I’ve noticed an increase in questions regarding Social Security this year. Many view it as a cornerstone of their retirement plans, while others are concerned about its long-term viability.
In order to have an informed view on the Social Security System, it’s best to look at it from a historical perspective.
President Roosevelt signed the Social Security Act into law on August 14, 1935. Also known as The Federal Insurance Contributions Act or FICA, the law included the following provisions…
1 – Program participation was completely voluntary. The program became mandatory under President Roosevelt.
2 – Originally, participants would only have to pay 1% of the first $1,400 of their annual incomes into FICA. This deposit requirement normally increases annually and sits at 7.65% on your first $176,100 in earnings for 2025.
3 – The money participants elected to put into the Program was deductible from their income for tax purposes. Under President Roosevelt, those deposits became non-deductible.
4 – The money that participants deposited was originally put into an Independent “Trust Fund” used only to pay Social Security Benefits. Under President Johnson, the money was moved to The General Operating Fund and spent primarily on the Vietnam War. Social Security payments are now an entitlement under the provisions of The General Operating Budget.
5 – Social Security payments to retirees were never taxed as income until 1984. Under President Clinton, up to 85% of Social Security Benefits are now taxed.
6 – Social Security Benefits were originally designated only to US Citizens who had paid into the system. Under President Carter, non-citizens who turn age 65, can now receive payments.
Let me leave you with this…
I’m not writing this as a political statement. Where you stand on any of these issues depends entirely on your own personal political viewpoints.
These are simply the facts. What will happen in the future is anyone’s guess.
But here are some more facts that you should consider when planning for your retirement.
1 – The difference in payout between never paying a dime into the FICA system and paying in at the maximum for twenty years is currently a little over $4,000 per month or $48K per year.
2 – As Entrepreneurs we pay both sides of FICA or 15.3% of our first $176,100 in W-2 earnings or $26,943 annually.
If we took that money and put it into the market at 5% for the 20 years it takes to earn a full Social Security benefit, you’d have roughly $923K. At 5% annually you get a little over $46K every year with one big difference.
You’d actually have $923K in your retirement account rather than the government’s promise to pay. And history teaches us that our government’s promises on Social Security haven’t amounted to much.
In tax planning we do a lot to save our client’s money on Social Security. But our clients must have the discipline to invest their savings wisely in order to have a reasonable retirement.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
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