Transcript Social Security Past, Present, and Future Preston Sockwell David Sidden

Social Security
Past, Present, and Future
Preston Sockwell
David Sidden
Lee Biggerstaff
Matt Aldridge
Ryan Helton
History of Social Security
Why did a government managed social
security system become necessary?
 When most families lived on farms, extended family
provided economic security to offset the uncertainties
that accompany illness, disability, unemployment, death,
and old age.
 With the beginning of the Industrial Revolution,
Americans left the family farms and moved to the cities
with their immediate (nuclear) families and became
wage-earners, crippling the traditional approach to
economic security.
 Then came the Great Depression which damaged the
nations economic life, further decreasing elderly
individuals’ economic security triggering action on a
Social Security system in the US.
The Birth of Social Security
 In the late 19th century (way before the Great
Depression) the new idea for solving this new problem of
economic insecurity came from Europe. They called it
social insurance.
 Social insurance – basic needs of citizens of a nation are met by
pools of funds managed by the government (eventually called
“Social Security” in America).
 First nation to adopt social insurance was Germany in 1889.
 34 European nations had social security programs before the
US.
 FDR signed the Social Security Act on August 14, 1935.
 First taxes collected and some lump some payments
made in 1937
 Regular ongoing monthly benefits started in 1940
The Social Security Act
 The 1935 law contained
 a retirement benefits system for the primary
worker (changed in 1939 to include survivors benefits and benefits
for the retiree’s spouse and children, and disability benefits were added
in 1956).
 the first national unemployment compensation
program.
 aid to the states for various health and welfare
programs.
 the Aid to Dependent Children program.
Interesting Social Security Facts
 The groups of numbers of your Social Security number
do have meaning
 The first three digits are assigned according to where you lived
when you got your number (generally assigned beginning in the
northeast and moving westward).
 The remaining six digits are randomly assigned.
 From November of 1936 (when social security numbers
were first issued) to now over 400 million different
numbers have been used.
 From 1937 to 99 the Social Security program paid out
over $5.896 trillion in benefits. Also, the medicare
program paid over $2.514 trillion in medical expenses
between 1966 and 99.
Timeline
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01/37—First applications for benefits filed.
03/11/37—First Social Security benefits paid (one-time payment only).
08/10/39—The Social Security Amendments of 1939 broadened the program to
include dependents and survivors benefits.
01/31/40—Ida May Fuller became the first person to receive an old-age monthly
benefit check.
11/19/45—In a special message to Congress, President Truman proposed a
comprehensive, prepaid medical insurance plan for all people through the Social
Security system which became a reality nearly 20 years later.
07/16/46—The Social Security Board was abolished and the Social Security
Administration was established.
06/30/61—The Social Security Amendments of 1961 were signed by President John
Kennedy, permitting all workers to elect reduced retirement at age 62.
07/30/65—President Lyndon B. Johnson signed the Medicare Bill in the presence of
former President Truman who proposed this legislation in his message to Congress in
1945.
10/30/72—Social Security Amendments of 1972 signed into law by President Nixon -creating the Supplemental Security Income (SSI) program.
Social Security Now
Requirements for Social
Security Benefits
An individual must:
 be at least 62 years old
 have worked
 have paid social security taxes
 have earned at least 40 credits (10 years
of work)
 apply.
Disability Benefits
 An individual must be disabled (unable to
engage in substantial gainful activity),
earned a minimum number of credits from
work covered under SS and apply.
 Generally, you need 20 credits earned in
the last 10 years, ending with the year you
became disabled.
Survivors Requirements
 When a person dies, certain members
of the family may be eligible for
survivors’ benefits if the deceased
worked, paid SS taxes, and earned
enough credits. The number of credits
a person needs depends on their age at
the time of death. The younger a person
is , the fewer credits are needed to be
eligible for survivors’ benefits.
Spouse Requirements
 A former spouse can receive benefits
under the same circumstances as a
widow/widower if the marriage lasted 10
years or more. Benefits paid to a surviving
divorced spouse will not affect the benefit
rates for other survivors receiving benefits.
Applying for Benefits
 You must apply for them using special
forms. You may also have to provide
several documents, including your SS
card, birth certificate, and proof of U.S.
citizenship, if you weren’t born in this
country.
Checking Your Benefit Amount
 Most Americans receive a SS statement
every year.
 This statement lists the amount of money
you have contributed each year to SS.
 Make sure you’re getting full credit for the
years you worked. It’s important to correct
any mistakes, so you will receive all your
benefits.
Do I have to pay income tax on
my SS benefits?
 Some people who get SS benefits have to pay
income taxes on them. This will apply to you
only if you have other substantial income in
addition to your benefits (for example, wages,
self-employment, interest, dividends and other
taxable income that you have to report on your
tax return). No one pays taxes on more than 85
percent of his or her SS benefits and some pay
on a smaller amount, based on these IRS rules:
Individual
 - If you file a federal tax return as an
"individual" and your combined income* is
between $25,000 and $34,000, you may
have to pay income tax on 50 percent of
your SS benefits. If your combined income
is above $34,000, up to 85 percent of your
SS benefits is subject to income tax.
Joint Return
 - If you file a joint return, you may have to
pay taxes on 50 percent of your benefits if
you and your spouse have a combined
income* that is between $32,000 and
$44,000. If your combined income is more
than $44,000, up to 85 percent of your SS
benefits is subject to income tax.
File Separate Returns
 - If you are married and file a separate tax
return, you probably will pay taxes on your
benefits
Medicare Covers
 The medical expenses of almost all
persons age 65 and older.
 Disabled persons younger than age 65
who have been entitled to disability
benefits for at least 24 months.
 Persons younger than age 65 who need
long term kidney dialysis treatment or a
kidney transplant.
Medicare Consists Of ?
 Hospital Insurance (Part A)
 Supplementary Medical Insurance (Part B)
 Medicare + Choice
The Problem of Social
Security
How will Social Security be
Funded?
 In the 1940s-50s social security was
successful because there was a high
ratios of contributing workers to retired
individuals.
 Today the ratio has dropped considerably
from 16:1 to 3.4:1 and speculation suggest
the ratio will continue to drop in the future.
Why did the ratio drop?
 The reduction is a result of 2 factors
 1. Technology and manufacturing jobs
leaving the US have reduced the amount
of working, tax paying individuals.
 2. The population is living longer today
than when social security was conceived.
The increase in life expectancy has also
increased the amount of retired people
who require benefits.
 The reduction in jobs is causing a downward
push on the working class side of the ratio while
the increased life expectancy causes an upward
push on its side of the ratio.
 This ratio will continue to fall as the baby
boomer generation begins to retire
 If things continue as they are Social Security will
run out of funding in a a little more than a
decade.
Low Rates of Return
 Social Security has very low rates of return
 Low income workers receive 2.6%
 Average middle wage worker receives an
approximate return of 1.8%
 High wage earners receive a paltry 0.03%
These rates of return are significantly lower
than returns on other investment
opportunities.
 Raising taxes or reducing benefits could
solve the problem but rates of return will
diminish even further
Summary
 Social Security will fail due to the current
trends in tax payer base and the number
of citizens requiring benefits.
 The significantly low rates of return
suggest that Social Security is not the best
method to plan for retirement anymore.
 Reform will be a hot political topic for the
upcoming election and hopefully we can
get the program repaired.
Social Security’s Future
President’s Commission to
Strengthen Social Security
 Established May 2, 2001
 16 member bipartisan commission
 Preserve Social Security for seniors and build
wealth for younger Americans
 President set forth guidelines to modernize and
stabilize Social Security
Guiding Principles
 Modernization must not change Social Security benefits
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for retirees or near-retirees.
The entire Social Security surplus must be dedicated
only to Social Security.
Social Security payroll taxes must not be increased.
The government must not invest Social Security funds in
the stock market.
Modernization must preserve Social Security's disability
and survivors insurance programs.
Modernization must include individually controlled,
voluntary personal retirement accounts, which will
augment Social Security.
3 Reform Plans for Social Security
 The Commission released 3 plans to
reform and modernize Social Security
 All 3 feature personal accounts and they
all expect benefits equal or greater then
today’s benefits
Reform Model 1
 Creates voluntary personal account (up to
2% of taxable wages)
 Social Security benefits are offset by
contributions compounded at a rate 3.5%
above inflation
 No other changes to Social Security
Reform Model 2
 Creates voluntary personal account where
workers can redirect up to 4% of their
payroll taxes (up to 1000/year)
 Social Security benefits are offset by
contributions compounded at a rate 2%
above inflation
 Positive cash flows by the end of 2075
Reform Model 3
 Personal accounts are created by a match of
part of the payroll tax – 2.5 percent up to $1000
annually – for any worker who contributes an
additional 1 percent of wages subject to Social
Security payroll taxes.
 Social Security benefits are offset by
contributions compounded at a rate 2% above
inflation
 1% contribution subsidized by tax credit
United States Social Security
System vs. Japan’s