A Brief History of Social Security
After the Great Depression, President Franklin Roosevelt signed the Social Security Act into existence in 1935. The first check was cut five years later to Ida Mae Fuller for a whopping $22.54.
In response to the vast poverty in the 1930s, especially among senior citizens, the original intent of the Social Security Act was to provide a form of social insurance. The hope was to bring provision to people in light of the many dangers tied to modern society such as longer life expectancy, job loss, disability, poverty, and the hardships that may fall upon widows and widowers.
Social Security coverage has expanded since its inception. Provisions and programs now include spouses and minor children of a retired worker, disability, health care, temporary assistance for needy families, and supplemental security income.
How Social Security is Funded
Ah yes…the “T-Word.”
Social Security benefits are funded by payroll taxes collected by the IRS which are then placed into the Social Security Trust Funds. Upon a triggering event, such as reaching your full retirement age (FRA), benefits are initiated and paid out of the trust funds.
Current year benefits are paid out of the current year’s revenues. When the trust fund brings in more revenue than it is sending out in benefits (as it did from 1983 – 2009 for example) the extra revenue is invested in US Government bonds. If the benefit payouts are higher than the revenue these bonds are tapped to bridge the funding gap.
Where Do We Go From Here?
First of all, no one has a crystal ball. Opinions on Social Security’s future will vary depending on which news network or talking head you are listening to. However, we can make a few well-reasoned assumptions as we prepare for life as a retiree:
- Current retirees receiving social security benefits will be grandfathered in with their existing coverage.
- The media will keep running buzzy stories on Social Security, often for the sake of ratings instead of solid reporting.
- Continued arm wrestling in the Government over the original intent of Social Security to provide a form of social insurance, versus the expanded benefits offered through its programs today.
- Compromises will be made regarding pivotal choices concerning the wave of retiring Baby Boomers, adjusting payroll taxes to fund benefit payouts, and how to restructure what is provided through Social Security to future generations.
Social Security is here to stay. However, we do expect it to shift and evolve in response to the ever growing American population.
Be sure to gain a full awareness of your personal benefits as you prepare to transition into retirement. Your future benefits will be unique to you and are dependent on key factors such as your past earnings, age, and expected retirement date.
As experienced financial advisors, we can partner with you to help build a roadmap to reach your financial goals and live your ideal life.