Offbeat Here's how Social Security generated $1 trillion in income last year

15:26  14 june  2018
15:26  14 june  2018 Source:   fool.com

Social Security Expected to Dip Into Its Reserves This Year

  Social Security Expected to Dip Into Its Reserves This Year Social Security’s cost will exceed its income this year for the first time since 1982, forcing the program to dip into its nearly $3 trillion trust fund to cover benefits. This is three years sooner than expected a year ago, partly due to lower economic growth projections, according to the latest annual report the trustees of Social Security and Medicare released Tuesday. The program’s income comes from tax revenue and interest from its trust fund.

Last year , in 2016, Social Security collected 7.5 billion in income , of which 2.3 billion was But have you wondered how exactly the Social Security program is able to generate nearly $ 1 trillion in income each year to disburse out to seniors, their Now, here ' s the issue: The initial thresholds

But have you wondered how exactly the Social Security program is able to generate nearly $ 1 trillion in income each year to disburse Last year , .8 billion (3.4%) in income was derived from taxing Social Security benefits. Simply click here to discover how to learn more about these strategies.

Two Social Security cards lying on a W-2 tax form that highlights payroll taxes paid. © Getty Images Two Social Security cards lying on a W-2 tax form that highlights payroll taxes paid. For better or worse, Social Security is America's most important program with regard to providing a financial foundation for seniors. Each month, nearly 45 million senior citizens receive a Social Security benefit.

A majority of them are eligible for the retired worker benefit. And despite this average benefit totaling just $1,411, it proves to be more than enough to keep more than 15 million seniors out of poverty.

Another overlooked fact about Social Security is that it's a program that can stand the test of time. Even with the latest Social Security Board of Trustees report signaling troubled waters ahead for the program (Social Security's $2.9 trillion in asset reserves are projected to be completely exhausted by 2034), it is in absolutely no danger of running out of money.

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But have you wondered how exactly the Social Security program is able to generate nearly $ 1 trillion in income each year to disburse out to seniors, their families, the disabled, and survivors?

The average rate of return on Social Security ' s trillions is just 2.9%. Sean Williams. (TMFUltraLong). The Social Security program, which pays benefits to more than 61 million people a month (including 42 million retired workers), generated 7.5 billion in revenue last year , according

In fact, short of Congress changing how the program is funded, Social Security can never go bankrupt. That's a pretty comforting feeling if you're a current retiree or a working-age American looking to retire in the years or decades ahead.

The three ways Social Security generates revenue 

Last year alone, the Board of Trustees report shows, the program essentially generated $1 trillion in income -- $996.6 billion, to be precise. How did Social Security come up with so much cash for beneficiaries? Let's take a closer look. 

1. The payroll tax: Social Security's saving grace 

The importance of Social Security's payroll tax simply can't be overstated. Without this tax on wage income, Social Security wouldn't be a time-tested social program. In 2017, the payroll tax generated $873.6 billion of the $996.6 billion collected. On a percentage basis, that's 87.7% of all revenue collected in 2017, up slightly from the 87.3% of the $957.5 billion collected in 2016.

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Social Security ' s total income is projected to exceed its total cost through 2019, as it has since 1982. After 2019, interest income and money taken out of Under the infinite horizon, Social Security will have . 1 trillion in unfunded liabilities by 2090, .3 trillion more than last year ' s projection.

.4 trillion, a . 1 trillion increase from last year ’ s unfunded obligation of .3 trillion.[2]. As Chart 1 shows, Social Security repayments represent a considerable portion of current and future deficits. How Accurate Is the 2033 Prediction?

Though the maximum taxable earnings cap is often adjusted annually, on par with the increase in the National Average Wage Index, the 12.4% payroll tax applies to earned income up to $128,400, as of 2018. This means those relatively few people who earn more than $128,400 in 2018 will escape Social Security's payroll tax on any income above this level, while more than 90% of working Americans pay into Social Security on every dollar they earn.

It's also worth pointing out that Social Security's 12.4% payroll tax isn't entirely applicable to most people. If you're employed by someone else, your employer covers half your liability (6.2%), with you responsible for the other half (6.2%). Only folks who are self-employed are responsible for the full 12.4% payroll tax.

A Social Security card lying next to IRS tax form 1040, a pair of reading glasses,and a twenty-dollar bill. © Getty Images A Social Security card lying next to IRS tax form 1040, a pair of reading glasses,and a twenty-dollar bill.

2. The taxation of benefits: Social Security's necessary evil 

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  5 dangerous myths about Social Security A new warning that the program is dipping into its reserves fuels misconceptions many have about its futurePlenty of workers may take this development with a grain of salt because of the widespread belief that they'll never see a Social Security check in their lifetime. More than half of working Americans don't think they'll receive a benefit when they retire, according to a Gallup poll in 2015.

We have to remember that the typical beneficiary has an income of about ,000 a year , and Social Security , on average, accounts for In 2012, spending by Social Security beneficiaries, combined with the added spending by businesses, generated roughly $ 1 .5 trillion in total economic output.

And by 2034, the nearly trillion in asset reserves held by Social Security are expected to be completely gone. For those unfamiliar with Social Security , benefits grow by roughly 8% per year , beginning Here ' s Why You'd Better Get Moving on That Return. Are Identity Thieves Targeting You?

On the other end of the spectrum is Social Security's smallest revenue contributor: the taxation of benefits. In 2017, taxing Social Security benefits allowed the program to generate $37.9 billion in income, or 3.8% of total revenue.

In 1983, Congress overhauled Social Security, and among the changes made was the introduction of a tax on Social Security benefits above a certain adjusted gross income level. If one-half of your Social Security benefits, plus all your earned income, totaled above $25,000 as a single taxpayer, or $32,000 as a couple filing jointly, up to 50% of your Social Security benefits could be taxed. In 1993, a second tax tier was added that allowed up to 85% of a person's or couple's Social Security benefits to be taxed if one-half of their benefits plus earned income was more than $34,000 or $44,000, respectively.

One of the biggest complaints against the taxation of benefits is that the aforementioned income thresholds haven't been adjusted in 35 years! Not to mention, taxing benefits could be hurting middle-income seniors and couples who rely on Social Security to make ends meet.

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Last year , .4 billion in interest was generated from investing close to .9 trillion into special issue bonds and certificates of indebtedness. Here ' s the real problem. The debate moving forward shouldn't be centered on whether Social Security will survive. It will thanks to the payroll tax.

Every dollar of Social Security benefits generates about of economic output. As shown above, Social Security benefit payments in 2012 supported: § About $ 1 .4 trillion in economic output The last column of Table B 1 and Table B2 show adjusted Social Security benefits by the nine income

Then again, the taxation of benefits is a necessary evil that helps put cash into Social Security's coffers. As much as seniors would like to see this archaic tax go away, doing so would create an immediate revenue shortfall for the program, likely leading to a much sooner asset-reserve depletion date.

3. Interest income on asset reserves: Social Security's disappearing income stream

A fanned pile of hundred dollar bills atop a fanned stack of Treasury bonds. © Getty Images A fanned pile of hundred dollar bills atop a fanned stack of Treasury bonds. The third and final revenue source is the interest income earned by Social Security's asset reserves. In 2017, the program generated $85.1 billion in revenue, or 8.5% of total revenue.

Rather than let these asset reserves -- built up over the past 35 years -- simply sit there, the Social Security Administration takes this excess cash and purchases special-issue bonds, and to a lesser extent certificates of indebtedness, from the federal government. In doing so, the federal government is able to fund its general activities (selling bonds is a common way it does this), and Social Security is able to generate interest from the U.S. government. It's a win-win for both parties. As of the most recent update, Social Security's asset reserves were earning an average of 2.9%.

Unfortunately, this source of income isn't as guaranteed as Social Security's payroll tax and the taxation of benefits. It relies on there being asset reserves with which to earn interest. With the program already spending more than it's generating, it's estimated to be just 16 years until Social Security's asset reserves are completely gone. When these disappear, so will the program's interest income.

Social Security ran a $44 billion surplus in 2017. Why is it in trouble?

  Social Security ran a $44 billion surplus in 2017. Why is it in trouble? Despite a big surplus and multitrillion-dollar reserve balance, Social Security isn't in good shape.Unfortunately, there isn't much to smile about beyond that. In fact, the report confirmed last year's finding that Social Security is on a path to insolvency. Here's a rundown about Social Security's 2017 performance, and why things are expected to go downhill quickly.

Last year , the deficit was 8 billion. So combined over $ 1 .0 trillion . As Social Security intakes were more than outlays, this amount was counted as extra revenue by the fed (horrible idea, but that is how they did it) creating a surplus.

Here ' s the truth about Social Security -- and why it will still be there for you. The previous year , the combination of interest income and payroll taxes produced a billion surplus. In total, the overall Social Security trust fund balance is currently .8 trillion .

The bottom line: Social Security is here to stay, even if its current payout schedule isn't sustainable.

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<p>The decision to retire early at age 62 vs. age 65, 66 or even waiting until age 70 isn't a straightforward math equation. And it can't be made in a vacuum.</p>The biggest Social Security mistake isn't taking it too early.

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