If your boss took 6.2% of your gross wages and told you that they’d give it back to you later in life, would you pay close attention to where that money went? When it came time for your boss to pay you back for all that money they withheld from you over the years, wouldn’t it make sense to get the most back as possible? Well of course you’d want to get the most out of that bucket.
That bucket is Social Security and the “boss” is the Social Security Administration. Remember the first time you saw the FICA line on your paycheck and started to wonder “who the heck is this Uncle FICA and why does he take so much of my money?” like most of us did. Uncle FICA is Uncle Sam and FICA stands for the Federal Insurance Contribution Act and it’s how you pay into Social Security which will result in a lifetime income some number of years into the future.
In 2020 you will pay 6.2% of your gross wages or self-employment net income (if you’re self-employed you get to pay 2x the 6.2% for a total of 12.4%!) into Social Security via FICA. Happily, you only pay FICA on the first $137,700 this year. You don’t pay FICA on other income you might receive such as dividends or interest from an investment portfolio or annuity, and MOST rental income (please consult your tax advisor on that situation).
In reality there’s no single bucket of FICA money with your name on it. Your 6.2% goes into the general Social Security fund and helps pay benefits for Americans currently collecting. At minimum you can feel great about your contributions to society...