The precarious position of the Social Security Program has been in the news lately, and for good reason. It’s due to run out of money in the next 15 years. Is there anything that can be done to salvage it? More importantly, how will this impact you personally if the program goes away or the benefits are severely reduced? In this episode, we discuss the history, current state, and uncertain future of Social Security and what it all means to you.
What is Social Security?
Social security is "a government program that provides monetary assistance to people with an inadequate or no income."
In the United States, the term Social Security refers to the US social insurance program for all retired and disabled people.
Its technical name is OASDI - the old age, survivors, and disability insurance program.
The OASDI is a comprehensive federal benefits program that provides benefits to retirees, disabled people, and their survivors.
Social Security History
The Social Security Act was signed by FDR on 8/14/35. Taxes were collected for the first time in January 1937.
The first recipient of monthly benefits—Ida May Fuller, whose first check in January 1940 was for $22.54.
The first boomer to sign up: Kathleen Casey-Kirschling. She was born just after midnight on January 1, 1946, and claimed her retirement benefits at the earliest possible time: as soon as she turned age 62. She received the first baby-boomer benefit (reportedly about $1,000) on February 12, 2008, by direct deposit to her bank account.
At the beginning of 2018, over 51 million Americans were receiving monthly retirement or survivor benefits totaling nearly $69 billion.
The program now provides benefits to over 50 million people and is financed with the payroll taxes from over 150 million workers and their employers.
The average retirement benefit for retired workers: $1,334 a month.
The maximum payment for someone claiming benefits at full retirement age (66) in 2018 is more than twice that amount: $2,788.
According to the Social Security Administration, nine out of ten Americans age 65 and older receive benefits.
22% of couples and 47% of unmarried beneficiaries rely on Social Security for 90% or more of their income.
Social Programs today share Biblical Roots
Many of our common views on taking care of the poor stem from a Biblical root. The Jewish Torah which also makes of the first 5 books of the Christian Bible contains law that require people to give a tenth of their income every third year to the poor. This would be 10% every three years, so about 3.5% a year into a community type fund to support the poor, widows, and orphans.
There were also Biblical laws in place to allow the poor to glean the corners of a field and harvest during the Shmita (Sabbatical year).
Even our modern day bankruptcy laws find their root in Jewish tradition.
"At the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the LORD's release" (Deuteronomy 15:1-2).
"...in the seventh year you shall let [your Hebrew slave] go free from you. And when you send him away free from you, you shall not let him go away empty-handed; but you shall supply him liberally from your flock..." (Deuteronomy 15:12-14).
How does this apply to me personally?
Basically, you qualify for retirement benefits after working in jobs covered by Social Security—which means jobs for which you pay payroll taxes on your earnings.
No matter how much you earn, you cannot accumulate more than 4 credits per year. The minimum number of credits needed to be eligible for Social Security benefits is 40 credits, which translates to 10 years of working.
For 2018, the Social Security tax (6.2% for employers; 6.2% for employees; 12.4% for employed, who bear the full load themselves) applies to the first $128,400 of wages or self-employment income.
Social Security Eligibility
You receive “full benefit” at between age 66-67 depending on when you were born. If you were born after 1960, that “full benefit” is at 67 years old.
Your personal benefit will be based on your taxed earnings in the 35 highest-paid years of your career.
When making the calculation, the government adjusts each year’s wages to account for inflation. So, for example, the $35,000 you made in 1981 will be adjusted to more than twice that amount in today’s dollars when figuring the average wage on which your benefit is based.
You can sign up as early as age 62; but if you do, your benefit will be cut by 25% to 30%, compared with what you’d receive at age 66 or 67.
The reduction reflects the reality that you’ll likely be receiving benefits for a longer period of time. In fact, the goal of Social Security actuaries (a fancy word for the calculation of risk and premiums) is that no matter when you start benefits, you’ll receive the same amount of total dollars before you die—assuming you die “on schedule,” that is, at the end of your estimated life expectancy.
If you live to age 60, then on average you’ll live to between 81-86 years old. It’s time to start planning for a long-retirement.
Currently, 70 is the latest you can wait to start taking Social Security.
Each additional year after “full retirement” age that you wait to take social security, your benefit increases 8%, so if your full retirement age is 66 years old and you can wait all the way till age 70, then you’ll enjoy a 32% increase in the amount you receive.
The difference between taking social security at 62 vs 70 is about 76%!
AARP has around 40 million members. It’s a non-profit group you’re eligible to join at age 50, and as a member of the group you get special access to discounts on a large variety of products, as well as other benefits. It costs about $16 a year. From the social security calculator I looked up what a 60yr person, who averaged $50,000 income, and the various amounts they’d get if they applied for social security at different ages.
Age 62 - $1,289
Age 66 - $1,778
Age 70 - $2,276
So there is a $1,000 different per month, for this person if they are able to wait till age 70. That’s $12,000 a year. Which means that if they live well past the life expectancy, they can expect to receive 10’s of thousands more, potentially a couple hundred thousand if they live to 100.
Social Security and Disability Insurance Fiscal History
Historically, both have reached times where tax revenue fell short of the cost of providing benefits and also times where the trust funds have reached the brink of exhaustion of assets.
For years 1973 through 1983, the combined SS and DI Trust Funds were operating with a negative cash flow that was depleting the trust fund reserves toward exhaustion.
The Social Security Amendments of 1977 and 1983 made substantial modifications to the program that reversed the cash flow of the program to positive levels and caused the substantial buildup of assets to the $2.5 trillion that exists today.
The 1977 amendments included a fundamental change in the indexation of benefits from one generation to the next. The 1983 amendments included increases in the normal retirement age (NRA) from 65 to 67 and the introduction of income taxation of Social Security benefits with revenue credited to the trust funds.
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