Scenarios about Newly Employed Workers
Scenario
Social Security credits are accrued by paying taxes on earnings. In 2007, individuals receive one credit for every $1,000 of taxable earnings. Individuals can earn a maximum of four credits per year, and 40 credits are necessary to qualify to receive Social Security retirement benefits. You are 25 years old and have just received your first Social Security Statement in the mail from the Social Security Administration. According to the statement, you have earned 8 credits in your two years of employment.
Scenario
Current workers pay taxes into the Social Security system, which are then distributed as benefits to current retirees and other beneficiaries. Workers are taxed at a rate of 6.2% of wages, up to $97,500 (in 2007). You can see this from the stub for your first paycheck at your first job. The amount of the paycheck is much smaller than you anticipated. You knew that federal and state taxes would be taken out, but were not expecting nearly 8 percent of your money to be taken out for “FICA†(most for Social Security, plus some for Medicare).
Scenario
Social Security is facing solvency challenges, and many new workers are losing confidence in the system. For example, you have recently graduated from college and started a new job, which offers a 401(k) plan. You weren’t planning to contribute to it, but one of your friends told you that you should since, “Social Security is going broke and isn’t going to be around to support us when we retire.†Your friend reflects the views of half (50 percent) of African Americans ages 18-25 who say they expect their own savings and investments to be their primary source of retirement income, compared to the 28 percent who expect Social Security to be the major source (2005 Joint Center for Political and Economic Studies National Opinion Poll of African American Adults About Social Security and Wealth).