When it comes to retirement, Social Security is the safety net for millions of Americans. According to AARP, one in seven people aged 65 or older solely rely upon the government program for their income while nearly 20% rely upon it for 90% of their income.

However, many people understand that if they want to live off more than kibbles in their Golden Years, setting aside money in a 401(k) retirement plan or in an Individual Retirement Account is the smart way to ensure a comfortable retirement.

Even small contributions made regularly over time can add up to a significant sum through the power of compound interest. Contributing $1,000 a month to an account that buys the S&P 500 and earns its historic 10% returns (minus 3% for inflation) annually for 25 years would end up with $900,000 at the end. Those aren’t returns you can’t ever hope to get with Social Security.

But for a program that has existed for nearly a century, there is an awful lot of confusion about Social Security. No wonder many people throw up their hands and figure they will just wait till they’re getting ready to retire to deal with it. Yet that would be a mistake.

A surprisingly large amount of planning needs to go into ensuring that you and yours get all the benefits you’re entitled to. And though most people are familiar with the concept of survivor benefits, or the money your eligible heirs are entitled to continue receiving after you die, a Redditor on the r/SocialSecurity subreddit wondered what happens to your benefits if you die without eligible heirs.

24/7 Wall St. Insights:

• Social Security has been around for nearly 100 years, leading to as many as one-in-five retirees counting on the program for 90% of their income.
• Survivor benefits means your heirs may be eligible to continue receiving your Social Security payments after you die, but what happens to them if you die without eligible heirs?
• The government retirement program operates on a pay-as-you-go system, meaning as soon as money comes into Social Security it is immediately paid out.
• People would be better off investing in an S&P 500 fund than counting on earning any meaningful return from Social Security.

What comes in, goes right out

Because Social Security operates on a pay-as-you-go system, the money you are required to contribute doesn’t go into an account for you. Instead, it is put into a general fund that pays out benefits to current retirees.

It’s why many people consider the program a Ponzi scheme. It constantly needs more people brought in to continue paying out benefits. When Social Security was founded in 1935, there were 150 workers per retiree. By 1950, that had fallen to only 16 workers per beneficiary. Just 10 years later, it had dropped again to five workers per beneficiary. According to the Social Security Administration, by next year there will be just 2.3 workers for every retiree.

Because Social Security can’t get more workers enrolled, it raises the taxes you have to pay into the system. When the program started, the tax rate was 1% on only the first $3,000 of earnings. Today, both employees and employers are taxed at a 6.2% rate on a much higher income cap, totaling 12.4% combined.

It helps explain why Social Security always seems to be on the brink of insolvency. More people are living longer, retiring earlier, and spending more time in retirement than ever before. 

Here today, gone tomorrow?

And that is the answer to the Redditor’s question. When you die with no survivors, your estate doesn’t get your benefits, though the government doesn’t take them either. At least not directly. They are simply folded back into the Social Security general fund to continue paying out benefits to current beneficiaries.

I’m not a financial planner, so this is just my opinion, but arguably the best thing someone can do is plan on not receiving any Social Security at all. Ignore its contribution from your planning calculations while living below your means, avoiding debt, and plowing as much money into retirement accounts so you can survive and thrive without Social Security.

If the program is there when you retire, it is like found money. But if it’s not, you won’t miss a step in your plan. As always, though, consult with a professional to get a personalized plan tailored to your needs.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.