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Social Security

Social Security - H ow it wor ks In some ways the Social...

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How it works In some ways, the Social Security System is both like and unlike a bank savings account. Despite the fact that the Social Security Administration mails out an annual earnings statement to participating individuals, the Social Security System does not necessarily pay out an equal value in benefits as what is paid out over an individual's lifetime. In fact the values listed on the earnings statement are only estimates based on current information, but are subject to change as an individual's situation evolves and as calculation parameters are modified. Like a bank savings account, however, the Social Security Administration does not just sit on the deposits it receives, but spends them in the expectation that it will have future inflows to meet its obligations. Social security programs are self-financing in the sense that they generate their own resources. In a self-financing social security system, contributions are made by the employee, employer and the self-employed, in the form of payroll taxes to the social security programs. Money paid by the present contributors is used to assist those in need of social security. So, when the present workers retire, they depend on contributions from future workers for availing social security benefits. Social security taxes or contributions to social security schemes depend on the income level of the individuals during their working period. The amount of benefits also depends on the level of income of the beneficiaries. By this logic, people who earn more and pay more to security schemes, would naturally receive more benefits in future.
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