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How Social Security Benefits All Americans

The federal government ushered in a slew of progressive programs during the Great Depression with the aim of helping the most downtrodden Americans. Few of these programs have held the progressive banner higher than Social Security.

Social Security was created to ensure that Americans with low lifetime incomes would have an adequate retirement income, so aging Americans would not live in dire poverty. Over the decades, Social Security has clearly helped alleviate grinding poverty for many in old age and has been proven to be highly popular up and down the economic spectrum, says AZ Central in the article “Social Security: Designed to help poor Americans in old age, it’s a relatively good deal for wealthier ones, too.”

In some ways, it can be said that Social Security has failed to live up to the goal of helping the most downtrodden Americans. The debate over the agency’s progressive features, or lack thereof, has been going on for many years. 

Some supporters say Social Security is progressive and achieves its goals. One group is the Investment Company Institute, a mutual-fund trade group that says government paid benefits replace a much higher percentage of working-year earnings for lower-paid Americans. This is especially true when you take into consideration the fact that low earners pay less in Social Security payroll taxes during their working lives.

However, there are some factors that make Social Security less progressive than intended. Many people die before they claim any benefits. For this reason, many Americans file earlier than they otherwise would, locking in benefits at a low level. Poor people don’t live as long as wealthier people, so they tend to claim early and not receive benefits for as many years. Since Social Security benefits are based on earnings, lower-earning Americans receive lower benefits.

Other factors impact how much money people receive from their Social Security benefits. One progressive feature: there is a cap on monthly benefits. In 2018, it’s nearly $2,800. That means billionaires won’t receive anything more than a retail clerk, which counts one for the progressive side.

On the other hand, what you receive in benefits is partly based on how much you earned and how much you paid in payroll taxes. That tax rate is 6.2%, whether you are a middle manager or a millionaire. Therefore, the income replacement part of Social Security is progressive. but there are tax and other aspects that make the entire picture somewhat murky.

Here are some pointers for making Social Security part of an economically successful retirement:

  • Delay claiming benefits if you can past age 62. Benefits increase about 8% each year, up to age 70.
  • Work longer, if you can. Even a few more years of working and delaying claiming Social Security, can be a boost to your retirement income.
  • Contribute whatever you can to workplace plans. At least contribute enough to make the most of any matching plans from your employer.
  • If you don’t have an IRA at work, open one on your own. 
  • Use the retirement saver’s credit, a federal tax benefit worth up to $2,000 for an individual (and $4,000 for joint filers) to help low-income people afford an IRA or 401(k) plan.
  • Be mindful of tax liabilities, when you take withdrawals from retirement savings accounts. You should also remember that withdrawals could impact your Social Security benefits and make them partially taxable.

Reference: AZ Central (Sep. 16, 2018) “Social Security: Designed to help poor Americans in old age, it’s a relatively good deal for wealthier ones, too”

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