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The Social Security system of retirement benefits, begun in 1935, are a crucial underpinning of life for American retirees. For most people over 65, it’s undoubtedly hard to imagine life without this retirement benefit.
About half of Americans 65 or older live in households that depend on Social Security benefits for half or more of their income, says the Social Security Administration. In a quarter of such homes, Social Security checks comprise nearly their entire income.
Since its inception, Social Security has hit periodic financial crises, and Congress has always resolved them with adjustments. Today, Social Security approaches another financial cliff for these and other reasons:
- The retirement of the huge baby boomer generation
- Longer lifespans
- Lower birth rates
- Growing income inequality
Here’s a quick look at the problem and whether Social Security will be allowed to go broke this time.
How Social Security is financed
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Your Social Security retirement check is funded from payroll taxes on Americans’ earnings over their working life and taxes on some Social Security retirement income.
Employers and employees each contribute 6.2% of wages to the fund in 2022 (to an income maximum of $147,000). Self-employed people pay the entire 12.4%. Also, 40% of Social Security recipients pay income tax on…
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