Sunday, July 17, 2011

Social Security Facts

Social Security is often called the Holy Grail of politics. If you mess with it, you will never win elected office again. And for that reason alone, not one President has made an effort to fix the problems that exist with the program.

Personally, I think it is good that we take care of the elderly and the sick in this country. The problem with Social Security is that many Americans rely on it as a retirement fund, and that was not the original intent of the program.

So recently Obama's Budget Deficit Committee recommended that by 2075 the retirement age for be increased to 69 by 2075 (to read more click here). For some of us this might be frightening news, especially if you were planning on retiring at an earlier date.

Yet for those like me, who aren't relying on Social Security as part of our retirement, we get to decide when we retire. We are responsible for our own lives, and thus our own retirements dates by preparing for it.

Considering this recent news, I thought this would be a good time to list some facts about the original intent of Social Security.
Consider the following facts:

1. When Social Security Insurance (SSI) was signed into law in 1935 by FDR, the average expectancy of humans was 65 years. Thus, the purpose of Social Security was to provide "security insurance" for those who live beyond their years. It was not intended to be a retirement plan, of which many today use it as such.

The following facts are from

2. At the outset of the Social Security program, the federal government published an informational pamphlet that stated the following with regard to Social Security taxes:

And finally, beginning in 1949, 12 years from now, you and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year. That is the most you will ever pay

After adjusting for inflation, the result of this calculation equates to a maximum tax collection of $1,630 per person.[34] In 2007, the maximum tax collection per person was $12,090, or more than seven times this amount.[35]

3. The age at which a worker receives full Social Security old age benefits is referred to as the 'full retirement age.' A person's full retirement age can be between 65 and 67 years old, depending upon their year of birth. For those born after 1959, full retirement age is 67.

4. Workers have the option to start receiving Social Security benefits at the age of 62, but the benefits are reduced. (More details in footnote.) Workers also have the option to start receiving benefits later than their full retirement age, and the benefits are increased.

5. The statement issued by the Social Security Administration to all participants states the following:

Social Security is the largest source of income for most elderly Americans today, but Social Security was never intended to be your only source of income when you retire. You also will need other savings, investments, pensions or retirement accounts to make sure you have enough money to live comfortably when you retire.

As of 2007, Social Security benefits comprise 50% or more of the income for 63% of elderly beneficiaries. It makes up 90% or more of the income for 32% of elderly beneficiaries.

6. In 2007, the average annual U.S. savings rate was $158.23 per person. This is 0.5% of disposable personal income.

7. As of 2008, Social Security is paying an average of $12,948/year to individual retired workers receiving old age benefits. The poverty level for an individual is $10,400.

8. As of 2008, Social Security is paying an average of $21,132/year to couples receiving old age benefits. The poverty level for a couple is $14,000.

9. The Social Security program has an independent budget that is separate from the rest of the federal government.[71]

10. Since 1982, Social Security has had surpluses ranging from $89 million to $190 billion per year. By law, these surpluses must be loaned to the federal government, which is obligated to pay the money back with interest. This is referred to as the "Social Security Trust Fund" and at the close of 2007 it had a balance of $2.2 trillion.

11. Social Security is projected to continue having annual surpluses until 2017 at which point the federal government will owe $3.5 trillion to the Social Security program, or $10,400 for every man, woman and child living in the U.S. at the time.

12. In 2017, the Social Security program is projected to start having annual deficits that will be covered by collecting on the money it has loaned to the federal government. By 2041, it is projected that all of this money will be paid back and the trust fund will be exhausted.

13. After 2041, Social Security is projected to have deficits every year into the foreseeable future. To cover these shortfalls, it is projected that payroll taxes would need to be increased by 28% starting in 2041, rising to a 34% increase by 2082. This shortfall could also be covered by reducing benefits by 21% starting in 2041, falling to a 24% reduction by 2082.

14. One of the causes for the projected deficits is that the number of workers paying taxes compared to the number of people receiving benefits has fallen and is projected to fall further.

Year Ratio of people paying taxes

to people receiving benefits

1945 41.9 / 1
1950 16.5 / 1
1960 5.1 / 1
1970 3.7 / 1
1980 3.2 / 1
1990 3.4 / 1
2000 3.4 / 1
2007 3.3 / 1
2030 2.2 / 1
2070 2.1 / 1

15. Factors that have contributed to the falling ratio of people paying taxes compared to people receiving benefits:
  1. Increase in life expectancy without a comparable increase in the retirement age.
  2. The higher birth rate of the baby boom generation compared to the birth rates of succeeding generations.
  3. The increasing number of people receiving disability benefits.
16. Social Security Administration publication number 05-10024 states:

The money you pay in taxes is not held in a personal account for you to use when you get benefits. Your taxes are being used right now to pay people who now are getting benefits. Any unused money goes to the Social Security trust funds, not a personal account with your name on it.[133]

17. All taxes that have been paid into the Social Security system since its inception have been spent to pay benefits, fund the administrative overhead of the program, or loaned to the federal government

18. No money has been taken from the Social Security program.[140] Social Security surpluses are loaned to the federal government.[141] [142] This is a requirement that was established in the original Social Security Act.[143] The federal government is required by law to pay back this money to the Social Security program with interest, and it has never failed to do so.[144] [145]

19. The assets of the Social Security program include all of the money that it has loaned to the federal government.[147] [148] [149] Even when this money is repaid with interest, the program is projected to be unable to pay full benefits starting in 2041. An additional $4,300,000,000,000 would need to be injected into the program today to finance the projected deficits over the next 75 years.[150] [151]

20. If extra money had not been added into the Social Security program by increasing the tax rate above the levels specified in the original Social Security Act, it would have been unable to pay full benefits since about 1980.

21. Under current law, the money that people pay in Social Security taxes is not saved for them and is not their property.

22. For a worker who is 34 years old in 2008 and plans to retire at 67 in 2041, their retirement benefits will be derived solely from year 2041 taxpayers. Under current law, tax revenue in 2041 is projected to be sufficient to pay 78% of Social Security benefits

23. Proposals have been made to change a portion of Social Security from a benefit program to a savings program. These savings would be the personal property of each person who chose to participate. In turn, their Social Security old-age benefits would be reduced to correspond with the amount of taxes they paid into the program

24. In general, such proposals include a transition cost to move from the current system to a system that includes personal accounts

25. Under the current system, a 22-year-old person who works for the next 45 years earning $50,000/ year will contribute $279,000 to the Social Security program. When he or she turns 67 years old in 2053, all of the money they have contributed will be spent. Any old age benefits they receive would be derived from taxpayer revenue at that time.

26. If this same person put 16% of their Social Security taxes into a personal account and it earned 7% above the rate of inflation, he or she will have saved $263,991 (2008 dollars) when they turn 67 years old in 2053.

27. From 1871 to 2002, (including the Great Depression), the stock market (S&P 500) has averaged more than 8% above the rate of inflation

28. During the 109th Congress (2005-2006), eight Social Security reform bills were introduced that would have established individual accounts to supplement or replace traditional Social Security benefits. No action was taken on any of these bills

29. Of these eight bills, seven were sponsored by Republicans and one was co-sponsored by one Democrat and one Republican

30. During the 110th Congress (2007-2008), at least four Social Security reform measures were introduced that included the establishment of individual accounts. All were introduced by Republicans

31. The Republican Party supports giving workers the option to place a portion of their Social Security taxes into a personal account. The Democratic Party does not.

32. As of 2004, 30-year-old black men have an average life expectancy of 5.3 years beyond their full retirement age of 67. (White males – 10.3 years, Black females – 11.1 years, White females – 14.8 years

33. In general, for people who are single and have no children under the age of 19, their benefits stop when they pass on

34. Personal ownership allows people to pass their Social Security savings to their heirs upon death

The following is according to

35. The draft bill submitted by FDR differed in many interesting respects from the final Social Security Act which emerged from Congress in August 1935. For example, FDR had proposed a three-part program of old-age security consisting of:
  • Old-age welfare pensions
  • Compulsory contributory social insurance (what we now think of as Social Security)
  • Third-tier which would consist of optional annuity certificates sold by the government to workers who, upon retirement, could convert the certificates to monthly annuities which would be used as supplements to their basic Social Security retirement benefit.
This third program was among the features of the President's proposals which the Congress did not accept. Many other changes were made in the Administration's proposal.

The following facts are reported by the New York Times:

36. As of March 24, 2010, Social Security "system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office."


"Stephen C. Goss, chief actuary of the Social Security Administration, said that while the Congressional projection would probably be borne out, the change would have no effect on benefits in 2010 and retirees would keep receiving their checks as usual.

The problem, he said, is that payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program’s revenue has fallen sharply, because there are fewer paychecks to tax."

The following are according to

37. Disabled workers and their dependents account for 19% of total benefits paid.
  • About 91 percent of workers age 21-64 in covered employment and their families have protection in the event of a long-term disability.
  • Almost 1 in 4 of today’s 20 year-olds will become disabled before reaching age 67.
  • 69% of the private sector workforce has no long-term disability insurance.
38. Survivors of deceased workers account for about 13% of total benefits paid.
  • About one in eight of today’s 20 year-olds will die before reaching age 67.
  • About 97% of persons aged 20-49 who worked in covered employment in 2010 have survivors insurance protection for their young children and the surviving spouse caring for the children.
39. An estimated 156 million workers, 93% of all workers, are covered under Social Security.
  • 52% of the workforce has no private pension coverage
  • 1% of the workforce has no savings set aside specifically for retirement.
40. In 1935, the life expectancy of a 65-year-old was 12½ years, today it's 18 years

41. By 2035, there will be almost twice as many older Americans as today -- from 40.7 million today to 76.3 million.

42. There are currently 2.9 workers for each Social Security Beneficiary. By 2035, there will be 2.1 workers for each beneficiary. But we already knew this by the chart above.
Go ahead and do your own research. Click on the links provided. Do a Google search. Do you agree with me that something needs to be done to fix Social Security Insurance. It's an important program that must be saved.

To view the entire social security act of 1935 click here.

To read FDRs Fireside chat #7 where he introduced his Social Security program click here.

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