BASIC FACTS ABOUT SOCIAL SECURITY For the times that count, count on Social Security Social Security is part of almost everyone's life. Social Security protects more than 142 million workers and pays benefits to 43 million people. You and your family are probably protected by Social Security and you probably pay taxes that help make the system work. But you may also be unsure about what Social Security does, who it helps, and how much it costs. This booklet gives you some basic facts about Social Security... and tells you how to get more information if you want it. SOCIAL SECURITY IS MORE THAN RETIREMENT. IT PROVIDES SURVIVORS PROTECTION WORTH $322,000 TO AN AVERAGE FAMILY The importance of Social Security survivors benefits is often underestimated. Yet younger Americans face roughly a 1-in-5 chance of dying before reaching age 65. Survivors benefits, which are paid to a deceased worker's family, can help with financial problems that sometimes follow a worker's death by providing a continuing cash income. The value of Social Security survivors benefits for an average wage earner who dies and leaves a spouse and two children is equivalent to a $322,000 life insurance policy. Of course, Social Security benefits are paid monthly and not in a lump-sum payment. The average monthly payment for a family consisting of a widow(er) with two children is about $1,400 per month. Social Security payments increase based on the annual cost-of-living index--something few private insurance plans offer. SOCIAL SECURITY SURVIVORS BENEFITS Who, exactly, can get survivors benefits? Children under 18 can get Social Security survivors benefits, and so can a child who is under 19 but still in high school... or a child who is 18 or older but who becomes disabled before age 22. A widow(er) who is caring for children under age 16 or disabled may receive benefits. A widow(er) age 60 or older, or a widow(er) age 50 or older who is disabled, may receive benefits. Today, Social Security pays monthly survivors benefits to 7.4 million Americans, almost 2 million of whom are children. SOCIAL SECURITY ALSO PROVIDES DISABILITY PROTECTION WORTH MORE THAN $200,000 While people usually think of retirement benefits when they think of Social Security, the program also protects a worker who becomes severely disabled. It's important protection. Studies show that a 20-year-old worker stands nearly a 3-in-10 chance of becoming disabled before age 65. Few workers have private, long-term disability insurance. But nearly all workers do have Social Security disability protection, which is equivalent to a $201,000 disability policy for an average income earner with a spouse and two children. Under Social Security, workers are considered disabled if they have a severe physical or mental condition that prevents them from working. The condition must be expected to last for at least 12 months or to result in death. Once benefits begin, they continue for as long as the worker is disabled and can't work. The disabled worker and his or her eligible family members receive checks each month. SOCIAL SECURITY DISABILITY BENEFITS More than 4 million disabled workers under 65 and 1.7 million dependents (including more than a million children) receive Social Security. The average monthly payment to a disabled worker is about $680; for a disabled worker with a spouse and two or more children, the average payment is about $1,100. Also, a worker who receives disability payments for two years becomes eligible for Medicare. SOCIAL SECURITY AND SSI ARE DIFFERENT PROGRAMS When people talk about disability benefits, there is often confusion about Social Security and SSI (Supplemental Security Income). The confusion arises because the Social Security Administration administers both programs. But the programs are different. Social Security disability insurance is a program that workers, employers, and the self-employed pay for with their Social Security taxes. You qualify for these benefits based on your work history, and the amount of your benefit is based on your earnings. SSI is a program financed through general tax revenues not through Social Security trust funds. SSI disability benefits are paid to people who have a disability and who don't own much or have a lot of income. ALMOST EVERY RETIREE GETS SOCIAL SECURITY BENEFITS Social Security pays monthly retirement benefits to more than30 million retired workers and their families. More than 9 out of 10 Americans who are age 65 or older get Social Security benefits. Full retirement benefits are now payable at age 65, with reduced benefits available as early as age 62. The age for full benefits will gradually rise in the next century, until it reaches age 67 in 2027 for people born in 1960 or later. (Reduced benefits will still be available at age 62.) SOCIAL SECURITY IS A FOUNDATION FOR BUILDING A COMFORTABLE RETIREMENT A recent national poll found that 3 in 4 workers "worry that they won't have enough money to live comfortably in retirement." Often the difference between retirees who enjoy retirement and those who struggle is financial planning. Social Security has always been part of a "three-legged stool" that could solidly support a comfortable retirement. The other two legs of the stool are pension income and savings/investments. Financial advisers often tell people that, when they quit work, they'll need about 70 percent of preretirement income to live comfortably. By itself, Social Security replaces about 42 percent of an average wage earner's salary. SOCIAL SECURITY--A FOUNDATION Social Security benefit amounts, as of January 1996, are shown below for low, average, and high wage earners who retire at age 65: SOCIAL SECURITY RETIREMENT BENEFITS Monthly Retirement Wage Wage Earner Benefits Earner & Spouse ----------------------------------------------------------------- Low $ 537 $ 805 Average 886 1,329 High 1,248 1,872 The benefit amounts above are based on steady lifetime earnings from age 22 through the year before retirement (1995). For 1995, these earnings are approximately $11,100 for a low earner; $24,700 for an average earner; $61,200 or above for a high earner. Married workers can receive benefits based either on their own work record or their spouse's, whichever is higher. YOU CAN GET AN ESTIMATE OF YOUR SOCIAL SECURITY BENEFITS You can find out how much you can expect to get from Social Security, based on your own earnings record, by asking for a Personal Earnings and Benefit Estimate Statement (PEBES) request form. To order the PEBES request form, you can call the toll-free number--1-800-772-1213. Our lines are busiest early in the week and early in the month so, if your business can wait, it's best to call at other times. You can also call at night, on weekends, and on holidays, 365 days a year. Or if you prefer, you can request a PEBES form from the Internet address: http://www.ssa.gov WHAT YOU SHOULD KNOW ABOUT THE FINANCIAL STEWARDSHIP OF YOUR SOCIAL SECURITY TAX DOLLARS Virtually all American workers pay Social Security taxes. If you take a look at your pay stub--the part that shows how much is taken out for various taxes and benefits each pay period--you'll see deductions for Social Security and Medicare. On some pay stubs it's called FICA, which stands for Federal Insurance Contributions Act, the law that authorized payroll deductions for Social Security. The tax rate of 7.65 percent covers both Social Security and Medicare. The Social Security part of the tax is 6.20 percent of gross wages, up to $62,700 in 1996. The Medicare tax is 1.45 percent of all earnings. YOUR SOCIAL SECURITY TAX DOLLARS Employers match a worker's Social Security tax payment. Self-employed people pay Social Security taxes equal to the combined employee/employer tax, although half of their tax is deductible as a business cost. Generally, out of every dollar paid in Social Security and Medicare taxes: * 69 cents goes to a trust fund that pays retirement and survivors benefits; * 19 cents goes to a trust fund that pays Medicare benefits; * 12 cents goes to a trust fund that pays disability benefits.\ YOUR SOCIAL SECURITY TAX DOLLARS Your Social Security taxes also pay for administering Social Security. The administrative costs are paid from Social Security trust funds and are less than 1 cent of every Social Security tax dollar collected. The Social Security trust funds now take in more money than they pay out each month--about $5 billion more per month. These reserve funds are then invested in U.S. Treasury bonds, the safest of all possible investments. Those reserves will accumulate, earn interest and be used to help pay for the retirement of the baby boom generation beginning around 2010. WHY SOCIAL SECURITY? Over the past six decades, Social Security has become the most successful domestic government program in history. A basic understanding of why Social Security came about is important to understanding today's Social Security program... and also to deciding what Social Security should be in the 21st century. ITS HISTORY Before the industrial revolution, America was mostlya country of small farmers. But we soon became a country where more people worked for wages and fewer worked the land. This change helped make America strong, and it raised our standard of living. It also created new risks to family security and made it more difficult for families to take care of their own in hard times. WHY SOCIAL SECURITY? The Great Depression of the 1930s dramatized the fact that many American workers were financially dependent on factors beyond their own control. The Social Security Act, signed into law by President Franklin Delano Roosevelt in 1935, helped to alleviate this situation. In the years that followed, Social Security was broadened to include survivors benefits, disability benefits and health care benefits. ITS PHILOSOPHY The Social Security system provides a minimum "floor of protection" for retired workers, and for workers and their families who face a loss of income due to disability or the death of a family wage earner. Social Security payments are based on two underlying philosophies. First, the system is designed so that there is a clear link between how much a worker pays into the system and how much he or she will get in benefits. Basically, high wage earners get more, low wage earners get less. WHY SOCIAL SECURITY? At the same time, the Social Security benefit formula is weighted in favor of low wage earners, who have fewer resources to save or invest during their working years. Social Security retirement benefits replace approximately 60 percent of the pre-retirement earnings of a low wage earner, 42 percent of an average wage earner, and 26 percent of a high wage earner. Basically, the Social Security program is a way of providing a base of economic security in today's society. It allows older Americans to live independently and with dignity and relieves their families of the financial burden for their retirement years. And Social Security provides a valuable package of disability and survivors insurance to workers over their working lifetimes. ITS FUTURE Our Social Security system has been a basic part of American life for 60 years. It has changed frequently over the years to meet new needs of workers and of beneficiaries. It will undoubtedly change in the future to meet the needs of 21st century workers and beneficiaries. MORE INFORMATION If you would like more information about the Social Security programs, you can order any of the following publications by calling our toll-free--number 1-800-772-1213. You can order some of these publications at night, on weekends and on holidays, 365 days a year. * Understanding Social Security(Publication No. 05-10024) * Retirement Benefits(Publication No. 05-10035) * Survivors Benefits(Publication No. 05-10084) * Disability Benefits(Publication No. 05-10029) * Medicare (Publication No. 05-10043) * Your Taxes... What They're Paying For... Where The Money Goes (Publication No. 05-10010) * Your Number(Publication No. 05-10002) People who are deaf or hard of hearing may call our toll-free "TTY" number, 1-800-325-0778, between 7 a.m. and 7 p.m. on business days. SOCIAL SECURITY ADMINISTRATION SSA Publication No. 05-10080 August 1996 ICN 468350 ---------- A Factsheet from Social Security _______________________________________________________________ Social Security Administration SSA Publication No. 05-10005 July 1996 (Destroy prior editions) Misleading Advertising Fraudulent and Misleading Ads Countless consumers nationwide are victimized by misleading advertisers who use "Social Security" or "Medicare" to entice the public. Often, these companies offer Social Security services for a fee even though the same services are available directly from Social Security FREE OF CHARGE. These services include obtaining: * a revised Social Security card to show a bride's married name; * a Social Security card to replace a lost card; * a Personal Earnings and Benefit Estimate Statement (PEBES); * a Social Security number for a child or a newborn baby. Other marketeers suggest that Social Security is in dire financial shape, and that people risk losing their Social Security or Medicare benefits unless they send a contribution or membership fee to the advertiser. These marketing practices clearly are misleading and deceiving our senior citizen population. What Has Been Done To Combat Misleading Advertising? There are two laws that deal specifically with misleading advertising: * Section 1140 of the Social Security Act prohibits non-government entities from using words that seemingly represent Social Security or the Health Care Financing Administration, the agency that runs Medicare, or emblems that suggest a government affiliation. * The Deceptive Mailings Prevention Act gives the United States Postal Service specific power to stop delivery of a mail-solicitation that may reasonably mislead the public to believe it comes from the government or is somehow approved by the government. The Office of the Inspector General (OIG) reviews potentially misleading advertisements. Some 60 companies have voluntarily agreed to stop using ads we questioned, or have changed their ads to comply with section 1140 of the Social Security Act. Direct mail solicitations that do not fall under section 1140 will be referred by OIG to the Federal Trade Commission, the United States Postal Inspector, or appropriate State Attorney General's offices. What To Do If You Suspect You Have Received Misleading Information First, send the complete mailing, including the envelope, to: Office of the Inspector General Social Security Administration 6401 Security Boulevard Room 300 Altmeyer Building Baltimore, Maryland 21235 If it's more convenient, you can take the entire package to your local postmaster, or send a complaint that includes the package to: Chief Postal Inspector United States Postal Service 475 L'Enfant Plaza, S.W. Washington, D.C. 20260-2100 Also, advise your State's Attorney General or Consumer Affairs Office and the Better Business Bureau in your area. Finally, rememberþSOCIAL SECURITY SERVICES ARE FREE. ---------- Social Security Administration Your Taxes... What They Are Paying For And Where The Money Goes SSA Publication No. 05-10010 January 1997 ----------------------------------------------------------------- Introduction Take a look at your pay stub—the part that shows how much is taken out for the various taxes and benefits each pay period. One of those deductions is for Social Security and Medicare taxes. On some pay stubs it's called FICA, which stands for "Federal Insurance Contributions Act," the law that authorized payroll deductions for Social Security. We thought you might like to know what your Social Security taxes pay for and where the money goes. This leaflet explains that. Who Pays Social Security Taxes? You do, of course, but so do more than 140 million other people. In fact, about 95 percent of all American workers pay Social Security taxes. The tax rate is 7.65 percent of your gross wages (6.2 percent for Social Security and 1.45 percent for Medicare). In 1997, your employer withholds the full tax—7.65 percent—up to a $65,400 wage base. If you earn more than $65,400, your employer continues to withhold the Medicare portion of the Social Security tax, or 1.45 percent, on the rest of your earnings. Did you know that your employer matches your tax payment dollar for dollar? The next time you look at your Social Security deduction, double it, and that's the amount you and your employer are paying into Social Security toward your future benefits. (Self--employed people also pay Social Security taxes. Their rate equals the combined employee/employer tax.) What Do Your Social Security Taxes Pay For? Today, you're working and paying Social Security taxes. But tomorrow may be a different story. Some people plan for their retirement, but many of us don't give enough thought to what would happen if we become disabled, or what would happen to our family if we die. That's why it's important for you to know that your Social Security taxes are paying for a lot more than just retirement benefits. In fact, you could think of your Social Security taxes as a premium on a potentially valuable insurance plan. Here's what you and your employer are buying with your Social Security taxes: ----------------------------------------------------------------- * Retirement coverage—Benefits paid every month to retired workers as early as age 62. ----------------------------------------------------------------- * Disability coverage—Benefits paid every month to workers of all ages who have a severe disability. ----------------------------------------------------------------- * Family coverage—Benefits paid every month to the spouses and children (including dependent adults who have been disabled since childhood) of retired and disabled workers. ----------------------------------------------------------------- * Survivors coverage—Benefits paid every month to the widow or widower, and children, of a deceased worker. ----------------------------------------------------------------- * Medicare benefits—Help with hospital bills, as well as limited coverage of skilled nursing facility stays, hospice care, and other medical services. You can help guarantee that you're receiving the proper credit for your work and earnings by checking your paystubs and W--2 forms. Make sure that your Social Security number is correct and that your name is spelled properly. If there are mistakes, show them to your employer so they can be corrected. What's In It For Me? You can find out how much you would get from Social Security by asking us for an estimate of your benefits. We'll send you a free statement that contains a record of your earnings and estimates of your retirement and disability benefits, as well as an estimate of what your family might be eligible for if you die. We encourage you to request this statement at least once every three years to check your benefits and to make sure your earnings are properly recorded in our files. It's important that you do this because any missing or unreported wages could lower your Social Security benefits. It's a good idea to keep your W--2 forms and other wage records so you can verify the information on your earnings and benefit statement. If you find a problem, contact your local Social Security office right away and show them proof of your actual wages so they can correct your record. One way you can help avoid any problems is to make sure Social Securityhas your correct name on file. If your name has changed due to marriage, divorce, or any other reason, contact Social Security so we can change our records and issue you a corrected Social Security card. What's In It For All Of Us? In addition to your personal stake in Social Security, we think it's important to consider the positive impact the program has on our country as a whole. Think of the value of Social Security in terms of the benefits it pays to the family of a fellow worker who has died, to a relative who has cancer and can't work, or to a neighbor who's retired after a lifetime of hard work. Social Security represents a pact between generations—a financial and social commitment among people of all ages. It guarantees a monthly income to current recipients, and ensures a base of financial support for future beneficiaries— workers like yourself. As such, Social Security is one of the most important and far--reaching investments that you and all Americans can make. Where Your Social Security Taxes Go Out of every dollar that workers and their employers pay in Social Security taxes: * 70 cents goes to a trust fund that will pay for their retirement benefits and their families' survivors benefits; * 19 cents goes to a trust fund that will pay for their Medicare hospital and related benefits when they reach 65 or if they become disabled; * 11 cents goes to a trust fund that will pay disability benefits to them and their families if they have to stop working because of a serious illness or injury. Your Social Security taxes also pay for administering Social Security. The administrative costs are paid from the trust funds described above and are less than one cent of every Social Security tax dollar collected. Social Security is one of the most popular and successful of all government programs and enjoys broad support from all sectors of our society. Most Americans recognize the need to continue to provide a basic level of financial support and health care to the elderly, to people with disabilities, and to the survivors of workers who have died. Your Social Security Number We use your Social Security number to record your earnings while you're working and to maintain your benefits once you're eligible for Social Security. In addition to these "official" uses, banks, insurance companies, and many other businesses and government agencies use the Social Security number for recordkeeping purposes. You should know that giving it to them does not give them access to your Social Security records. The privacy of your records is guaranteed unless 1) disclosure to another government agency is required by law or 2) the information is needed to conduct Social Security or other governmental health or welfare programs. The Social Security Administration is aware of concerns about the increasing uses of the Social Security number for identification and recordkeeping purposes. If a business or other enterprise asks for your Social Security number, you can refuse to give it to them. However, that may mean doing without the purchase or service for which your number was requested. Also, your employer should not display your Social Security number on an identification badge or in any other public format. Our primary message: be careful with your Social Security number and protect its privacy. Your Own Social Security Statement You can get a statement of your earnings as reported to Social Security, plus an estimate of the retirement, disability, and survivors benefits you and your family are eligible to receive. Call Social Security at 1--800--772--1213, 24 hours a day, 7 days a week, and ask for a Personal Earnings and Benefit Estimate Statement request form. You'll receive your statement about four weeks after Social Security receives your completed request form. The request form is also available on the Internet at http://www.ssa.gov, as are many Social Security publications. For More Information You can get recorded information 24 hours a day, including weekends and holidays, by calling Social Security's toll--free number: 1--800--772--1213. You can speak to a service representative between the hours of 7 a.m. and 7 p.m. on business days. Our lines are busiest early in the week and early in the month, so if your business can wait, it's best to call at other times. Whenever you call, have your Social Security number handy. People who are deaf or hard of hearing may call our toll--free "TTY" number, 1--800--325--0778, between 7 a.m. and 7 p.m. on business days. The Social Security Administration treats all calls confidentially—whether they're made to our toll--free numbers or to one of our local offices. We also want to ensure that you receive accurate and courteous service. That is why we have a second Social Security representative monitor some incoming and outgoing telephone calls. ---------- Social Security: An Employer's Investment * Introduction Most people tend to think of Social Security as a program that will help them in their retirement years. And as an employer, you may view Social Security as little more than the matching tax you pay to cover each of your employees. While that's part of the picture, Social Security means a lot more to your employees than retirement, and a lot more to you than taxes. This leaflet explains how you are providing protection for all your employees and their families through Social Security. A Word About The Taxes You Pay The Social Security and Medicare tax rate for employees and employers is 7.65 percent each. Of that rate, 6.2 percent is used to finance Social Security retirement, disability, and survivors benefits, and 1.45 percent goes toward the Medicare program. In 1997, you withhold the full rate, 7.65 percent, up to a maximum of $65,400 in wages. For employees who earn more than $65,400, you continue to withhold the Medicare portion of Social Security tax, or 1.45 percent, on the rest of their earnings. And of course, as an employer, you match these withholdings. Social Security: Part Of Your Employee Benefit Package Every time you issue a W--2 to one of your employees and send the corresponding form to the Social Security Administration (SSA), you contribute toward the Social Security benefits that one day may be payable to the employee and his or her family. That's because all Social Security benefits are based on earnings that you and other employers report to SSA. Whether your employees are part time, seasonal, or temporary, all wages reported will increase any potential benefits. Social Security offers a comprehensive benefit package, especially when combined with other benefits you may offer to your employees. Here's an idea of what you are helping your employees buy with your matching Social Security tax: ----------------------------------------------------------------- * Retirement Insurance—Benefits paid every month to retired workers—as early as age 62. ----------------------------------------------------------------- * Disability Insurance—Benefits paid every month to workers of all ages who have a severe disability. In some cases, a young worker may qualify for a disability benefit with as little as one and one--half years of work. ----------------------------------------------------------------- * Family Insurance—Benefits paid every month to the spouse and children of retired or disabled workers. ----------------------------------------------------------------- * Survivors Insurance—Benefits paid every month to the widow or widower, and children, of a deceased worker. In some cases the family of a young deceased worker can receive these benefits even if the worker had as little as one and one--half years of work. ----------------------------------------------------------------- * Medicare Insurance—Help with hospital bills, as well as limited coverage of skilled nursing facility stays, hospice care, and other medical services. Accurate reporting of W--2 information is more than just a tax matter because it has a direct bearing on the eligibility for, and amount of, any Social Security benefits payable to your employees and their families. That's why we always stress the importance of recording the right name, Social Security number, and wages for each of your employees. In addition to the productivity lost and administrative problems associated with correcting errors on W--2 forms, a genuine employee service is provided by accurate wage reporting. Guidelines To Help You Report Wages Accurately Here are tips to help you report wages accurately: ----------------------------------------------------------------- * Ask to see the Social Security card for a new employee to make sure the name and Social Security number agree with the information on the job application; ----------------------------------------------------------------- * Make sure the employer identification number (EIN) reported on the W--2, W--3, and 941 is the correct number issued by the Internal Revenue Service and that the EIN is consistent on all three forms; ----------------------------------------------------------------- * Make sure that a W--3 accompanies each W--2 submission, and that the wage totals match; ----------------------------------------------------------------- * Do not submit paper W--2 or W--3 forms if you or your third party processor already submitted "magnetic media" reports to SSA; ----------------------------------------------------------------- * Do not use a new W--2 or W--3 form to correct a previous report—use a W--2c or W--3c instead; and ----------------------------------------------------------------- * If an employee changes his or her name due to marriage, divorce, or other reason, make sure he or she contacts Social Security immediately so we can update our records and issue a revised Social Security card. Telling Your Employees About Social Security Because you make a significant contribution to your employees' potential Social Security benefits, you may wish to remind them of your participation. We'd like to help you do that. ----------------------------------------------------------------- Order Form Please send me the following booklets: Note: If you need more than 100 copies of any publication, we will send you a "camera--ready" copy so you can reproduce the quantity you need. Quantity Publications ----------------------------------------------------------------- +------------------+--------------------------------------------+ _______________ Social Security--An Employer's Investment +------------------+--------------------------------------------+ ______________ Social Security--Your Taxes...What English/ Spanish They're Paying For and Where The Money Goes (the companion to this leaflet, written for employees) +------------------+--------------------------------------------+ ______________ Request for Earnings And Benefit Estimate English/ Spanish Statements +------------------+--------------------------------------------+ ______________ Software Specifications and Standards for (limit 5) Annual Wage Reporting (a guide to software and edit standards designed to improve the accuracy of wage reporting) +------------------+--------------------------------------------+ ______________ Help Your Employees Get What They Pay For (limit 5) (an 8 1/2" x 11" poster that provides employers with tips for improving the accuracy of wage reports) +------------------+--------------------------------------------+ _____________ Social Security...You Get What You Pay (limit 10) For...And More(an 8 1/2" x 11" poster that explains the Social Security benefits employees' taxes are paying for and shows them how to get an estimate of those benefits) +------------------+--------------------------------------------+ ----------------------------------------------------------------- Your Name And Address: Contact Name:___________________________________________________ Company Name:_________________________________________________ Mailing Address:_________________________________________________ City, State, ZIP:___________________________________________________ Telephone Number:______________________________________________ Please send this order blank to: Social Security Administration Public Information Distribution Center P.O. Box 17743 Baltimore, MD 21235 One way is to distribute copies of the leaflet Social Security—Your Taxes... What They're Paying For And Where The Money Goes to each of your employees. Another way is to provide your employees with the form Request For Earnings And Benefit Estimate Statement. Ask them to fill it out and send it back to Social Security. In return, they'll get a statement that contains a record of their earnings as posted to our files and an estimate of their retirement and disability benefits. They'll also receive an estimate of what their families might get if they die. It's a good idea to remind your employees to keep their W--2 forms and other wage records so they can verify the information on the Personal Earnings and Benefit Estimate Statement. If there's an error, we can use their wage records to correct our files. If you're interested in other pre--retirement planning tools for your employees, your local Social Security office may be able to help you with other information or services. How Social Security Helps Us All We hope this leaflet shows that employees and employers have a personal stake in Social Security. We also think it's important to consider the positive impact the program has on our country as a whole. In addition to a pact between workers and employers, Social Security represents a pact between generations—a financial and social commitment among people of all ages. It guarantees a monthly income to current recipients and ensures a base of financial support for future beneficiaries. We encourage employers to make their employees aware of the benefits Social Security provides, not only for each person but also for our entire society. Remember: Keep Social Security Numbers Private The Social Security number was established as a way to record earnings while a person is working and track benefits once a person is eligible for Social Security. Although the Social Security Administration discourages its use for other purposes, we cannot prevent other government agencies or private businesses from using the number for internal recordkeeping purposes. However, there is growing concern that an individual's right to privacy could be invaded if all records pertaining to an individual are kept under a single number. If your business uses the Social Security number for any purpose, please remember to keep each person's number private. For example, do not display it on employee identification badges or in any other public format. For More Information You can get recorded information 24 hours a day, including weekends and holidays, by calling Social Security's toll--free number, 1--800--772--1213. You can call for an appointment or to speak to a service representative between the hours of 7 a.m. and 7 p.m. on business days. Our lines are busiest early in the week and early in the month so, if your business can wait, it's best to call at other times. People who are deaf or hard of hearing may call our toll--free "TTY" number, 1--800--325--0778, between 7 a.m. and 7 p.m. on business days. You can also reach us on the Internet. Type http://www.ssa.gov to access Social Security information. The Social Security Administration treats all calls confidentially — whether they're made to our toll--free numbers or to one of our local offices. We also want to make sure that you receive accurate and courteous service. That's why we have a second Social Security representative monitor some incoming and outgoing telephone calls. ----------------------------------------------------------------- Social Security Administration SSA Publication No. 05-10059 January 1997 (Recycle prior editions) ICN 463260 ---------- A Factsheet from Social Security _______________________________________________________________ Social Security Administration SSA Publication No. 05-10094 March 1997 (Recycle prior editions) Financing Social Security The financing of Social Security is a simple process. While you work, you pay taxes into Social Security and when you retire or become disabled, you (and your family members) collect monthly benefits from Social Security. Or when you die, your family may collect survivors benefits. But there's more to the financing of Social Security than taking in taxes and paying out benefits. This factsheet will explain what happens to your money between the time you pay Social Security taxes and the time you or your family members collect Social Security benefits. THE TAXES YOU PAY Social Security taxes are used to pay for Social Security benefits. In addition, a portion of your taxes pays for part of your Medicare coverage. General tax revenues, not Social Security taxes, are used to finance Supplemental Security Income (SSI) payments. (SSI is a program administered by Social Security that pays benefits to people who have limited income and assets.) If You Work For Someone Else You and your employer pay taxes for Social Security and Medicare. You and your employer each pay 7.65 percent of your gross salary, up to a limit set by law. In 1997, the limit is $65,400. (This limit normally rises yearly based on increases in average wages.) If You Work For Yourself If you are self-employed, you pay 15.3 percent of your taxable income for Social Security and Medicare, up to the same limit of $65,400. However, there are special deductions you can take when you file your tax return to offset part of your tax rate. Taxes For Medicare If you make more than $65,400 in 1997, you continue to pay the Medicare portion of the Social Security tax on all of your earnings. The Medicare portion of the tax is 1.45 percent for employers and employees each, and 2.9 percent for self-employed people. WHERE YOUR TAXES GO The Social Security and Medicare taxes you pay are divided among several trust funds. There are two SOCIAL SECURITY trust funds: * The Federal Old-Age and Survivors Insurance (OASI) Trust Fund is used to pay for retirement and survivors benefits. * The Federal Disability Insurance (DI) Trust Fund is used to pay benefits to people with disabilities and their families. There also are two MEDICARE trust funds: * The Federal Hospital Insurance (HI) Trust Fund is used to pay for the services covered under the hospital insurance (Part A)provisions of Medicare. * The Federal Supplementary Medical Insurance (SMI) Trust Fund is used to pay for services covered under the medical insur- ance (Part B) provisions of Medicare. The 7.65 percent Social Security tax deduction is allocated in 1997 as follows: * 5.35 percent goes to the OASI Trust Fund * .85 percent goes to the DI Trust Fund * 1.45 percent goes to the HI Trust Fund NOTE: Social Security taxes are not used to finance the SMI Trust Fund. Most SMI revenues come from the General Fund of the Treasury. The remainder comes from premiums paid by enrollees. HOW THE TRUST FUNDS WORK Every day, tax revenues are deposited in the trust funds. Social Security benefits are paid from these funds, and any money not needed to pay benefits is invested daily in U.S. government bonds. The trust funds are governed by a Board of Trustees. Members are the Secretary of the Treasury, Secretary of Labor, Secretary of Health and Human Services, the Commissioner of Social Security, and two public trustees who serve four-year terms. The Board of Trustees is required by law to report annually to the Congress on the financial condition of the funds and on estimated future operations. At times in the past, Social Security was financed on a current-cost basis, popularly known as "pay-as-you-go." Some have compared that method to a pipeline, with taxes from workers flowing into one end of the pipe and payments for beneficiaries flowing out the other end. Since 1983, the program has operated under a "partial reserve" method of funding. The intent is to have the system take in more than it pays out in order to build up the large reserve funds needed to help pay for the benefits of an increasing number of retired workers. WHAT HAPPENS TO THE RESERVE FUNDS Any Social Security reserves that are not used for payment of benefits or operational expenses (which are consistently less than one percent of revenues) are invested only in U.S. government securities--generally considered the safest of all investments--and earn the prevailing rate of interest. These are normally special obligations issued specifically for the trust funds. The amount of interest earned is substantial. For example, in 1995, the Social Security trust funds earned $35 billion in interest, representing an effective annual interest rate of 7.8 percent. TRUST FUND FORECASTS The latest report from the Board of Trustees, released in June 1996, provides mixed news about the future financial condition of Social Security. The combined OASI and DI trust funds will be able to pay benefits for many years into the future. In the long range, however, the funds are not adequately financed and would become exhausted in 33 years, based on the most likely assumptions in the 1996 trustees report. HI Trust Fund The Board reports that the Hospital Insurance Trust Fund will be able to pay benefits for only about five years. Rising health care costs and a declining ratio of taxpayers to Medicare recipients combine to place the trust fund "severely out of financial balance" in the long range. In their report, the trustees urged the Congress to take prompt action to control HI program costs. ARE SOCIAL SECURITY TAXES USED FOR OTHER PURPOSES? A persistent, but false, rumor is that trust fund money has been used for purposes other than Social Security payments or operational expenses. There is confusion over this issue because of the trust fund investment procedures. When you buy Treasury bonds, you are, in effect, lending money to the government to use for various federal programs and projects. The same is true for the investments Social Security makes in government bonds. The government uses the money it has borrowed from Social Security for other purposes. But just as the government pays you back with interest when you redeem your bonds, it always makes good on its obligations to Social Security, paying the trust funds back with interest