A Winters Express opinion column
By Wally Pearce, Winters Elder Day Council
Special to the Express
Social Security is more than a lifeline − and it’s more than just a government agency, because it deals with people − each with their own needs.
Many people may’ve forgotten the reasons of Social Security. The significance of the social insurance program sought to address the long-range problem of economic security for the aged through a contributory system in which the workers themselves contributed to their future retirement benefits by making regular payments into a joint fund.
In 1935, after bank failures and a stock market crash wiped out the savings of millions of Americans, the nation turned to the federal government to guarantee the elderly a decent income. In those days, only a handful of workers had access to pension programs. Over half of America’s elderly lacked enough income to be self-supporting.
The Social Security Act was signed into law by President Roosevelt on Aug. 14, 1935, enacted to create a social insurance program that would ensure workers would have a source of income after they retired.
On Jan. 31, 1940, the first monthly retirement payment (check number 00-000-001) for $22.54 (equivalent to $416 in 2020) was issued to 65-year-old Ida May Fuller of Ludlow, Vermont. She started collecting benefits when the median annual income was $1,368. She paid in $24.75 between 1937 and 1939. Miss Ludlow was never married and lived to be 100.
Social Security has become one of the federal government’s most successful and essential programs. Despite efforts to encourage savings and investment, the private retirement picture deteriorated in recent decades. Even today, barely half of all workers participate in retirement plans at work, and millions reach retirement age without enough savings to provide an adequate living in retirement. Social Security is still the foundation for most seniors’ retirement.
Without this critical safety-net program, almost 40 percent of all older Americans would fall into poverty. More than many other federal programs, Social Security does exactly what it was designed to do – it gives retired people a secure, basic income for as long as they live.
Over time, Congress has adjusted the program to address changing times and fiscal challenges. The last major changes came in 1983, when the Social Security program was facing imminent insolvency. At that time, Congress passed changes recommended by the National Commission on Social Security Reform, also known as the Greenspan Commission.
Among its major provisions, the amendments accelerated previously scheduled increases in the payroll tax to its current level, began a very slow phase-in of a two-year increase in the retirement age (from age 65 to 67) over a 45-year period, covered federal employees for the first time, and enacted a tax on the Social Security benefits of some retirees. These changes helped prepare Social Security for the anticipated retirements of the baby boom generation and extended the solvency of the Trust Funds for decades
To qualify for retirement benefits, a typical worker must earn 40 Social Security credits, that’s 10 years of work. Contributions are made through payroll taxes, divided between workers and employers. Employees pay 6.2 percent of their incomes (up to a ceiling of $8,853.60 in 2021, $9,114 in 2022), with employers contributing another 6.2 percent (subject to the same ceiling amounts). Self-employed individuals pay 12.4% of their income, subject to a ceiling of $17,707.20 ($18,228 in 2022).
In 2021, the maximum amount of an individual’s earnings that are subject to this tax is $142,800. In 2022, this maximum will be $147,000. Earnings over this limit are not taxed.
Social Security benefits are based on the amounts earned during a worker’s lifetime. Adjustments are also made to give a higher proportionate benefit to low-income workers. This feature is particularly important to women, who typically earn less than men over their lifetimes. Initial benefits are increased through cost-of-living adjustments (COLAs).
In 2021, the average monthly retirement benefit is $1,553 for an individual and $2,570 for a couple. Disabled workers receive an average of $1,280 per month, while the benefit for a widow with two children averages $2,934 per month. The value of the life insurance provided to survivors through Social Security is over $725,000 and the value of disability protection for a young disabled worker with a spouse and two children is about $580,000.
Starting in January 2022, the 5.9 percent COLA increase will change these averages proportionately. That’s much more than the 1.3 percent adjustment made for 2021. The largest increase was a 7.4 percent boost in the 1980s.