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. Investing

    Five Things to Consider Now for Your 401(k)

    If you can’t stand still, when it comes to checking your 401 (k) balance, focus on these 5 steps to help channel your worries in a more productive manner.
  2. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  3. Retirement

    The World's Most Luxurious Retirement Destinations

    If money is no object (or if you would just like to dream), these five spots are the crème de la crème.
  4. Professionals

    How to Protect Elderly Clients from Predators

    Advisors dealing with older clients face a specific set of difficulties. Here's how to help protect them.
  5. Professionals

    Social Security 'Start, Stop, Start' Explained

    The start, stop, start Social Security strategy is complicated. Here's what retirees considering it need to consider.
  6. Retirement

    Strategies for a Worry-Free Retirement

    Worried about retirement? Here are several strategies to greatly reduce the chance your nest egg will end up depleted.
  7. Professionals

    Your 401(k): How to Handle Market Volatility

    An in-depth look at how manage to 401(k) assets during times of market volatility.
  8. Professionals

    How to Build a Financial Plan for Gen X, Y Clients

    Retirement is creeping closer for clients in their 30s and 40s. It's a great segment for financial advisors to tap to build long-term client relationships.
  9. Professionals

    Don't Let Your Portfolio Be Trump'd by Illiquidity

    A look at Donald Trump's statement of finances and the biggest lesson every investor can learn.
  10. Professionals

    Top Social Security Issues for Divorced Women

    What female divorcees need to know about the twists and turns of figuring out Social Security benefits.
RELATED TERMS
  1. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  2. Dynamic Updating

    A method of determining how much to withdraw from retirement ...
  3. Possibility Of Failure (POF) Rates

    The likelihood that a retiree will run out of money prematurely ...
  4. Safe Withdrawal Rate (SWR) Method

    A method to determine how much retirees can withdraw from their ...
  5. Mandatory Distribution

    The amount an individual must withdraw from certain types of ...
  6. Auto Enrollment Plan

    An employer’s decision to sign employees up to have a percentage ...
RELATED FAQS
  1. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  2. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  3. Why would someone change their Social Security number?

    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
  4. Are spousal Social Security benefits retroactive?

    Spousal Social Security benefits are retroactive. These benefits are quite complicated, and anyone in this type of situation ... Read Full Answer >>
  5. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Contributions to IRA, Roth IRA, 401(k) and other retirement savings plans are limited by the IRS to prevent the very wealthy ... Read Full Answer >>
  6. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    With a few exceptions, early withdrawals from traditional or Roth IRAs generally incur a tax penalty equal to 10% of the ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!