Social Security was established in response to various radical ideas presented by individuals across America to deal with the growing amount of elderly living in poverty after the Great Depression. The Social Security Act was signed into law by President Franklin D. Roosevelt on August 14, 1935. In response to these concerns, political leaders usually gave one of the following three answers: (1) do nothing and wait for the effect of the Depression to end, (2) hope that individuals and charities would take care of the elderly living in poverty, or (3) expand welfare benefits for the elderly.
The Social Security Act created general welfare programs including Social Security as we know it today. The original purpose of Social Security was to pay retired workers who were ages 65 and older a continuing income after retirement. These benefits were based on payroll tax contributions that the worker made during life. Payroll taxes began to be collected in 1937, and Social Security payments started in 1940. These payments were not only made to retired workers, but also to their wives and children under 18.
From 1940 until 1950, the Social Security program changed very little. However, in 1950, various amendments were made to Social Security. The biggest of which was to provide a cost of living allowance to the monthly Social Security benefit, but this allowance needed to be periodically approved by Congress. Beginning in 1975, a change in the law provided an automatic cost of living increase to the monthly Social Security payments instead of having to wait for Congressional review. Throughout the years, the Social Security program was expanded to include a disability payment and developed a health insurance program we know as Medicare.
Currently, the earliest eligibility age for Social Security is 62. Full retirement age currently ranges from 65 to 67. A concern exists about the current Social Security program. As a result of the significant increase in the number of retired workers and the retirement of many baby boomers, the Social Security program is becoming financially unsustainable. Projections show that Social Security payments will exceed tax revenue this year, and this trend will continue. The trends show that by 2037, the amount of Social Security benefits will need to be reduced significantly.
Potential solutions are being discussed to resolve this Social Security dilemma. Current projections show that if there are no changes, Social Security benefits will need to be significantly reduced in 2037. One solution is to increase the earliest eligibility age to 64 instead of 62 and full retirement age to 69 and also reduce the way that the annual increases in Social Security payments are calculated. These increases in ages would occur by the year 2025. Proponents of this solution claim that if these changes are implemented, Social Security benefits would not need to be significantly reduced until the 2054.
Another proposal is to make those same changes to the early eligibility age as well as full retirement age of 64 and 69 by 2025 and also to reduce the annual increase allowance by .5% This would extend the date at which Social Security benefits would need to be reduced to 2069. If the annual increase allowance is reduced by 1%, projections show that Social Security benefits would not have to be reduced for almost 100 years from now.
Over the next decade, it definitely appears that changes are forthcoming to the Social Security system in order to preserve Social Security for retired workers.
NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.
James F. Contini II, Esq.
Certified Specialist in Estate Planning,
Trust & Probate Law by the OSBA
Krugliak, Wilkins, Griffiths & Dougherty Co., LPA
158 North Broadway
New Philadelphia, Ohio 44663