Things you should know about Social Security

6 Scary Facts About Social Security You (Don't) Want to Know
By Brian Reed
September 30, 2011
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Over 76 years ago, Franklin D. Roosevelt's New Deal was signed into law. As the lynch pin of the New Deal, the Social Security program was implemented in order to limit the hazards of old age, poverty, unemployment and disability. 

Today, more than 51 million Americans receive Social Security benefits. But with 80 million baby boomers soon becoming eligible for benefits, that number is expected to grow significantly. With this increase in beneficiaries, lawmakers are faced with a funding crisis. More people living longer lives have pushed Social Security to the brink of insolvency. 

How much do you actually know about Social Security? We've put together six shocking facts that everyone should know. 




 
1. Social Security can't fund a comfortable retirement.
If you plan to rely on social security alone to fund your retirement, you might want to think again.

Unfortunately, a whopping 35% of Americans over the age of 65 are retired on Social Security payments alone, leaving them living barely above the poverty line.

A recent study by the Employee Benefit Research Institute said that 43% of American workers have less than $10,000 saved up for retirement and 31% say they don't contribute to their retirement savings at all.

Social security can supplement your income, but it should not be your only source of income.

2. Years with low or no wages can considerably drag down Social Security benefits. 

Social Security retirement benefits are based on your highest 35 years of income. If you retire early, or if you have several long periods of unemployment, those years of zeros will be averaged into your calculations and will drag down your benefits. 

3. Your Social Security number is pretty easy to guess.

The Social Security number has become Americans' main method of identification. There have been more than 420 million nine-digit social security numbers issued since the program was started, and numbers aren't reused after death. 

Unfortunately, the formula used to come up with your particular number is increasingly easy for criminals to figure out. Researchers have found that the "random" numbers used to compose social security numbers aren't as random as they seem. Mathematicians have been able to discover patterns in random number generators, making it a much easier job to crack the social security formula.

The search is aided by information readily available on many people's social media pages including birthplace and date of birth, which identity thieves can analyze with the help of computer programs. 

Here is how Social Security determined your number:

The first set of three digits of your social security number is called the "Area Number" and is assigned by the geographical area where you were born -- the lowest numbers starting in the northeast and increasing as you move west. 

The middle set of two digits is called the "Group Number" and is assigned a number between 01-99, but is not in consecutive order. 

The final set of four digits is called the "Serial Number" and run consecutively from 0001 through 9999.

The serial number is used everywhere -- people are always being asked to verify things with their last four digits. And with automated tools, these sequential numbers can be cracked by identity thieves. 

4. Social Security is already working at a deficit.

In 2010, due to the recession and decreased payroll taxes, Social Security began paying out more benefits than it received. Experts weren't prepared for this particular predicament until 2016. And the deficits only appear to be getting worse. 

While in the short-term, an economic turnaround could help fund Social Security via payroll taxes, the program needs serious long-term solutions to continue paying seniors according to the current program. 



 
5. It is a huge system.
It probably is no surprise that Social Security is a large costly system, but the sheer size of it is staggering. The Social Security system was 4.8% of our 2009 GDP and bigger than the economies of most other countries in the world including Switzerland, Saudi Arabia and Argentina.

It has been the largest item in the federal budget for more than 20 years and it's only growing. The present value of unfunded obligations under Social Security as of August 2010 is approximately $5.4 trillion. 

6. There isn't a post-2037 plan… yet.

Unless changes are made -- like increasing the eligibility age -- payroll taxes are expected to fund only 78% of Social Security starting in 2037. Some of the potential plans to keep Social Security solvent after 2037 include higher taxes, higher retirement ages and lower payouts.

Some politicians even propose that Social Security should be privatized or eliminated altogether.

The Investing Answer: With Social Security's future still uncertain, don't rely on the checks alone to fully fund your retirement. Social Security can supplement your income, but it should not be your only source of income during retirement. As a safe alternative, save and invest your own money in an IRA or 401(k) plan so that you have additional income sources to Social Security. This will ensure your golden years are truly golden.