SOCIAL SECURITY FACT SHEET
The Social Security program was created in 1935 under FDR’s New Deal. Many people were jobless and had no personal savings accounts. Seven out of eight Americans over the age of 65 were no longer employed. Only one in six had savings or property. Three-fourths of people 65 and older were dependent on others (mainly their children) for support.
The program was designed to be a Pay-As-You-Go program. Funds paid by the younger generation support the costs of those who are currently retired. Through out your working career, you pay into a payroll tax and this helps you earn the right to receive benefits when you retire. The first Social Security checks were issued in 1940.
A separate payroll tax was created called the FICA (Federal Insurance Contributions Act). You are expected to pay 6.2% of your wages to the payroll tax and your employer must match that contribution with an additional payment of 6.2%. You are expected to pay this payroll tax on earned income up to $108,600 (as of 2010). If you are self-employed, you must pay the entire amount (12.4%) to the payroll tax. You must work a total of ten years to be eligible to collect Social Security benefits when you retire. Originally, the retire age was set at 65 years of age. However, the age has risen to age 67, depending on when you were born. Anyone born after 1960 will be eligible to retire at age 67. If you chose to retire at age 62, your benefits will be reduced by 30%.
The amount a person receives in benefits varies on your income and the amount you paid into the payroll tax. Low earnings receive yearly benefits of $8800. Medium earnings receive yearly benefits of $14, 500. High earnings yearly benefits are $19,100. Maximum yearly benefits are $21, 900.
When the first Social Security checks were issued, there was a ratio of 18 wage earners paying into the payroll tax for every one person retired and collecting benefits. Today, the ratio is three to one. Still the system has been taking in more money than paying out to retirees. The government has invested the surplus money in U.S. Treasury bonds. The surplus is projected to continue until 2017. At that point, the bonds can be cashed in. However, it is estimated that by 2041 (some say 2052), the surplus will be exhausted.
This is largely due to the Baby boomers who were born between 1946-1964. Some 77 million Americans make up the baby boomers and the first of them will be eligible to retire in January 2008. Today the size of our 65 and older population is 35 million. By 2030, it will be 70 million. By the time the last of the baby boomers reach their 70’s and 80’s, they will substantially outnumber the 20 and under population. It is expected that only 75-80% of the benefits will be covered by the current working class by 2041.
President Bush invited the nation to join him in reinventing Social Security for the 21st century. He is proposing sweeping changes based on the idea that individual investment accounts are the best and most promising way to guarantee income savings for retirees.
Fundamental Questions to consider:
How should we, as individuals and as a society, make provisions for financial security in our retirement years?
What should be changed about our current system and why?
What must not be changed?
Examine the three approaches offered to redesign the Social Security program and identify which one best represents your beliefs. Each approach differs with regard to what government should do and what individuals should be expected and encouraged to do for themselves.
Each approach differs in their thinking about whether it is fair to reduce the benefits now offered to elderly Americans or change the age at which they are entitled to benefits. They also differ in costs and tradeoffs.
Approach #1—favors the creation of personal accounts, shifting the responsibility to individuals acting on their own behalf
Approach #2—emphasizes a shared responsibility for the well-being of the elderly and recognizes the importance of honoring the promise made to the elderly today and tomorrow.
Approach #3—proposes to keep essential elements of the existing program the same but favors an updating of the retirement system to reflect new realities.