 2020, there was nearly $3 trillion in reserved funding held in the Social Security Trust Funds to ensure full payment of benefits for more than a decade.

The Social Security Trust Funds (known as the Old Age, Survivors and Disability Insurance, or “OASDI” funds) receive FICA and self-employment tax contributions from about 175 million American workers every year. The tax money received is used to pay benefits for all current SS recipients, and any surplus is invested in interest-bearing special-issue government bonds held in the trust funds. The reserves in the trust funds are used if Social Security’s annual income is less than needed to pay benefit obligations, thus ensuring that all benefit obligations will be met.

A highly important but often overlooked feature of Social Security is the part known as Social Security Disability Insurance (SSDI). The reality is that about one of every three American workers will become disabled and unable to work for some length of time during their career, and SSDI is there to sustain them financially if that happens. Nearly 10 million of today’s beneficiaries receive SSDI benefits. However, SSDI requires that a recipient has worked for at least 5 of the 10 years immediately preceding their disability, so working and earning now is important to maintaining eligibility for disability benefits if they are needed in the future.

Social Security is America’s most important retirement program, sustaining millions of Americans above the poverty line. There are now about 65 million Americans who rely on Social Security, and most of them say Social Security is a “major” source of their retirement income. Indeed, for some beneficiaries Social Security represents more than 90 percent of their retirement income, including some whose only source of income is their monthly SS payment. The reality is that working, earning, and paying Social Security tax is an investment in your future. Although paying SS tax on your earnings now may not be especially pleasant, Social Security is guaranteed to be there for you later and will probably be a major source of your income at that time.

This article presents the opinions of the AMAC Foundation Staff and is intended for information purposes only. It does not represent legal or financial guidance.

AMAC Foundation, National Social Security Advisor, Federal Insurance Contributions Act, Social Security, earnings


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