Debunking Social Security – Part 2

by | Sep 1, 2019 | Our 2 Cents

Social Security is a program that will affect nearly everyone in this country. Recent statistics show that 96% of Americans will be covered in one way or another. In our experience, it is also one of the least understood government benefits. As such, we wanted to help raise awareness around how the program truly works. Given the magnitude of the program, this series of articles is not meant to be all-inclusive, but to provide some helpful information that will benefit the majority of people. This second article will conclude our presentation on Social Security. 

1) A Brief History of Social Security – the program finds its roots in the aftermath of the Great Depression. World War I saw the United States transform from an agrarian economy into an urban, industrialized one. People became dependent on cash wages to meet their needs rather than the harvest. By 1932, unemployment had reached a staggering 34% of the population while our national income had dropped by 43%. A vast number of elderly people had lost their life savings and were facing destitution.

In response, President Franklin Roosevelt passed the Social Security Act in 1935.Taxes to pay for the system were to be collected from employee’s payroll with the first benefits checks going out in 1937. Essentially, the program was originally designed to protect Americans in a changing economy from a loss of income due to factors outside of their control. Over the years, the program has gradually increased in scope to cover nearly every American in one form or another.

2) How much of your retirement income should consist of Social Security? – most people understand that Social Security income is not designed to meet all of their retirement needs. According to, the program is designed to replace approximately 40% of the average wage earners income. It is important to note that Social Security benefit payments are evaluated yearly for Cost of Living Adjustment(COLA) increases in order to keep pace with inflation. Future changes to the program may reduce the replacement percentage for benefit payments.

3) How much can Social Security retirement benefits pay out? What’s the average monthly payment? – it’s important to understand that Social Security is a system that was originally designed to help assist the elderly with a loss of income. As such,the program was designed to be more of a benefit to the poor than the wealthy.Social Security retirement benefit payments are capped. While most Americans participate in the program, not everyone receives equal Social Security benefits payments. You might recall from the previous article that benefits payments are based on your 35 highest earnings years. As of 2019, the maximum monthly benefit payment for an individual is $2,861 while the average monthly payment for an individual is about half of the maximum amount: $1,461 in 2019.

4) Can I still work and receive Social Security? – this is a common question that arises.The answer is: it depends. We encourage our clients to be familiar with the Social Security earnings limits. There are two, separate limits to be aware of that are based on when you attain Full Retirement Age (FRA). Our previous article discussed how FRA works.

  • If you are under full retirement age for the entire year, Social Security will deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2019, that limit is $17,640. 
  • In the year you reach full retirement age, Social Security will deduct $1 in benefits for every $3 you earn above a different limit. In 2019, the limit on your earnings is $46,920, but Social Security will only count earnings before the month you reach your full retirement age.
  • Beginning with the month you reach full retirement age, your earnings no longer reduce your benefits, no matter how much you earn.

5) Do I pay taxes on my Social Security benefits? – the answer once again: it depends.Here’s some helpful guidelines:

  • If you have other income of $32,000 or less for joint filers or $25,000 or less for single filers, social security benefits are federally tax free.
  • If you have other income between $32,000-$44,000 for joint filers or between $25,000-$34,000 for single filers, up to 50% of Social Security benefits will be taxed as ordinary income.
  • If you have other income over $44,000 for joint filers or over $34,000 for single filers, up to 85% of the benefits will be taxed as ordinary income.

This material contains information regarding the availability of and details surrounding the Social Security program. The information represents only our current understanding of Social Security in general and should not be considered legal or tax advice by consumers. Details of the Social Security program are subject to change at any time. Neither Phillips Financial Advisors nor its representatives offer legal or tax advice. Consumer should consult with their tax or legal advisor regarding their individual situations before making any legal or tax-related decisions.