Social Security is funded primarily through payroll taxes called
Federal Insurance Contributions Act tax (FICA) or Self Employed
Contributions Act Tax (SECA). Tax deposits are collected by the
Internal Revenue Service
With few exceptions, all legal residents working in the United States now have an individual Social Security number. Indeed, nearly all working (and many non-working) residents since Social Security's 1935 inception have had a Social Security number because it is requested by a wide range of businesses.
In 2015, Social Security expenditures totaled $750.5 billion for
OASDI and $146.6 billion for DI. Income derived from Social Security
is currently estimated to have reduced the poverty rate for Americans
age 65 or older from about 40% to below 10% The Social Security
Administration is headquartered in Woodlawn ,
* 1 History of Social Security (SSI) * 2 Major Social Security programs
* 3 Benefits
* 3.1 Social Security Benefits and Income 2012 * 3.2 Total Social Security benefits paid, by year * 3.3 Primary Insurance Amount and benefit calculations * 3.4 Online Social Security benefits estimate * 3.5 Normal retirement age * 3.6 Spouse\'s benefit and government pension offsets * 3.7 Delayed Social Security Benefits * 3.8 Social Security Benefits while continuing work * 3.9 Widow(er) benefits * 3.10 Children\'s benefits * 3.11 Disability
* 4 Current operation
* 4.1 Joining and quitting * 4.2 Trust fund * 4.3 Office of Disability Adjudication and Review (ODAR) * 4.4 Social Security Benefit payout comparisons * 4.5 International agreements * 4.6 Social Security number
* 4.7 Demographic and revenue projections
* 4.7.1 Ways to eliminate the projected Social Security shortfall
* 5 Taxation
* 5.1 Tax on wages and self-employment income
* 5.1.1 Wages not subject to tax
* 5.2 Federal income taxation of benefits
* 6 Criticisms
* 6.1 Claim that it discriminates against the poor and the middle class * 6.2 Marital status * 6.3 Claim that politicians exempted themselves from the tax * 6.4 Claim that the government lied about the maximum tax * 6.5 Claim that it gives a low rate of return * 6.6 Claim that it is a Ponzi scheme * 6.7 Estimated net Social Security benefits under differing circumstances
* 7 Current controversies
* 7.1 Contrast with private pensions * 7.2 Contrast with insurance * 7.3 Private retirement savings crisis * 7.4 Court interpretation of the Act to provide benefits * 7.5 Constitutionality * 7.6 Payments to former Nazis
* 8.1 Social Security Number theft
* 9 Public economics
* 9.1 Current recipients * 9.2 Saving behavior * 9.3 Reducing cost of living adjustment (COLA) * 9.4 Consumption
* 10 See also * 11 References * 12 Further reading * 13 External links
HISTORY OF SOCIAL SECURITY (SSI)
Main article: History of Social Security in the
Historical Social Security Tax Rates Maximum Salary FICA or SECA taxes paid on
Maximum Earnings taxed OASDI Tax rate Medicare Tax Rate YEAR
Maximum Earnings taxed OASDI Tax rate Medicare Tax Rate
1937 3,000 2% - 1978 17,700 10.1% 2.0%
1938 3,000 2% - 1979 22,900 10.16% 2.1%
1939 3,000 2% - 1980 25,900 10.16% 2.1%
1940 3,000 2% - 1981 29,700 10.7% 2.6%
1941 3,000 2% - 1982 32,400 10.8% 2.6%
1942 3,000 2% - 1983 35,700 10.8% 2.6%
1943 3,000 2% - 1984 37,800 11.4% 2.6%
1944 3,000 2% - 1985 39,600 11.4% 2.7%
1945 3,000 2% - 1986 42,000 11.4% 2.9%
1946 3,000 2% - 1987 43,800 11.4% 2.9%
1947 3,000 2% - 1988 45,000 12.12% 2.9%
1948 3,000 2% - 1989 48,000 12.12% 2.9%
1949 3,000 2% - 1990 51,300 12.4% 2.9%
1950 3,000 3% - 1991 53,400 12.4% 2.9%
1951 3,600 3% - 1992 55,500 12.4% 2.9%
1952 3,600 3% - 1993 57,600 12.4% 2.9%
1953 3,600 3% - 1994 60,600 12.4% 2.9%
1954 3,600 4% - 1995 61,200 12.4% 2.9%
1955 4,200 4% - 1996 62,700 12.4% 2.9%
1956 4,200 4% - 1997 65,400 12.4% 2.9%
1957 4,200 4.5% - 1998 68,400 12.4% 2.9%
1958 4,200 4.5% - 1999 72,600 12.4% 2.9%
1959 4,800 5% - 2000 76,200 12.4% 2.9%
1960 4,800 6% - 2001 80,400 12.4% 2.9%
1961 4,800 6% - 2002 84,900 12.4% 2.9%
1962 4,800 6.25% - 2003 87,000 12.4% 2.9%
1963 4,800 7.25% - 2004 87,900 12.4% 2.9%
1964 4,800 7.25% - 2005 90,000 12.4% 2.9%
1965 4,800 7.25% - 2006 94,200 12.4% 2.9%
1966 6,600 7.7% 0.7% 2007 97,500 12.4% 2.9%
1967 6,600 7.8% 1.0% 2008 102,000 12.4% 2.9%
1968 7,800 7.6% 1.2% 2009 106,800 12.4% 2.9%
1969 7,800 8.4% 1.2% 2010 106,800 12.4% 2.9%
1970 7,800 8.4% 1.2% 2011 106,800 10.4% 2.9%
1971 7,800 9.2% 1.2% 2012 110,100 10.4% 2.9%
1972 9,000 9.2% 1.2% 2013 113,700 12.4% 2.9%
1973 10,800 9.7% 2.0% 2014 117,000 12.4% 2.9%
1974 13,200 9.9% 1.8% 2015 118,500 12.4% 2.9%
1975 14,100 9.9% 1.8% 2016 118,500 12.4% 2.9%
1976 15,300 9.9% 1.8% 2017 127,200 12.4% 2.9%
1977 16,500 9.9% 1.8% 2018 128,400 12.4% 2.9%
Tax rate is the sum of the OASDI and Medicare rate for employers and
In 2011 and 2012, the OASDI tax rate on workers was set temporarily
while the employers OASDI rate remained at 6.2% giving 10.4% total
Medicare taxes of 2.9% now (2013) have NO taxable income ceiling.
Social Security Administration
Social Security Timeline
* 1935 The 37-page
Social Security Act signed August 14 by President
Franklin D. Roosevelt
A limited form of the Social Security program began, during President
Franklin D. Roosevelt\'s first term, as a measure to implement "social
insurance " during the
Opponents, however, decried the proposal as socialism. In a Senate Finance Committee hearing, Senator Thomas Gore (D-OK) asked Secretary of Labor Frances Perkins , "Isn't this socialism?" She said that it was not, but he continued, "Isn't this a teeny-weeny bit of socialism?"
The provisions of Social Security have been changing since the 1930s, shifting in response to economic worries as well as coverage for the poor, dependent children, spouses, survivors and the disabled. By 1950, debates moved away from which occupational groups should be included to get enough taxpayers to fund Social Security to how to provide more benefits. Changes in Social Security have reflected a balance between promoting "equality" and efforts to provide "adequate" and affordable protection for low wage workers.
MAJOR SOCIAL SECURITY PROGRAMS
The larger and better known programs under the Social Security Administration, SSA, are:
* Federal Old-Age (Retirement) , Survivors, and Disability Insurance , OASDI * Temporary Assistance for Needy Families , TANF * Health Insurance for Aged and Disabled, MEDICARE * Grants to States for Medical Assistance Programs for low income citizens, MEDICAID * State Children\'s Health Insurance Program for low income citizens, SCHIP * Supplemental Security Income , SSI
SOCIAL SECURITY BENEFITS AND INCOME 2012
2013 Social Security Trustee Report All funds in billions of dollars
Part B ">
1. To prevent Social Security from losing tax revenue during the
reduced Social Security worker 2.0% tax rate reduction in 2011 and
2012, Congress borrowed money from the federal general tax fund and
transferred it to the Social Security trust funds.
Sources: Social Security Administration,
Centers for Medicare &
The largest component of OASDI is the payment of retirement benefits.
These retirement benefits are a form of social insurance that is
heavily biased toward lower paid workers to make sure they do not have
to retire in relative poverty. With few exceptions, throughout a
worker's career, the
Social Security Administration
Social Security revenues exceeded expenditures, between 1983 and 2009.
The disability insurance (DI) taxes of 1.4% are included in the OASDI rate of 6.2% for workers and employers or 12.4% for the self-employed. Outgo of $140.3 billion while having income of only $109.1 billion means the disability trust fund is rapidly being depleted and may require either revisions on what "disabilities" are included/allowed/defined as, fraud minimization or tax increases.
The Medicare hospital insurance, HI, (Part A: Hospital Insurance, inpatient care, skilled nursing facility care, home health care, and hospice care) expenditure rate of $266.8 billion in 2012—while bringing in only $243.0 billion—means that the medicare HI trust funds are being seriously depleted and increased taxes or reduced coverage will be required. The additional retirees expected under the "baby boom bulge" will hasten this trust fund depletion. Medicare expenses, tied to medical costs growth rates, have traditionally increased much faster than GDP growth rates.
The Supplementary Medical Insurance, SMI, (otherwise known as Medicare Part B ">
TOTAL SOCIAL SECURITY BENEFITS PAID, BY YEAR
YEAR BENEFICIARIES DOLLARS
1937 53,236 $1,278,000
1938 213,670 $10,478,000
1939 174,839 $13,896,000
1940 222,488 $35,000,000
1950 3,477,243 $961,000,000
1960 14,844,589 $11,245,000,000
1970 26,228,629 $31,863,000,000
1980 35,584,955 $120,511,000,000
1990 39,832,125 $247,796,000,000
1995 43,387,259 $332,553,000,000
1996 43,736,836 $347,088,000,000
1997 43,971,086 $361,970,000,000
1998 44,245,731 $374,990,000,000
1999 44,595,624 $385,768,000,000
2000 45,414,794 $407,644,000,000
2001 45,877,506 $431,949,000,000
2002 46,444,317 $453,746,000,000
2003 47,038,486 $470,778,000,000
2004 47,687,693 $493,263,000,000
2005 48,434,436 $520,748,000,000
2006 49,122,624 $546,238,000,000
2007 49,864,838 $584,939,000,000
2008 50,898,244 $615,344,000,000
PRIMARY INSURANCE AMOUNT AND BENEFIT CALCULATIONS
Main article: Primary Insurance Amount
All workers paying
Federal Insurance Contributions Act ) and
SECA (Self Employed Contributions Act) taxes for forty quarters of
credit (QC) or more on a specified minimum income or more are "fully
insured" and eligible to retire at age 62 with reduced benefits and
higher benefits at full retirement ages, FRA, of 65, 66 or 67
depending on birth date.
To calculate a person's Average Indexed Monthly salary (AIME)
earnings, the records of their covered salaries may be obtained from
Social Security Administration
Benefit Calculations Social Security Benefits Vs. 35 year "averaged" Salary Percent of "AIME" Salary eligible for in Social Security, PIA, Benefits
AIME Salary per month Single Benefits Married Benefits* Single Benefits @ age 62 Married Benefits* @ age 62
$ 791 90% 135% 68% 101%
$ 1,000 78% 117% 58% 88%
$ 2,000 55% 82% 41% 62%
$ 3,000 47% 71% 35% 53%
$ 4,000 43% 65% 33% 49%
$ 5,000 40% 60% 30% 45%
$ 6,000 36% 54% 27% 41%
$ 7,000 33% 50% 25% 32%
$ 8,000 31% 46% 23% 35%
$ 9,000 29% 44% 22% 33%
$ 10,000 28% 42% 21% 31%
$ 11,000 23% 34% 17% 26%
$ 12,000 21% 32% 16% 24%
$ 13,000 19% 29% 15% 22%
* Married spousal benefits may be reduced or eliminated if spouse
receiving a government pension. Spouse still eligible for Medicare.
Maximum percent of salary received before Medicare or tax deductions.
To calculate the total benefits a retiree is eligible for, the average indexed monthly salary (AIME) is then divided into three separate salary brackets—each multiplied by a different benefit percentage. The benefits receivable (the so-called Primary Insurance Amount, PIA) are the sum of the salary in each bracket times the benefit percentages that apply to each bracket. The benefit percentages are set by Congress and so can easily change in the future. The bendpoints, where the brackets change, are adjusted for inflation each year by Social Security. For example, in 2013 the first bracket runs from $1 to $791/month and is multiplied by the benefit percentage of 90%, the second salary bracket extends from $791 to $4,781/month is multiplied by 32%, the third salary bracket of more than $4,781/month is multiplied by 15%. Any higher incomes than the ceiling income are not FICA covered and are not considered in the benefits calculation or in determining the average indexed monthly salary, AIME. At full retirement age the projected retirement income amount (PIA) is the sum of these three brackets of income multiplied by the appropriate benefit percentages—90%, 32% and 15%. Unlike income tax brackets, the Social Security benefits are heavily biased towards lower salaried workers. Social Security has always been primarily a retirement, disability and spousal insurance policy for low wage workers and a very poor retirement plan for higher salaried workers who hopefully have a supplemental retirement plan unless they want to live on significantly less after retirement than they used to earn.
Full retirement age spouses and divorced spouses (married over 10 years before divorce) are entitled to the higher of 50% of the wage earners benefits or their own earned benefits. A low salary worker and his full retirement age spouse making less than or equal to $791/month with 40 quarters of employment credit and at full retirement age (65 if born before 1938, 66 if born from 1938 to 1954 and 67 if born after 1960) could retire with 135% of his indexed average salary. A full retirement age worker and his full retirement age spouse making the ceiling income or more would be eligible for 43% of the ceiling FICA salary (29% if single) and even less if making more than the ceiling income.
During working years, the low wage worker is eligible for the Earned Income Tax Credit ( FICA refunds) and federal child credits and may pay little or no FICA tax or Income tax. By Congressional Budget Office (CBO) calculations the lowest income quintile (0–20%) and second quintile (21–40%) of households in the U.S. pay an average income tax of -9.3% and -2.6% and Social Security taxes of 8.3% and 7.9% respectively. By CBO calculations the household incomes in the first quintile and second quintile have an AVERAGE TOTAL FEDERAL TAX RATE of 1.0% and 3.8% respectively. Higher income retirees will have to pay income taxes on 85% of their Social Security benefits and 100% on all other retirement benefits they may have.
All workers paying
FICA and SECA taxes for forty quarters of credit
(QC) or more on a specified minimum income is "fully insured" and
eligible to retire at age 62 with reduced benefits. In general the
Social Security Administration
Similar computations based on career average adjusted earnings and age of recipient determine disability and survivor benefits. Federal, state and local employees who have elected (when they could) NOT to pay FICA taxes are eligible for a reduced FICA benefits and full Medicare coverage if they have more than forty quarters of qualifying Social Security covered work. To minimize the Social Security payments to those who have not contributed to FICA for 35+ years and are eligible for federal, state and local benefits, which are usually more generous, Congress passed the Windfall Elimination Provision, WEP. The WEP provision will not eliminate all Social Security or Medicare eligibility if the worker has 40 quarters of qualifying income, but calculates the benefit payments by reducing the 90% multiplier in the first salary bracket to 40–85% depending on age etc. The WEP provision rarely causes hardship since by and large the people affected are reasonably well off because by definition they also receive government pensions from noncovered work.
For those few cases where workers with very low earnings over a long working lifetime that were too low to receive full retirement credits and the recipients would receive a very small Social Security retirement benefit a "special minimum benefit" (special minimum PIA) provides a "minimum" of $804 per month in Social Security benefits in 2013. To be eligible the recipient along with their auxiliaries and survivors must have very low assets and not be eligible for other retirement system benefits. About 75,000 people in 2013 receive this benefit.
The benefits someone is eligible for are potentially so complicated that potential retirees should consult the Social Security Administration directly for advice. Many questions are addressed and at least partially answered on many online publications and online calculators. Main article: Retirement Insurance Benefits
ONLINE SOCIAL SECURITY BENEFITS ESTIMATE
On July 22, 2008, the
Social Security Administration
NORMAL RETIREMENT AGE
The earliest age at which (reduced) benefits are payable is 62. Full retirement benefits depend on a retiree's year of birth.
YEAR OF BIRTH NORMAL RETIREMENT AGE
1937 and prior 65
1938 65 and 2 months
1939 65 and 4 months
1940 65 and 6 months
1941 65 and 8 months
1942 65 and 10 months
1943 to 1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 and later 67
This table was copied in November 2011 from the Social Security Administration web site cited above and referenced in the footnotes. There are different rules for widows and widowers. Also from that site, come the following two notes: Notes: 1. Persons born on January 1 of any year should refer to the normal retirement age for the previous year. 2. For the purpose of determining benefit reductions for early retirement, widows and widowers whose entitlement is based on having attained age 60 should add 2 years to the year of birth shown in the table.
Those born before 1938 have a normal retirement age of 65. Normal retirement age increases by two months for each ensuing year of birth until 1943, when it reaches 66 and stays at 66 until 1955. Thereafter the normal retirement age increases again by two months for each year until 1960, when normal retirement age is 67 and remains 67 for all individuals born thereafter.
A worker who starts benefits before normal retirement age has their benefit reduced based on the number of months before normal retirement age they start benefits. This reduction is 5/9 of 1% for each month up to 36 and then 5/12 of 1% for each additional month. This formula gives an 80% benefit at age 62 for a worker with a normal retirement age of 65, a 75% benefit at age 62 for a worker with a normal retirement age of 66, and a 70% benefit at age 62 for a worker with a normal retirement age of 67. The 2008–2012 global recession has resulted in an increase in long-term unemployment and an increase in workers taking early retirement .
A worker who delays starting retirement benefits past normal retirement age earns delayed retirement credits that increase their benefit until they reach age 70. These credits are also applied to their widow(er)'s benefit. Children and spouse benefits are not affected by these credits.
The normal retirement age for widow(er) benefits shifts the year-of-birth schedule upward by two years, so that those widow(er)s born before 1940 have age 65 as their normal retirement age.
SPOUSE\'S BENEFIT AND GOVERNMENT PENSION OFFSETS
The spousal retirement benefit is one-half the PIA benefit amount of their spouse or their own earned benefits, whichever is higher, if they both retire at "normal" retirement ages. Only after the working spouse applies for retirement benefits may the non-working spouse apply for spousal retirement benefits. The spousal benefit is the PIA times an "early-retirement factor" if the spouse is younger than the "normal" full retirement age. The EARLY-RETIREMENT FACTOR is 50% minus 25/36 of 1% per month for the first 36 months and 5/12 of 1% for each additional month earlier than the "normal" full retirement date. This typically works out to between 50% and 32.5% of the primary workers PIA benefit. There is no increase for starting spousal benefits after normal retirement age. This can occur if there is a married couple in which the younger person is the only worker and is more than 5 years younger. Any current spouse is eligible, and divorced or former spouses are eligible for spousal benefits if the marriage lasted for at least 10 years. It is arithmetically possible for one worker to generate spousal benefits for up to five of his/her spouses that he/she may have, each must be in succession after a proper divorce for each after a marriage that lasted at least ten years each.
The spousal survivor benefit is the full PIA benefit of the working spouse (reduced if the deceased was receiving a reduced benefit) or their own benefit, whichever is higher.
There is a SOCIAL SECURITY GOVERNMENT PENSION OFFSET that will
reduce or eliminate any spousal (or ex-spouse) or widow(er)'s benefits
if the spouse or widow(er) is also receiving a government (federal,
state or local) pension that did not require paying Social Security
taxes. The basic "rule" is that Social Security benefits will be
reduced by 2/3's of the spouse or widow(er)'s non-
government pension. If the spouse's or widow(er)'s government
FICA paying) pension exceeds 150% of the "normal" spousal or
widow(er)'s benefit the spousal benefit is eliminated. For example, a
"normal" spousal or widow(er)'s benefit of $1,000/month would be
reduced to $0.00 if the spouse or widow(er)'s if already drawing a
FICA taxed government pension of $1,500/month or more per month.
The passage of the SENIOR CITIZENS\' FREEDOM TO WORK ACT, in 2000, allows the worker to earn unlimited outside income without offsets in the year after they reach full retirement. It also allows the spouse and children of a worker who has reached normal full retirement age to receive benefits under some circumstances while he/she does not. The full retirement age worker must have begun the receipt of benefits, to allow the spousal/children's benefits to begin, and then subsequently suspended their own benefits in order to continue the postponement of benefits in exchange for an increased benefit amount (5.5–8.0%/yr increase) up to the age of 70. Thus a worker can delay retirement up to age seventy without affecting spousal or children's benefits.
DELAYED SOCIAL SECURITY BENEFITS
Delayed Social Security Increases for retiring after full retirement age
Year of birth Yearly % increase Monthly % increase
1933–34 5.5% 11/24 OF 1%
1935–36 6.0% 1/2 OF 1%
1937–38 6.5% 13/24 OF 1%
1939–40 7.0% 7/12 OF 1%
1941–42 7.5% 5/8 OF 1%
1943+ 8.0% 2/3 OF 1%
If a worker delays receiving Social Security retirement benefits until after they reach full retirement age there is a Social Security benefits increase by a certain percentage—depending on date of birth. After age 70 there are no more increases in retirement benefits allowed. Social Security uses an "average" survival rate at your full retirement age to prorate the increase in the amount of benefit increase so that the total benefits are roughly the same whenever you retire. Women may benefit more than men from this delayed benefit increase since the "average" survival rates are based on both men and women and women live approximately three years longer than men. The other consideration is that workers only have a limited number of years of "good" health left after they reach full retirement age and unless they enjoy their job they may be passing up an opportunity to do something else they may enjoy doing while they are still relatively healthy.
SOCIAL SECURITY BENEFITS WHILE CONTINUING WORK
Due to changing needs or personal preferences, a person may go back to work after retiring. In this case, it is possible to get Social Security retirement or survivors benefits and work at the same time. A worker who is of full retirement age or older may (with spouse) keep all benefits, after taxes, regardless of earnings. But, if this worker or the worker's spouse are younger than full retirement age and receiving benefits and earn "too much", the benefits will be reduced. If working under full retirement age for the entire year and receiving benefits, Social Security deducts $1 from the worker's benefit payments for every $2 earned above the annual limit of $15,120 (2013). Deductions cease when the benefits have been reduced to zero and the worker will get one more year of income and age credit, slightly increasing future benefits at retirement. For example, if you were receiving benefits of $1,230/month (the average benefit paid) or $14,760 a year and have an income of $29,520/year above the $15,120 limit ($44,640/year) you would lose all ($14,760) of your benefits. If you made $1,000 more than $15,200/year you would "only lose" $500 in benefits. You would get no benefits for the months you work until the $1 deduction for $2 income "squeeze" is satisfied. Your first social security check will be delayed for several months—the first check may only be a fraction of the "full" amount. The benefit deductions change in the year you reach full retirement age and are still working—Social Security only deducts $1 in benefits for every $3 you earn above $40,080 in 2013 for that year and has no deduction thereafter. The income limits change (presumably for inflation) year by year.
If a worker covered by Social Security dies, a surviving spouse can receive survivors' benefits. In some instances, survivors' benefits are available even to a divorced spouse. A father or mother with minor or disabled children in his or her care can receive benefits which are not actuarially reduced. The earliest age for a non-disabled widow(er)'s benefit is age 60. The benefit is equal to the worker's basic retirement benefit (PIA) (reduced if the deceased was receiving reduced benefits) for spouses who are at, or older than, normal retirement age. If the surviving spouse starts benefits before normal retirement age, there is an actuarial reduction. If the worker earned delayed retirement credits by waiting to start benefits after their normal retirement age, the surviving spouse will have those credits applied to their benefit.
Children of a retired, disabled or deceased worker receive benefits as a "dependent" or "survivor" if they are under the age of 18, or as long as attending primary or secondary school up to age 19 years, 2 months; or are over the age of 18 and were disabled before the age of 22.
In Astrue v. Capato (2012), the Supreme Court unanimously held that children conceived after a parent's death (by in vitro fertilization procedure) are not entitled to Social Security survivors' benefits if the laws of the state in which the parent's will was signed do not provide for such benefits.
This article NEEDS ADDITIONAL CITATIONS FOR VERIFICATION . Please help improve this article by adding citations to reliable sources . Unsourced material may be challenged and removed. (November 2007) (Learn how and when to remove this template message )
A worker who has worked long enough and recently enough (based on "quarters of coverage" within the recent past) to be covered can receive disability benefits. These benefits start after five full calendar months of disability, regardless of his or her age. The eligibility formula requires a certain number of credits (based on earnings) to have been earned overall, and a certain number within the ten years immediately preceding the disability, but with more-lenient provisions for younger workers who become disabled before having had a chance to compile a long earnings history.
The worker must be unable to continue in his or her previous job and unable to adjust to other work, with age, education, and work experience taken into account; furthermore, the disability must be long-term, lasting 12 months, expected to last 12 months, resulting in death, or expected to result in death. As with the retirement benefit, the amount of the disability benefit payable depends on the worker's age and record of covered earnings.
Supplemental Security Income (SSI) uses the same disability criteria as the insured social security disability program, but SSI is not based upon insurance coverage. Instead, a system of means-testing is used to determine whether the claimants' income and net worth fall below certain income and asset thresholds.
Severely disabled children may qualify for SSI. Standards for child disability are different from those for adults.
Disability determination at the
Social Security Administration
Reconsideration involves a re-examination of the evidence and, in some cases, the opportunity for a hearing before a (non-attorney ) disability hearing officer. The hearing officer then issues a decision in writing, providing justification for his/her finding. If the claimant is denied at the reconsideration stage, (s)he may request a hearing before an Administrative Law Judge. In some states, SSA has implemented a pilot program that eliminates the reconsideration step and allows claimants to appeal an initial denial directly to an Administrative Law Judge.
Because the number of applications for Social Security disability is very large (approximately 650,000 applications per year), the number of hearings requested by claimants often exceeds the capacity of Administrative Law Judges. The number of hearings requested and availability of Administrative Law Judges varies geographically across the United States. In some areas of the country, it is possible for a claimant to have a hearing with an Administrative Law Judge within 90 days of his/her request. In other areas, waiting times of 18 months are not uncommon.
After the hearing, the
Administrative Law Judge (ALJ) issues a
decision in writing. The decision can be Fully Favorable (the ALJ
finds the claimant disabled as of the date that (s) he alleges in the
application through the present), Partially Favorable (the ALJ finds
the claimant disabled at some point, but not as of the date alleged in
the application; OR the ALJ finds that the claimant was disabled but
has improved), or Unfavorable (the ALJ finds that the claimant was not
disabled at all). Claimants can appeal decisions to Social Security's
Appeals Council, which is in
If the claimant disagrees with the Appeals Council's decision, (s)he
can appeal the case in the federal district court for his/her
jurisdiction. As in most federal court cases, an unfavorable district
court decision can be appealed to the appropriate
Social Security Administration
JOINING AND QUITTING
Social Security number for a child is voluntary.
Further, there is no general legal requirement that individuals join
the Social Security program unless they want or have to work. Under
FICA taxes or SECA taxes will be collected on
all wages. About the only way to avoid paying either
FICA or SECA
taxes are to join a religion that does not believe in insurance, such
It is possible for railroad employees to get a "coordinated"
retirement and disability benefits. The U.S. Railroad
FICA taxes are imposed on nearly all workers and self-employed
persons. Employers are required to report wages for covered
employment to Social Security for processing Forms W-2 and W-3. Some
specific wages are not part of the Social Security program (discussed
Internal Revenue Code
Main article: Social Security Trust Fund
Social Security taxes are paid into the Social Security Trust Fund maintained by the U.S. Treasury (technically, the "Federal Old-Age and Survivors Insurance Trust Fund", as established by 42 U.S.C. § 401(a)). Current year expenses are paid from current Social Security tax revenues. When revenues exceed expenditures, as they did between 1983 and 2009, the excess is invested in special series, non-marketable U.S. government bonds . Thus, the Social Security Trust Fund indirectly finances the federal government's general purpose deficit spending . In 2007, the cumulative excess of Social Security taxes and interest received over benefits paid out stood at $2.2 trillion. Some regard the Trust Fund as an accounting construct with no economic significance. Others argue that it has specific legal significance because the Treasury securities it holds are backed by the "full faith and credit" of the U.S. government, which has an obligation to repay its debt.
The Social Security Administration's authority to make benefit payments as granted by Congress extends only to its current revenues and existing Trust Fund balance, i.e., redemption of its holdings of Treasury securities. Therefore, Social Security's ability to make full payments once annual benefits exceed revenues depends in part on the federal government's ability to make good on the bonds that it has issued to the Social Security trust funds. As with any other federal obligation, the federal government's ability to repay Social Security is based on its power to tax and borrow and the commitment of Congress to meet its obligations.
In 2009 the Office of the Chief Actuary of the Social Security Administration calculated an unfunded obligation of $15.1 trillion for the Social Security program. The unfunded obligation is the difference between the future cost of Social Security (based on several demographic assumptions such as mortality, work force participation, immigration, and age expectancy) and total assets in the Trust Fund given the expected contribution rate through the current scheduled payroll tax. This unfunded obligation is expressed in present value dollars and is a part of the Fund's long-range actuarial estimates, not necessarily a certainty of what will occur in the long run. An Actuarial Note to the calculation says that "The term obligation is used in lieu of the term liability, because liability generally indicates a contractual obligation (as in the case of private pensions and insurance) that cannot be altered by the plan sponsor without the agreement of the plan participants."
OFFICE OF DISABILITY ADJUDICATION AND REVIEW (ODAR)
The Office of Disability Adjudication and Review (ODAR), known before 2006 as the Office of Hearings and Appeals (OHA), administers the hearings and appeals program for the Social Security Administration (SSA). Administrative Law Judges (ALJs) conduct hearings and issue decisions. The Appeals Council considers appeals from hearing decisions, and acts as the final level of administrative review for the Social Security Administration.
SOCIAL SECURITY BENEFIT PAYOUT COMPARISONS
Some federal, state, local and education government employees pay no
Social Security but have their own retirement, disability systems that
nearly always pay much better retirement and disability benefits than
Social Security. These plans typically requires vesting—working for
5–10 years for the same employer before becoming eligible for
retirement. But their retirement typically only depends on the average
of the best 3–10 years salaries times some retirement factor
(typically 0.875%-3.0%) times years employed. This retirement benefit
can be a "reasonably good" (75–85% of salary) retirement at close to
the monthly salary they were last employed at. For example, if a
person joined the University of California retirement system at age 25
and worked for 35 years they could receive 87.5% (2.5% × 35) of their
average highest three year salary with full medical coverage at age
60. Police and firemen who joined at 25 and worked for 30 years could
receive 90% (3.0% × 30) of their average salary and full medical
coverage at age 55. These retirements have cost of living adjustments
(COLA) applied each year but are limited to a maximum average income
of $350,000/year or less. Spousal survivor benefits are available at
100–67% of the primary benefits rate for 8.7% to 6.7% reduction in
retirement benefits, respectively. UCRP retirement and disability
plan benefits are funded by contributions from both members and the
university (typically 5% of salary each) and by the compounded
investment earnings of the accumulated totals. These contributions and
earnings are held in a trust fund that is invested. The retirement
benefits are much more generous than Social Security but are believed
to be actuarially sound. The main difference between state and local
government sponsored retirement systems and Social Security is that
the state and local retirement systems use compounded investments that
are usually heavily weighted in the stock market securities—which
historically have returned more than 7.0%/year on average despite some
years with losses. Short term federal government investments may be
"more" secure but pay much lower average percentages. Nearly all other
federal, state and local retirement systems work in a similar fashion
with different benefit retirement ratios. Some plans are now combined
with Social Security and are "piggy backed" on top of Social Security
benefits. For example, the current Federal Employees
The current Social Security formula used in calculating the benefit level (primary insurance amount or PIA) is progressive vis-à-vis lower average salaries. Anyone who worked in OASDI covered employment and other retirement would be entitled to both the alternative non-OASDI pension and an Old Age retirement benefit from Social Security. Because of their limited time working in OASDI covered employment the sum of their covered salaries times inflation factor divided by 420 months yields a low adjusted indexed monthly salary over 35 years, AIME. The progressive nature of the PIA formula would in effect allow these workers to also get a slightly higher Social Security Benefit percentage on this low average salary. Congress passed in 1983 the Windfall Elimination Provision to minimize Social Security benefits for these recipients. The basic provision is that the first salary bracket, $0–791/month (2013) has its normal benefit percentage of 90% reduced to 40–90%—see Social Security for the exact percentage. The reduction is limited to roughly 50% of what you would be eligible for if you had always worked under OASDI taxes. The 90% benefit percentage factor is not reduced if you have 30 or more years of "substantial" earnings.
The average Social Security payment of $1,230/month ($14,760/year) in 2013 is only slightly above the federal poverty level for one—$11,420/yr and below the poverty guideline of $15,500/yr for two.
For this reason, financial advisers often encourage those who have the option to do so to supplement their Social Security contributions with private retirement plans. One "good" supplemental retirement plan option is an employer-sponsored 401(K) (or 403(B)) plan when they are offered by an employer. 58% of American workers have access to such plans. Many of these employers will match a portion of an employee's savings dollar-for-dollar up to a certain percentage of the employee's salary. Even without employer matches, individual retirement accounts (IRAs) are portable, self-directed, tax-deferred retirement accounts that offer the potential to substantially increase retirement savings. Their limitations include: the financial literacy to tell a "good" investment account from a less advantageous one; the savings barrier faced by those who are in low-wage employment or burdened by debt; the requirement of self-discipline to allot from an early age the required percentage of salary into "good" investment account(s); and the self–discipline needed to leave it there to earn compound interest until needed after retirement. Financial advisers often suggest that long-term investment horizons should be used, as historically short-term investment losses "self correct", and most investments continue to deliver good average investment returns. The IRS has tax penalties for withdrawals from IRAs, 401(K)s, etc. before the age of 59½, and requires mandatory withdrawals once the retiree reaches 70; other restrictions may also apply on the amount of tax-deferred income one can put in the account(s). For people who have access to them, self-directed retirement savings plans have the potential to match or even exceed the benefits earned by federal, state and local government retirement plans.
People sometimes relocate from one country to another, either
permanently or on a limited-time basis. This presents challenges to
businesses, governments, and individuals seeking to ensure future
benefits or having to deal with taxation authorities in multiple
countries. To that end, the
Social Security Administration
Overall, these agreements serve two main purposes. First, they eliminate dual Social Security taxation, the situation that occurs when a worker from one country works in another country and is required to pay Social Security taxes to both countries on the same earnings. Second, the agreements help fill gaps in benefit protection for workers who have divided their careers between the United States and another country.
The following countries have signed totalization agreements with the SSA (and the date the agreement became effective):
SOCIAL SECURITY NUMBER
Main article: Social Security number
A side effect of the Social Security program in the
Social Security Act itself does not require a person to
have a Social Security Number (SSN) to live and work in the United
Internal Revenue Code
Importantly, most parents apply for Social Security numbers for their dependent children in order to include them on their income tax returns as a dependent. Everyone filing a tax return, as taxpayer or spouse, must have a Social Security Number or Taxpayer Identification Number (TIN) since the IRS is unable to process returns or post payments for anyone without an SSN or TIN.
The Privacy Act of 1974 was in part intended to limit usage of the Social Security number as a means of identification. Paragraph (1) of subsection (a) of section 7 of the Privacy Act, an uncodified provision, states in part: (1) It shall be unlawful for any Federal, State or local government agency to deny to any individual any right, benefit, or privilege provided by law because of such individual's refusal to disclose his social security account number.
Social Security Act provides: It is the policy of the
Further, paragraph (2) of subsection (a) of section 7 of the Privacy Act provides in part: (2) the provisions of paragraph (1) of this subsection shall not apply with respect to – (A) any disclosure which is required by Federal statute, or (B) the disclosure of a social security number to any Federal, State, or local agency maintaining a system of records in existence and operating before January 1, 1975, if such disclosure was required under statute or regulation adopted prior to such date to verify the identity of an individual.
The exceptions under section 7 of the Privacy Act include the
Internal Revenue Code
DEMOGRAPHIC AND REVENUE PROJECTIONS
In each year since 1982, OASDI tax receipts, interest payments and other income have exceeded benefit payments and other expenditures, for example by more than $150 billion in 2004. As the "baby boomers " move out of the work force and into retirement, however, expenses will come to exceed tax receipts and then, after several more years, will exceed all OASDI trust income, including interest. At that point the system will begin drawing on its trust fund Treasury Notes, and will continue to pay benefits at the current levels until the Trust Fund is exhausted. In 2013, the OASDI retirement insurance fund collected $731.1 billion and spent $645.5 billion; the disability program (DI) collected $109.1 billion and spent $140.3 billion; Medicare (HI) collected $243.0 and spent $266.8 billion and Supplementary Medical Insurance, SMI, collected $293.9 billion and spent $307.4 billion. In 2013 all Social Security programs except the retirement trust fund (OASDI) spent more than they brought in and relied on significant withdrawals from their respective trust funds to pay their bills. The retirement (OASDI) trust fund of $2,541 billion is expected to be emptied by 2033 by one estimate as new retirees become eligible to join. The disability (DI) trust fund's $153.9 billion will be exhausted by 2018; the Medicare (HI) trust fund of $244.2 billion will be exhausted by 2023 and the Supplemental Medical Insurance (SMI) trust fund will be exhausted by 2020 if the present rate of withdrawals continues—even sooner if they increase. The total "Social Security" expenditures in 2013 were $1,360 billion dollars, which was 8.4% of the $16,200 billion GNP (2013) and 37.0% of the federal expenditures of $3,684 billion (including a $971.0 billion deficit). All other parts of the Social Security program: medicare (HI), disability (DI) and Supplemental Medical (SMI) trust funds are already drawing down their trust funds and are projected to go into deficit in about 2020 if the present rate of withdrawals continue. As the trust funds are exhausted either benefits will have to be cut, fraud minimized or taxes increased. According to the Center for Economic and Policy Research , upward redistribution of income is responsible for about 43% of the projected Social Security shortfall over the next 75 years.
In 2005, this exhaustion of the OASDI Trust Fund was projected to
occur in 2041 by the
Social Security Administration
Annual cost exceeded non-interest income in 2010 and is projected to continue to be larger throughout the remainder of the 75-year valuation period. Nevertheless, from 2010 through 2022, total trust fund income, including interest income, is more than is necessary to cover costs, so trust fund assets will continue to grow during that time period. Beginning in 2023, trust fund assets will diminish until they become exhausted in 2036. Non-interest income is projected to be sufficient to support expenditures at a level of 77 percent of scheduled benefits after trust fund exhaustion in 2036, and then to decline to 74 percent of scheduled benefits in 2085.
In 2007, the Social Security Trustees suggested that either the payroll tax could increase to 16.41 percent in 2041 and steadily increased to 17.60 percent in 2081 or a cut in benefits by 25 percent in 2041 and steadily increased to an overall cut of 30 percent in 2081.
Social Security Administration
Tables published by the government's National Center for Health Statistics show that life expectancy at birth was 47.3 years in 1900, rose to 68.2 by 1950 and reached 77.3 in 2002. The latest annual report of the Social Security Agency (SSA) trustees projects that life expectancy will increase just six years in the next seven decades, to 83 in 2075. A separate set of projections, by the Census Bureau , shows more rapid growth. The Census Bureau projection is that the longer life spans projected for 2075 by the Social Security Administration will be reached in 2050. Other experts, however, think that the past gains in life expectancy cannot be repeated, and add that the adverse effect on the system's finances may be partly offset if health improvements or reduced retirement benefits induce people to stay in the workforce longer.
Actuarial science, of the kind used to project the future solvency of social security, is by nature subject to uncertainty. The SSA actually makes three predictions: optimistic, midline, and pessimistic (until the late 1980s it made 4 projections). The Social Security crisis that was developing prior to the 1983 reforms resulted from midline projections that turned out to be too optimistic. It has been argued that the overly pessimistic projections of the mid to late 1990s were partly the result of the low economic growth (according to actuary David Langer) assumptions that resulted in pushing back the projected exhaustion date (from 2028 to 2042) with each successive Trustee's report. During the heavy-boom years of the 1990s, the midline projections were too pessimistic. Obviously, projecting out 75 years is a significant challenge and, as such, the actual situation might be much better or much worse than predicted.
The Social Security Advisory Board has on three occasions since 1999 appointed a Technical Advisory Panel to review the methods and assumptions used in the annual projections for the Social Security trust funds. The most recent report of the Technical Advisory Panel, released in June 2008 with a copyright date of October 2007, includes a number of recommendations for improving the Social Security projections.
As of December 2013 , under current law, the Congressional Budget Office reported that the "Disability Insurance trust fund will be exhausted in fiscal year 2017 and the Old-Age and Survivors Insurance trust fund will be exhausted in 2033".
Increased spending for Social Security will occur at the same time as increases in Medicare , as a result of the aging of the baby boomers. One projection illustrates the relationship between the two programs:
From 2004 to 2030, the combined spending on Social Security and Medicare is expected to rise from 8% of national income (gross domestic product) to 13%. Two-thirds of the increase occurs in Medicare.
Ways To Eliminate The Projected Social Security Shortfall
Demonstrator with sign, "Hands Off Our Social Security", Rally
in Senate Park,
Social Security is predicted to start running out of having enough money to pay all prospective retirees at today's benefit payouts by 2033.
* LIFT THE PAYROLL CEILING. The payroll ceiling is now adjusted for
TAX ON WAGES AND SELF-EMPLOYMENT INCOME
Benefits are funded by taxes imposed on wages of employees and self-employed persons. As explained below, in the case of employment, the employer and employee are each responsible for one half of the Social Security tax, with the employee's half being withheld from the employee's pay check. In the case of self-employed persons (i.e., independent contractors), the self-employed person is responsible for the entire amount of Social Security tax.
The portion of taxes collected from the employee for Social Security are referred to as "trust fund taxes" and the employer is required to remit them to the government. These taxes take priority over everything, and represent the only debts of a corporation or LLC that can impose personal liability upon its officers or managers. A sole proprietor and officers of a corporation and managers of an LLC can be held personally liable for non-payment of the income tax and social security taxes whether or not actually collected from the employee.
Federal Insurance Contributions Act (FICA) (codified in the
Internal Revenue Code
A separate payroll tax of 1.45% of an employee's income is paid directly by the employer, and an additional 1.45% deducted from the employee's paycheck, yielding a total tax rate of 2.90%. There is no maximum limit on this portion of the tax. This portion of the tax is used to fund the Medicare program, which is primarily responsible for providing health benefits to retirees.
Social Security tax rates from 1937–2010 can be accessed on the
Social Security Administration
The combined tax rate of these two federal programs is 15.30% (7.65% paid by the employee and 7.65% paid by the employer). In 2011-2012 it temporarily dropped to 13.30% (5.65% paid by the employee and 7.65% paid by the employer).
For self-employed workers (who technically are not employees and are deemed not to be earning "wages" for federal tax purposes), the self-employment tax, imposed by the Self-Employment Contributions Act of 1954, codified as Chapter 2 of Subtitle A of the Internal Revenue Code , 26 U.S.C. §§ 1401–1403, is 15.3% of "net earnings from self-employment." In essence, a self-employed individual pays both the employee and employer share of the tax, although half of the self-employment tax (the "employer share") is deductible when calculating the individual's federal income tax.
If an employee has overpaid payroll taxes by having more than one job or switching jobs during the year, the excess taxes will be refunded when the employee files his federal income tax return . Any excess taxes paid by employers, however, are not refundable to the employers.
Wages Not Subject To Tax
Workers are not required to pay Social Security taxes on wages from certain types of work:
* Wages received by certain state or local government workers participating in their employers' alternative retirement system. * Net annual earnings from self-employment of less than $400. * Wages received for service as an election worker, if less than $1,400 a year (in 2008). * Wages received for working as a household employee, if less than $1,700 per year (in 2009–2010). * Wages received by college students working under Federal Work Study programs, graduate students receiving stipends while working as teaching assistants , research assistants , or on fellowships , and most postdoctoral researchers . Eliminated starting January 2011. * Earnings received for serving as a minister (or for similar religious service) if the person has a conscientious objection to public insurance because of personal religious considerations.
FEDERAL INCOME TAXATION OF BENEFITS
Originally the benefits received by retirees were not taxed as income. Beginning in tax year 1984, with the Reagan -era reforms to repair the system's projected insolvency, retirees with incomes over $25,000 (in the case of married persons filing separately who did not live with the spouse at any time during the year, and for persons filing as "single"), or with combined incomes over $32,000 (if married filing jointly) or, in certain cases, any income amount (if married filing separately from the spouse in a year in which the taxpayer lived with the spouse at any time) generally saw part of the retiree benefits subject to federal income tax. In 1984, the portion of the benefits potentially subject to tax was 50%. The Deficit Reduction Act of 1993 set the portion to 85%.
CLAIM THAT IT DISCRIMINATES AGAINST THE POOR AND THE MIDDLE CLASS
Workers must pay 12.4 percent, including a 6.2 percent employer contribution, on their wages below the Social Security Wage Base ($110,100 in 2012), but no tax on income in excess of this amount. Therefore, high earners pay a lower percentage of their total income because of the income caps; because of this, and the fact there is no tax on unearned income, social security taxes are often viewed as being regressive . However, benefits are adjusted to be significantly more progressive, even when accounting for differences in life expectancy. According to the non-partisan Congressional Budget Office, for people in the bottom fifth of the earnings distribution, the ratio of benefits to taxes is almost three times as high as it is for those in the top fifth. For people in the bottom fifth of the earnings distribution, the ratio of benefits to taxes is almost three times as high as it is for those in the top fifth.
Despite its regressive tax formula, Social Security benefits are calculated using a progressive benefit formula that replaces a much higher percentage of low-income workers' pre-retirement income than that of higher-income workers (although these low-income workers pay a higher percentage of their pre-retirement income). Supporters of the current system also point to numerous studies that show that, relative to high-income workers, Social Security disability and survivor benefits paid on behalf of low-income workers more than offset any retirement benefits that may be lost because of shorter life expectancy (this offset would only apply at a population level). Other research asserts that survivor benefits, allegedly an offset, actually exacerbate the problem because survivor benefits are denied to single individuals, including widow(er)s married fewer than nine months (except in certain situations), divorced widow(er)s married fewer than 10 years, and co-habiting or same-sex couples, unless they are legally married in their state of residence. Unmarried individuals and minorities tend to be less wealthy.
Social Security's benefit formula provides 90% of average indexed
monthly earnings (AIME) below the first "bend point" of $791/month,
32% of AIME between the first and second bend points $791 to
$4781/month, and 15% of AIME in excess of the second bend point up to
the Ceiling cap of $113,700 in 2013. The low income bias of the
benefit calculation means that lower paid worker receives a much
higher percentage of his or her salary in benefit payments than higher
paid workers. Indeed, a married low salaried worker can receive over
100% of their salary in benefits after retiring at the full retirement
age. High-salaried workers receive 43% or less of their salary in
benefits despite having paid into the "system" at the same rate—(see
benefit calculations above.) To minimize the impact of Social Security
taxes on low salaried workers the Earned Income Tax Credit" and the
Social Security Act defines the rules for determining marital
relationships for SSI recipients. The act requires that if a man and a
woman are found to be "holding out"—that is, presenting themselves
to the community as husband and wife—they should be considered
married for purposes of the SSI program. Consequently, if the
claimant is found disabled and found to be "holding out"; this
claimant will be entitled of reduced or no SSI benefits. However, the
Social Security Act does not accept that a claimant "holding out as
husband or wife" should be entitled of Survivor,
CLAIM THAT POLITICIANS EXEMPTED THEMSELVES FROM THE TAX
Critics of Social Security have said that the politicians who created Social Security exempted themselves from having to pay the Social Security tax. When the federal government created Social Security, all federal employees, including the president and members of Congress, were exempt from having to pay the Social Security tax, and they received no Social Security benefits. This law was changed by the Social Security Amendments of 1983, which brought within the Social Security system all members of Congress, the president and the vice president, federal judges, and certain executive-level political appointees, as well as all federal employees hired in any capacity on or after January 1, 1984. Many state and local government workers, however, are exempt from Social Security taxes because they contribute instead to alternative retirement systems set up by their employers.
CLAIM THAT THE GOVERNMENT LIED ABOUT THE MAXIMUM TAX
George Mason University economics professor Walter E. Williams claimed that the federal government has broken its own promise regarding the maximum Social Security tax. Williams used data from the federal government to back up his claim.
According to a 1936 pamphlet on the Social Security website, the federal government promised the following maximum level of taxation for Social Security, "... beginning in 1949, twelve 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."
However, according to the Social Security website, by the year 2008, the tax rate was 6.2% each for the employer and employee, and the maximum income level that was subject to the tax was $102,000 raising the bar to $6,324 maximum contribution by both employee and employer (total $12,648).
In 2005, Dr. Williams wrote, "Had Congress lived up to those promises, where $3,000 was the maximum earnings subject to Social Security tax, controlling for inflation, today's $50,000-a-year wage earner would pay about $700 in Social Security taxes, as opposed to the more than $3,000 that he pays today."
According to the Social Security website, "The tax rate in the original 1935 law was 1% each on the employer and the employee, on the first $3,000 of earnings. This rate was increased on a regular schedule in four steps so that by 1949 the rate would be 3% each on the first $3,000. The figure was never $1,400, and the rate was never fixed for all time at 1%."
CLAIM THAT IT GIVES A LOW RATE OF RETURN
Critics of Social Security claim that it gives a low rate of return, compared to what is obtained through private retirement accounts. For example, critics point out that under the Social Security laws as they existed at that time, several thousand employees of Galveston County, Texas were allowed to opt out of the Social Security program in the early 1980s, and have their money placed in a private retirement plan instead. While employees who earned $50,000 per year would have collected $1,302 per month in Social Security benefits, the private plan paid them $6,843 per month. While employees who earned $20,000 per year would have collected $775 per month in Social Security benefits, the private plan paid them $2,740 per month, at interest rates prevailing in 1996. While some advocates of privatization of Social Security point to the Galveston pension plan as a model for Social Security reform, critics point to a GAO report to the House Ways and Means Committee, which indicates that, for low and middle income employees, particularly those with shorter work histories, the outcome may be less favorable.
This claim also discounts the fact that investment in private markets is not risk-free and private investments can and often do lose value. A person whose investments fail for whatever reason may lose everything they invest and enter their retirement years penniless. Therefore, advocates argue, Social Security plays an important role by providing every American worker a guaranteed minimum level of retirement income that cannot be lost to market fluctuations, disappear through business failures or be stolen by fraudulent investment schemes.
CLAIM THAT IT IS A PONZI SCHEME
Critics have drawn parallels between Social Security and Ponzi schemes , e.g.:
...the vast majority of the money you pay in Social Security taxes is not invested in anything. Instead, the money you pay into the system is used to pay benefits to those "early investors" who are retired today. When you retire, you will have to rely on the next generation of workers behind you to pay the taxes that will finance your benefits.
As with Ponzi's scheme, this turns out to be a very good deal for those who got in early. The very first Social Security recipient, Ida Mae Fuller of Vermont, paid just $44 in Social Security taxes, but the long-lived Mrs. Fuller collected $20,993 in benefits. Such high returns were possible because there were many workers paying into the system and only a few retirees taking benefits out of it. In 1950, for instance, there were 16 workers supporting every retiree. Today, there are just over three. By around 2030, we will be down to just two. As with Ponzi's scheme, when the number of new contributors dries up, it will become impossible to continue to pay the promised benefits. Those early windfall returns are long gone. When today's young workers retire, they will receive returns far below what private investments could provide. Many will be lucky to break even. — Michael Tanner
One criticism of the analogy is that while Ponzi schemes and Social Security have similar structures (in particular, a sustainability problem when the number of new people paying in is declining), they have different transparencies. In the case of a Ponzi scheme, the fact that there is no return-generating mechanism other than contributions from new entrants is obscured whereas Social Security payouts have always been openly underwritten by incoming tax revenue and the interest on the Treasury bonds held by or for the Social Security system. The sudden loss of confidence resulting in a collapse of a conventional Ponzi scheme when the scheme's true nature is revealed is unlikely to occur in the case of the Social Security system. Private sector Ponzi schemes are also vulnerable to collapse because they cannot compel new entrants, whereas participation in the Social Security program is a condition for joining the U.S. labor force. In connection with these and other issues, Robert E. Wright calls Social Security a "quasi" pyramid scheme in his book, Fubarnomics.
ESTIMATED NET SOCIAL SECURITY BENEFITS UNDER DIFFERING CIRCUMSTANCES
Single men with different wages and retirement dates
In 2004, Urban Institute economists C. Eugene Steuerle and Adam Carasso created a Web-based Social Security benefits calculator. Using this calculator it is possible to estimate net Social Security benefits (i.e., estimated lifetime benefits minus estimated lifetime FICA taxes paid) for different types of recipients. In the book Democrats and Republicans – Rhetoric and Reality Joseph Fried used the calculator to create graphical depictions of the estimated net benefits of men and women who were at different wage levels, single and married (with stay-at-home spouses), and retiring in different years. These graphs vividly show that generalizations about Social Security benefits may be of little predictive value for any given worker, due to the wide disparity of net benefits for people at different income levels and in different demographic groups. For example, the graph below (Figure 168) shows the impact of wage level and retirement date on a male worker. As income goes up, net benefits get smaller – even negative. Impact of gender and wage levels on net SS benefits
However, the impact is much greater for the future retiree (in 2045) than for the current retiree (2005). The male earning $95,000 per year and retiring in 2045 is estimated to lose over $200,000 by participating in the Social Security system.
In the next graph (Figure 165) the depicted net benefits are averaged for people turning age 65 anytime during the years 2005 through 2045. (In other words, the disparities shown are not related to retirement.) However, we do see the impact of gender and wage level. Because women tend to live longer, they generally collect Social Security benefits for a longer time. As a result, they get a higher net benefit, on average, no matter what the wage level. Net lifetime SS benefits of married men and women where only one person works
The next image (Figure 166) shows estimated net benefits for married men and women at different wage levels. In this particular scenario it is assumed that the spouse has little or no earnings and, thus, will be entitled to collect a spousal retirement benefit. According to Fried:
Two significant factors are evident: First, every column in Figure 166 depicts a net benefit that is higher than any column in Figure 165. In other words, the average married person (with a stay-at-home spouse) gets a greater benefit per FICA tax dollar paid than does the average single person – no matter what the gender or wage level. Second, there is only limited progressivity among married workers with stay-at-home spouses. Review Figure 166 carefully: The net benefits drop as the wage levels increase from $50,000 to $95,000; however, they increase as the wage levels grow from $5,000 to $50,000. In fact, net benefits are lowest for those earning just $5,000 per year.
The last graph shown (Figure 167) is a combination of Figures 165 and 166. In this graph it is very clear why generalizations about the value of Social Security benefits are meaningless. At the $95,000 wage level a married person could be a big winner – getting net benefits of about $165,000. On the other hand, he could lose an estimated $152,000 in net benefits if he remains single. Altogether, there is a "swing" of over $300,000 based upon the marriage decision (and the division of earnings between the spouses). In addition there is a large disparity between the high net benefits of the married person earning $95,000 ($165,152) versus the relatively low net benefits of the man or woman earning just $5,000 ($30,025 or $41,890, depending on gender). In other words, the high earner, in this scenario, gets a far greater return on his FICA tax investment than does the low earner. Comparison of net SS benefits
In the book How Social Security Picks Your Pocket other factors affecting Social Security net benefits are identified: Generally, people who work for more than 35 years get a lower net benefit – all other factors being equal. People who do not live long after retirement age get a much lower net benefit. Finally, people who derive a high percentage of income from non-wage sources get high Social Security net benefits because they appear to be poor, when they are not. The progressive benefit formula for Social Security is blind to the income a worker may have from non-wage sources, such as spousal support, dividends and interest, or rental income.
Main article: Social Security debate (United States)
Proposals to reform of the Social Security system have led to heated debate, centering on funding of the program. In particular, proposals to privatize funding have caused great controversy.
CONTRAST WITH PRIVATE PENSIONS
Although Social Security is sometimes compared to private pensions , the two systems are different in a number of respects. It has been argued that Social Security is an insurance plan as opposed to a retirement plan. Unlike a pension, for example, Social Security pays disability benefits. A private pension fund accumulates the money paid into it, eventually using those reserves to pay pensions to the workers who contributed to the fund; and a private system is not universal. Social Security cannot "prefund" by investing in marketable assets such as equities, because federal law prohibits it from investing in assets other than those backed by the U.S. government. As a result, its investments to date have been limited to special non-negotiable securities issued by the U.S. Treasury, although some argue that debt issued by the Federal National Mortgage Association and other quasi-governmental organizations could meet legal standards. Social Security cannot by law invest in private equities, although some other countries (such as Canada) and some states permit their pension funds to invest in private equities. As a universal system, Social Security generally operates as a pipeline, through which current tax receipts from workers are used to pay current benefits to retirees, survivors, and the disabled. When there is an excess of taxes withheld over benefits paid, by law this excess is invested in Treasury securities (not in private equities) as described above.
Two broad categories of private pension plans are "defined benefit
pension plans" and "defined contribution pension plans." Of these two,
Social Security is more similar to a defined benefit pension plan. In
a defined benefit pension plan, the benefits ultimately received are
based on some sort of pre-determined formula (such as one based on
years worked and highest salary earned). Defined benefit pension plans
generally do not include separate accounts for each participant. By
contrast, in a defined contribution pension plan each participant has
a specific account with funds put into that account (by the employer
or the participant, or both), and the ultimate benefit is based on the
amount in that account at the time of retirement. Some have proposed
that the Social Security system be modified to provide for the option
of individual accounts (in effect, to make the system, at least in
part, more like a defined contribution pension plan). Specifically, on
February 2, 2005, President
George W. Bush
Both "defined benefit" and "defined contribution" private pension
plans are governed by the Employee
CONTRAST WITH INSURANCE
Besides the argument over whether the returns on Social Security contributions should or can be compared to returns on private investment instruments, there is the question of whether the contributions are nonetheless analogous to pooled insurance premiums charged by for-profit commercial insurance companies to maintain and generate a return on a "risk pool of funds". Like any insurance program, Social Security "spreads risk" as the program protects workers and covered family members against loss of income from the wage earner's retirement, disability, or death. For example, a worker who becomes disabled at a young age could receive a large return relative to the amount they contributed in FICA before becoming disabled, since disability benefits can continue for life. As in private insurance plans, everyone in the particular insurance pool is insured against the same risks, but not everyone will benefit to the same extent.
The analogy to insurance, however, is limited by the fact that paying FICA taxes creates no legal right to benefits and by the extent to which Social Security is, in fact, funded by FICA taxes. During 2011 and 2012, for example, FICA tax revenue was insufficient to maintain Social Security's solvency without transfers from general revenues. These transfers added to the general budget deficit like general program spending.
PRIVATE RETIREMENT SAVINGS CRISIS
While inflation -adjusted stock market values generally rose from 1978 to 1997, from 1998 through 2007 they were higher than in March 2013. This has caused workers' supplemental retirement plans such as 401(k)s to perform substantially more poorly than expected when current retirees were investing the bulk of their savings in them. In 2010, the median household retirement account balance for workers aged 55 to 64 was $120,000, which will provide only a trivial supplement to Social Security benefits, but about a third of households had no retirement savings at all. 75% of Americans nearing retirement age had less than $30,000 in their retirement accounts, which Forbes called "the greatest retirement crisis in American history."
COURT INTERPRETATION OF THE ACT TO PROVIDE BENEFITS
The constitutionality of Social Security is intricately linked to the
evolving nature of Supreme Court jurisprudence on federal power (the
20th century saw a dramatic increase in allowed congressional action).
When Social Security was first passed, there were significant
questions over its constitutionality as the Court had found another
pension scheme, the original Railroad
In the 1937 U.S. Supreme Court case of Helvering v. Davis , the Court examined the constitutionality of Social Security when George Davis of the Edison Electric Illuminating Company of Boston sued in connection with the Social Security tax. The U.S. District Court for the District of Massachusetts first upheld the tax. The District Court judgment was reversed by the Circuit Court of Appeals. Commissioner Guy Helvering of the Bureau of Internal Revenue (now the Internal Revenue Service) took the case to the Supreme Court, and the Court upheld the validity of the tax.
During the 1930s President
Franklin Delano Roosevelt
Helvering v. Davis was argued before the Court, the larger issue
of constitutionality of the old-age insurance portion of Social
Security was not decided. The case was limited to whether the payroll
tax was a suitable use of Congress's taxing power. Despite this, no
serious challenges regarding the system's constitutionality are now
being litigated, and Congress's spending power may be more
coextensive, as shown in cases like
South Dakota v. Dole
PAYMENTS TO FORMER NAZIS
THIS SECTION NEEDS EXPANSION. You can help by adding to it . (June 2015)
In June 2015, the
FRAUD AND ABUSE
SOCIAL SECURITY NUMBER THEFT
Because Social Security Numbers have become useful in identity theft and other forms of crime , various schemes have been perpetrated to acquire valid Social Security Numbers and related identity information.
In February 2006, the
Social Security Administration
Once directed to the phony website, the individual is reportedly asked to confirm his or her identity with "Social Security and bank information." Specific information about the individual's credit card number, expiration date and PIN is then requested. "Whether on our online website or by phone, Social Security will never ask you for your credit card information or your PIN," Commissioner Jo Anne B. Barnhart reported.
Social Security Administration
FRAUD IN THE ACQUISITION AND USE OF BENEFITS
Given the vast size of the program, fraud occurs. The Social Security
Administration has its own investigatory group , Continuing Disability
Investigations (CDI). In addition, the Social Security Administration
may request investigatory assistance from other federal law
enforcement agencies including the Office of the Inspector General and
RESTRICTIONS ON POTENTIALLY DECEPTIVE COMMUNICATIONS
Because of the importance of Social Security to millions of Americans, many direct-mail marketers packaged their mailings to resemble official communications from the Social Security Administration, hoping that recipients would be more likely to open them. In response, Congress amended the Social Security Act in 1988 to prohibit the private use of the phrase "Social Security" and several related terms in any way that would convey a false impression of approval from the Social Security Administration. The constitutionality of this law (42 U.S.C. § 1140) was upheld in United Seniors Association, Inc. v. Social Security Administration, 423 F.3d 397 (4th Cir. 2005), cert den 547 U.S. 1162; 126 S.Ct. 2346 (2006) (text at Findlaw).
Social Security - Ratio of Covered Workers to Retirees
The 2011 annual report by the program's Board of Trustees noted the following: in 2010, 54 million people were receiving Social Security benefits, while 157 million people were paying into the fund; of those receiving benefits, 44 million were receiving retirement benefits and 10 million disability benefits. In 2011, there will be 56 million beneficiaries and 158 million workers paying in. In 2010, total income was $781.1 billion and expenditures were $712.5 billion, which meant a total net increase in assets of $68.6 billion. Assets in 2010 were $2.6 trillion, an amount that is expected to be adequate to cover the next 10 years. In 2023, total income and interest earned on assets are projected to no longer cover expenditures for Social Security, as demographic shifts burden the system. By 2035, the ratio of potential retirees to working age persons will be 37 percent—there will be less than three potential income earners for every retiree in the population. At this rate the Social Security Trust Fund would be exhausted by 2036.
Social Security affects the saving behavior of the people in three different ways. The wealth SUBSTITUTION EFFECT occurs when a person saving for retirement recognizes that the Social Security system will take care of him and decreases his expectations about how much he needs to personally save. The RETIREMENT EFFECT occurs when a taxpayer saves more each year in an effort to reduce the total number of years he must work to accumulate enough savings before retirement. The BEQUEST EFFECT occurs when a taxpayer recognizes a decrease in resources stemming from the Social Security tax and compensates by increasing personal savings to cover future expected costs of having children.
REDUCING COST OF LIVING ADJUSTMENT (COLA)
At present, a retiree's benefit is annually adjusted for inflation to reflect changes in the consumer price index . Some economists argue that the consumer price index overestimates price increases in the economy and therefore is not a suitable metric for adjusting benefits, while others argue that the CPI underestimates the effect of inflation on what retired people actually need to buy to live.
The current cost of living adjustment is based on the consumer price index for Urban Wage Earners and Clerical Workers (CPI-W) . The Bureau of Labor Statistics routinely checks the prices of 211 different categories of consumption items in 38 geographical areas to compute 8,018 item-area indices. Many other indices are computed as weighted averages of these base indices. CPI-W is based on a market basket of goods and services consumed by urban wage earners and clerical workers. The weights for that index are updated in January of every even-numbered year. People who say that the CPI-W overestimates inflation recommend updating the weights each month; this produces the Chained Consumer Price Index for all urban consumers (C-CPI-U) . People who say that the C-CPI-U disadvantages the elderly point out that seniors consume more medical care than younger people, and that the costs of medical care have been rising faster than inflation in other parts of the economy. According to this view, the costs of the things the elderly buy have been rising faster than the market basket averaged to obtain CPI-W, CPI-U or C-CPI-U. Some have recommended fixing this by using a CPI for the Elderly (CPI-E) .
In 2003 economics researchers Hobijn and Lagakos estimated that the social security trust fund would run out of money in 40 years using CPI-W and in 35 years using CPI-E.
According to a 2016 study in the American Economic Journal: Macroeconomics , the Social Security benefit increases from 1952 to 1991 have a "large, immediate, and significant positive response of consumption".
* Government of the
List of Social Security lawsuits
Federal Emergency Relief Administration
Carolyn W. Colvin , Acting Commissioner (2013–present)
Michael J. Astrue , Commissioner (2007–2013)
Health savings account
Individual retirement account
* National Organization of Social Security Claimants\'
Richardson v. Perales
* ^ Social Security Administration, Social Insurance Programs,
retrieved November 1, 2016.
Social Security Act of 1935 "Legislative History 1935 Social
Security Act". Retrieved November 8, 2006.
* ^ "US Code—Title 42—The Public Health and Welfare". Archived
from the original on October 12, 2006. Retrieved November 8, 2006.
* ^ "42 USC 401, Trust Funds". Retrieved November 8, 2006. four
* ^ Morton, William R.; Liou, Wayne (September 12, 2017). Social
Security: The Trust Funds (PDF). Washington, DC: Congressional
Research Service. Retrieved 16 October 2017.
* ^ A B
* ^ "How Medicare is funded". medicare.gov. Retrieved 1 September
* ^ A B The 2012 Long-Term Projections for Social Security
Congressional Budget Office
* Achenbaum, Andrew (1986). Social Security Visions and Revisions.
* Feldstein, Martin; Jeffrey Liebman (editors) (2002). The
Distributional Aspects of Social Security and Social Security Reform.
University of Chicago
* Altman, Nancy; Kingson, Eric; Johnston, David Cay (2015). Social
Security Works!: Why Social Security Isn't Going Broke and How
Expanding It Will
Help Us All.
The New Press . ISBN 1620970376
* "Community of Minds: Working Together – The $44 Trillion Abyss
– 2003 Fortune Magazine". Retrieved December 3, 2005.
* "Social Security Suicide". Retrieved December 3, 2005.
* Brown, Jeffrey R.; Liebman, Jeffrey B.; Wise, David A. (2009).
Social Security Policy in a Changing Environment. University of
Chicago Press . ISBN 978-0-226-07648-5 .
* "What Does Price Indexing Mean for Social Security Benefits?
(explanation of wage indexing versus price indexing)" (PDF). Center
* Social Security benefit calculators * Urban Institute\'s USA TODAY Lifetime Social Security and Medicare Benefits Calculator
* MORE INFORMATION
* Commission to Strengthen Social Security * Social Security Advisory Board * President\'s Commission to Strengthen Social Security * 75th Anniversary of Social Security at the Franklin D. Roosevelt Presidential Museum and Library * TimeLines of US SSI Numbers (Years Numbers States) * Social Security Death Index Information
* NBER paper, Internal Rate of Return, coauthored by Olivia
Mitchell, member of President's Commission to Strengthen Social
* Social Security: Major Decisions in the House and Senate Since
Congressional Research Service
* v * t * e
* History of Social Security
Social Security Administration
Disability Determination Services
Retirement Insurance Benefits
Social Security Disability Insurance
Supplemental Security Income
Temporary Assistance for Needy Families
Ticket to Work
Revenue Act of 1942
Social Security Act
Social Security Amendments of 1965
* v * t * e
CAUSES AND LEGACY
Emergency Banking Act
Agricultural Adjustment Act
SECOND NEW DEAL
Works Progress Administration
Franklin D. Roosevelt
* v * t * e
Contemporary social welfare programs in the
Supplemental Nutrition Assistance Program
Community Development Block Grant
* California * New York * Pu