Happy Birthday Social Security

It’s hard to believe Social Security has been around for 80 years. It’s a great program, and everyone always asks me: Do you think it will last? So, I’m going to tell them: Take heart. It’s still there.

Some history first: It was modeled after Civil War pensions. Germany was the first country to enact a social insurance program in 1889. We passed our law in August of 1935. So when August rolls around, it will be 80 years. This was passed under Franklin Delano Roosevelt, and it was a response to the Great Depression because so many people were aging and had no income.

The first Social Security cards were issued by the U.S. Postal Service, and the first number was 001-01-0001. The first three numbers are for the area, so you can tell where someone was born by the first three numbers. New Hampshire is the lowest. Interesting story: When these first cards came out, Woolworth designed a new wallet to accommodate the new Social Security card, and they put a specimen in the place of it. The guy who designed it decided to use his secretary’s actual number, and suddenly everybody started using the same number. We ended up with about 5,700 people in 1948 who were using the same number. It was a bit of a problem.

The benefits and taxes, when they first enacted Social Security, the tax was at 1% and worked its way up to 3% by 1948. We’ve always had a system where as you the employee, 3% or whatever percentage comes out of your paycheck, your employer matches that. Well, now we’re up to 6.2% x 2 = 12.4% goes in for your benefits.

The first recipient was Ida May Fuller. She only paid in for 3 years for a total of $24.75. Her first check was almost that much at $22.54. Ida May outlived the actuary. She lived to be 100 years old and collected a total of $22,888.92—a great return for your money.

Well, we’ve had some amendments on Social Security. 1950 was the first time they introduced COLA, or Cost of Living Adjustments. These are very important to our recipients. At that time, Congress had to approve every single one, but in 1972 the COLAs became automatic, and that’s been part of our problem lately. 1983 was the last time—more than 30 years—we had big changes, because we had financial problems then. At that time, they increased taxes, and they increased the retirement age. But it’s been 30 years; we need to look at that again. In the year 2000, we had the removal of an earnings limit for those who have reached full retirement age, so you can still work.

Well, everyone says: Will the money last? Remember, this is a pay as you go system. So the money you’re putting in now is not sitting there in an account for you. It’s paying for people who are already retired. Our problem is we have fewer workers per retiree. I’m part of the Baby Boom generation, so we’re a real problem as we’re aging, and we’re living longer. Right now, we know that by 2033, we won’t have enough to pay full benefits, but we still will be paying those benefits, but only 77 cents on the dollar if we do nothing. So, it’s time for another amendment.

Here are some options. We can increase the annual earnings to be taxed. Right now, if you make over $118,000, you’ll see that tax drop off. We can increase the Social Security tax—now 6.2%. Some option has been to increase it to 7.2%. We can increase the retiree age, which is what we did last time. And we may seem some changes to the Cost of Living Adjustment (COLA). So, it is going to be sustainable. We do need to make some changes to it.

#socialsecurity #investments #finance #retirement #financialadvisor #financialplan #feeonlyfinancialadvisor #investmentadvisor #retirementplanning

Featured Posts
Recent Posts