Old or young, new to your job or a 20-year veteran, you've heard of Social Security. But do you know why and how it was created and how it works today?
In 2015, Social Security turned 80 years old. The original Social Security Act was signed into law by President Franklin D. Roosevelt in 1935. At that time, the U.S. was just beginning to recover from the Great Depression.
Millions of people were still out of work, and there was alarming concern for the elderly and retired Americans who had lost everything. The Social Security program was intended to be—and still is today—a social insurance program. It's a government-run program providing economic security to U.S. citizens.
The 1935 Act provided for "old age," or retirement, benefits, aid to dependent children, disability insurance, and unemployment insurance. Payments were made in lump sums until 1940 when a monthly payment system was put into place. And, it was paid for by workers. Workers made contributions to a "trust fund" from their paychecks to pay for the retirement and other benefits they'd need in the future.
The Social Security Board (SSB) was created when the President signed the Act in 1935. It remained that way until 1946 when it was renamed the Social Security Administration (SSA).
Social Security Today
Over the years, the Act was changed or "amended" in several ways, but the basic principals are still the same. Under today's Social Security Act, the SSA still manages the program, workers still make contributions from their paychecks, and monthly payments are still made to those who are eligible for the following benefits.
- Retirement benefits. At age 66 or 67, workers who contributed to the trust fund may apply for payments to help with everyday living and expenses and to offset the loss of income from their jobs. You may retire at age 62, but payments are reduced if you collect benefits before age 67. The more money you make, the higher your retirement benefits will be.
- Survivors and death benefits. A worker's spouse and/or dependent children may receive monthly payments in certain circumstances. The SSA also pays a small lump-sum death benefit to surviving family members to help pay for funeral expenses.
- Disability benefits. Disability benefits are for workers who have paid into the trust fund for a certain amount of time, who have a serious mental or physical disability that interferes with their ability to work.
On the other hand, the Act now provides for Medicare, which provides health care benefits to those over 65 who have paid Medicare taxes for a certain number of years.
The Future of Social Security
According to the most recent report from SSA officials, the benefits paid out by the Social Security retirement program will be more than what's paid into the trust fund starting in 2020. The shortfall can be covered by money in the trust fund until the year 2035. After that, benefits will be reduced to 75%-80% of what's paid now, unless something is changed to increase the money going into the trust fund or to decrease the amounts being paid from the trust fund.
The disability insurance trust fund is in worse shape. It has been paying out more in benefits than it is bringing in through taxes. It was estimated to run out by the end of 2016, until Congress passed legislation in 2015 to temporarily shore up the fund for a few years. If more permanent reform doesn't take place soon, in a few years, the disability trust fund will be depleted and the SSA will be able to pay out only about 75%-80% of current disability benefits.