How well do you understand Social Security? If you're a baby boomer close to retirement age, you might have more knowledge than most. If you're not, the only thing you may know about Social Security is all of the talk that the fund may be bankrupt before Generation Y retires. Whether that's true or not is a topic of debate, but there's more to social security than the retirement program. A bigger issue is only four years away and it's an issue that you've likely heard little about, but may have a big impact on more than 11 million Americans.

Two Parts
What you likely know about Social Security is that a portion of your paycheck is taken each pay period to fund the account. Once you reach retirement age, you'll be able to draw on this fund for additional income. Much like a corporate pension, Social Security guarantees you an income once you retire. It's not enough to live on, but every little bit helps. What you may not know is that there are two parts to Social Security: The retirement plan that supports 40 million senior citizens and a disability program that currently helps 11 million disabled Americans, according to The Washington Post. The Social Security Disability program is designed to supplement the income for Americans who are unable to work due to a disability. It pays an average of $1,111 each month and pays out more than $132 billion annually.

Why It's Nearly Bankrupt
Critics argue that what is considered a disability has changed, and is causing the fund to pay out an increasing amount of money. Since 2007, applications to the Social Security Disability program has risen 30% resulting in 23% more Americans receiving payments. The plan, originally designed for those who suffered catastrophic illnesses like strokes, heart attacks and cancer, is now routinely tapped for illnesses like depression, back pain and chronic fatigue syndrome. Although these conditions can be disabling, many recipients are still able to work in light-duty environments, according to critics. While there is supposed to be a periodic review of all cases, the program's budget doesn't allow it to conduct these reviews resulting in only 1% of those who enter the program eventually giving up their disability check.

Baby Boomers
Not only do the current problems threaten the program, but over 70 million baby boomers approaching the age of 50 are projected to file for benefits in increasing numbers. According to disability experts, the average age for disability filings is 50 and this could be what finally gets the attention of lawmakers that have largely ignored the growing crisis with the disability program. If the Social Security Disability trust fund runs out of money, experts say that payouts will have to decrease. Because the program is barred from running a deficit, payouts would decrease by 20% because projections show that only 79% of the program will be funded by payroll tax revenue.

What You Should do
Just as experts advise people not to rely on Social Security for sustaining retirement income, you should not rely on the disability program for any future income if you become ill. Consider disability or long-term care insurance, especially if you're 50 or older. Although Congressional members who are sounding the alarm about the program believe that funds will be diverted to fund it, the average payout of $1,111 will likely not provide sufficient income even after inflation adjustments and other payouts.

The Bottom Line
You may not have known of the Social Security Disability program, but much like the retirement program, it suffers from decreasing revenue and increasing applications. Unlike the retirement program, the disability program is only four years away from insolvency making the problem much more immediate. According to The Washington Post, lawmakers believe that funds will be diverted from other programs to finance the shortfall in the future.

Related Articles
  1. Stock Analysis

    If You Had Invested Right After Gilead's IPO

    Find out the present day value of your investment in Gilead Sciences and the amount of shares you would own if you had invested during its IPO.
  2. Retirement

    4 Roth IRAs with the Lowest Expense Ratios

    Discover why funds with low expense ratios are important for retirement portfolios, and find out about some of the lowest cost options available for a Roth IRA.
  3. Retirement

    Roth 401(k), 403(b): Which Is Right for You?

    Learn how to decide between a traditional or Roth version of the 401(k), 403(b) or 457(b) retirement plans to help you build your nest egg.
  4. Retirement

    Going Back to Ecuador to Retire: A How-to Guide

    Spending your retirement years in Ecuador can be an affordable and attractive proposition, provided you know the country's laws.
  5. Personal Finance

    The Ten Commandments of Personal Finance

    Here are the simple financial Ten Commandments that, when faithfully followed, can lead to a secure economic future.
  6. Professionals

    Project Manager: Career Path & Qualifications

    Learn more about what project managers job, the qualifications necessary for the position and the most common careers for these professionals.
  7. Retirement

    5 Reasons to Start a Business After You Retire

    It can be beneficial in any number of ways: mentally, occupationally and even financially.
  8. Taxes

    Retired? 7 Tips for Cutting Taxes Before 2015 Ends

    As 2015 nears its end, here are some financial moves retirees can make before December 31 that can help to lower your tax bill.
  9. Investing Basics

    Fee-Only Financial Advisors: What You Need To Know

    Are you considering hiring a fee-only financial advisor or one who is compensated via commissions? Read this first.
  10. Financial Advisors

    HSAs and FSAs: How to Decide Between Them

    FSAs and HSAs are both excellent ways to help cover a portion of medical costs with pre-tax dollars. Here's how to decide between the two.
  1. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  2. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  3. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>
  4. Can catch-up contributions be matched?

    Depending on the terms of your plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans ... Read Full Answer >>
  5. Are catch-up contributions included in actual deferral percentage (ADP) testing?

    Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>
  6. Who offers 401(k) plans?

    401(k) plans are one of the most common retirement plans available. A 401(k) plan must be offered by a business. These plans ... Read Full Answer >>

You May Also Like

Trading Center