Social Security Benefits
Social Security is a cornerstone of the retirement plan of many Americans. Not many people really understand how this system was set up, or how it really works. If you’re planning on relying on Social Security for funding in your retirement, however, it’s a good idea to have a firm grasp on the intricacies of America’s largest entitlement program.
Social Security History
Originally known as the Old-Age, Survivors, and Disability Insurance Program, America’s Social Security program was signed into law by Franklin Roosevelt in 1935. The purpose of the program was not to provide a comfortable living to elderly and disabled persons, but to provide them with a subsistence level of income. The program began issuing Social Security cards and numbers to citizens in 1937, and by 1940 it had issued its first benefit check.
At the time, it was hoped that this would keep the most vulnerable people in the United States fed and sheltered. The monthly checks were also meant to relieve people of working age of the burden of care for their elderly and disabled relatives. By sharing the costs of support, it was hoped that more families would become financially stable.
Over time, however, the program expanded and became the primary means of support for many disabled and elderly people. Payroll deductions, paid by both an employer and the employee have increased to pay for expanding rolls of seniors and disabled persons who qualify for benefits.
Who Gets Social Security Benefits?
The original law that created Social Security set up the means for a trust fund that would fund the program. Originally, workers and their employers paid 1% of their salary to the fund, and benefits were set to be distributed to workers when they turned 65 (then the average life span of an American). Before the first benefit check was issued, however, widows and minor children of workers who qualified for benefits were added as beneficiaries to the program.
In 1954, a formal disability program was added. While the law had originally called for disabled persons to get benefits, it wasn’t until this year that there was a process for people below retirement age to qualify for monthly checks. By 1965, Medicare benefits were added to Social Security.
Adjustments to the retirement age and restrictions on what qualified for a disability have changed over the years. Today, however, people must go through a qualification process involving multiple doctor statements in order to qualify for Social Security disability. Retirement benefits can start as early as age 62 to people who have paid into the system for several years. The spouses of deceased workers, as well as the minor children of people receiving benefits, can also qualify for monthly checks from the Administration. In 2008, over 50 million Americans were receiving Social Security benefits.
How Much Are Benefits?
The amount of benefits that can be collected varies upon several different factors. While the exact formulas are complicated, benefits are generally based on the income of the recipient during their working years and the type of benefits they are receiving. Disability checks follow very different rules than retirement checks.
Retired workers have their benefits basement he highest 35 years of salary they made. If a worker has less than 35 years of reportable income, then he or she will accept zeros when computing their average salary. Benefits are then assigned by a formula that distributes money based on this average salary.
It is possible to start receiving benefits as early as age 62, but doing so typically results in a 25% reduction of benefits for the rest of a person’s life. Similarly, benefits can be increased by nearly 25% if a person is willing to accept payouts starting at age 70.
Social Security Program Future
For several years, the trust fund for Social Security has held a minimal amount of funds. This means that most benefits are being paid for by the taxes collected from today’s workers. A growing population of beneficiaries and a shrinking population of workers means that this system will eventually not produce enough money to pay full benefits. As a result, many people have publicly expressed doubt about the financial health of Social Security.
It is important to keep in mind, however, that such a large program that is the cornerstone of many Americans retirement plans will probably not fade away. Instead, a change in benefit formulas, tax increases, and other policies will likely keep the Social Security afloat indefinitely.