Ninety years ago President Franklin D. Roosevelt signed the Social Security Act into law. This new act was designed by Frances Perkins, Secretary of Labor, as part of the New Deal programs of the Great Depression. Today Social Security benefits play a vital role in reducing poverty, lifting more Americans above the poverty line than any other program.
When the law was signed on August 14, 1935, most Americans worked until they died. Most people couldn’t afford to retire unless other family members chose to support them.
In 1939, Social Security was broadened to include benefits for a worker’s dependents and survivors. Before that time, when a wage earner died or became disabled, the rest of the family was thrown into poverty and often became homeless.
President Eisenhower expanded Social Security in 1956 to include the disabled. In 1965 Congress created Medicare, health insurance for people aged 65 and older. The law also created Medicaid for low-income people. It was quickly signed by President Lyndon Johnson.
These programs are a vital source of inflation-adjusted income for retired and disabled workers, their dependents and their survivors. For many who live in poverty, it may be the only income they receive.
The current Social Security system works like this: when you work, you pay taxes into Social Security. The money is used to pay benefits to people who have already retired, people who are disabled, survivors of workers who have died, and dependents of beneficiaries. Benefits are adjusted for inflation.
You pay Social Security taxes of 6.2% of your earnings, up to $176,100. It’s listed as FICA (Federal Insurance Contributions Act) on your paycheck. Your employer matches what you pay. You and your employer pay Medicare taxes of 1.45% on all your wages (or net earnings from self-employment); this is used for Medicare health insurance coverage.
Social Security bases your benefit payment on how much you earned during your working career. Your age when you start claiming benefits also affects how much you will receive. You can begin drawing retirement any time from age 62 to 70, and the longer you wait, the more you will receive each month. Full social security retirement age is currently 67 years. You receive less per month if you start drawing at a younger age, more if you wait until age 70.
Social Security is not the only source of income for most people when they retire. Most financial advisers say you will need about 70 percent of pre-retirement income to live comfortably in retirement. This income might include your Social Security benefits, pension, retirement accounts, investments, and personal savings.
In last week’s column I talked about current attacks on Social Security from people who think it should be scaled back or ended completely. Who would be affected?
This year 69 million people are drawing Social Security payments every month. About 75% are retirees; the rest are disabled or dependents of a worker who died or became disabled. Their average check: $1,976 ($23,712 for the full year). I recently read an article from AARP that said that 22 million people rely on these payments for at least half of their income. For 10 million people, their monthly benefit is more than 90% of their total income.
Money paid into Social Security is used to pay current recipients. It is also invested in the Social Security Trust Fund, which currently has $2.721 trillion in government bonds, earning interest. In the ninety years since the program was created there have been several tweaks, which included adjustments to the percentage withheld, income limits, inflation adjustments, even retirement age. A few more tweaks may be needed to ensure its continued stability, but Social Security is financially sound.
Social Security is an important program in the United States. The taxes we pay keep millions of retirees, disabled, and surviving dependents out of poverty.