Dear Rusty: I have worked my entire life and contributed to Social Security. I have been single my entire life with no children. What happens to all that money I have contributed to Social Security if I die at age 62?
— Curious Worker
Dear Curious: From its inception in 1935, Social Security has always been a “pay as you go” program where current workers contribute money from which current beneficiaries are paid. That’s the way it has worked since the first Social Security payroll withholding occurred in 1937 and the first Social Security benefit was paid in 1940. And it works the same way today.
Social Security FICA payroll taxes collected from current workers are used to pay all those who are currently receiving benefits. Any excess collected that is not paid out in benefits is deposited into a special Trust Fund and held in reserve for the future.
My hope is that understanding this will dispel a far too widely held myth that the money you pay into the Social Security program from your paycheck is deposited into a personal account for you — it is not.
Rather that money is used to pay benefits to all those who are already collecting Social Security. And the extra money in the Trust Fund is invested in special interest-bearing bonds. which contribute further to the Trust Fund’s reserves (more about the Trust Fund in a minute).
If you were to pass away at, or before, age 62, all the money you paid into Social Security via FICA payroll taxes will have already been spent to pay benefits to those already collecting Social Security.
With no surviving dependents, there are no benefits to be paid from your lifetime work record. True you will have paid a great deal over your working career, but the system is designed so that when you retire your benefits will be paid for by those who are still working and paying into the system.
Of course, it’s a game of averages and Social Security says the “average” longevity for a male today is about 84. So, unless you’re already in poor health, chances are pretty good you will live beyond age 62.
Chances are also pretty good that if you do, you’ll get back much more in benefits than you have contributed. In fact, if you start collecting benefits at your full retirement age you will get back benefits at least equal to what you contributed within about 5 years (we’ve studied this carefully). Which brings us back to the Trust Fund.
The Social Security Trust Fund held about $2.9 trillion in reserves at the end of 2018. But over the years the ratio of workers to beneficiaries has declined from 16.5 to 1 in 1950 to less than 3 to 1 today, so there are far fewer workers paying for beneficiaries who are living much longer.
Starting in 2019, Social Security will pay out more in benefits than it received from FICA payroll taxes, which means the excess paid out in benefits will come from the reserves in the Trust Fund. That will continue, according to the most recent Social Security Trustees’ Report, until the Trust Fund is depleted in about 2035, at which time Social Security will only be able to pay out about 80 percent of benefits due —unless Congress acts soon to resolve the issue. And the solutions are well known; what’s lacking in Congress is a serious bipartisan effort to fix the problem.