With payroll taxes down, I’ve read that Social Security will likely pay out more money than it takes in over the next two years. Here is some interesting information I’ve found on Social Security:
According to government figures, more than 2.7 million people began getting their Social Security benefits in 2009, up 20 percent from 2008. The one-year increase was the largest since 1975.
More than 3.4 million boomers turned 62 in 2009, 9 percent more than in 2008.
About 72 percent of boomers are expected to claim their Social Security retirement benefits when they turn 62, rather than waiting until they are 66 and would get “full benefits”.
Social Security allows these “early retirees” to earn up to $14,100 a year before their benefits are penalized.
The Social Security system is a pay-as-you-go system, meaning current payroll taxes are used to pay benefits to current retirees. In 1983, Ronald Reagan signed into law a Social Security tax increase. This resulted in Social Security taking in more tax revenue than it paid out, with the surplus dedicated to supplementing tax revenues when the baby boomers would begin to retire (which is where we are now).
The surplus in the Social Security account has always been loaned to the government (to fund budget deficits). The total accumulated surpluses from previous years is $2.5 trillion.
People pay Social Security taxes on their income only up to $106,000. Income above this amount is not taxed for Social Security. So the fix for Social Security is quite simple. Raise the cap on salary amounts subject to the tax. If the cap is raised even one or two percent it will fix Social Security in the near term and long term. Even without changes, Social Security is expected to remain solvent until 2037.