Social Security Past, Present, and Future Preston Sockwell Davidson Sidden Lee Biggerstaff Matt Aldridge Ryan Helton.

Social SecuritySocial SecurityPast, Present, and FuturePast, Present, and Future

Preston SockwellPreston SockwellDavidson SiddenDavidson SiddenLee BiggerstaffLee BiggerstaffMatt AldridgeMatt AldridgeRyan HeltonRyan Helton

History of Social SecurityHistory of Social Security

Why did a government managed social Why did a government managed social security system become necessary?security system become necessary?

Four changes occurred in America starting in the 1880s Four changes occurred in America starting in the 1880s causing new economic insecurity in some groups:causing new economic insecurity in some groups: The Industrial RevolutionThe Industrial Revolution The Urbanization of America (Mass movement to cities)The Urbanization of America (Mass movement to cities) The Disappearance of extended familyThe Disappearance of extended family Increased LongevityIncreased Longevity

Then the Great Depression of the 1930s made action Then the Great Depression of the 1930s made action from the Federal Government necessaryfrom the Federal Government necessary Neither the states nor the local communities nor private charities Neither the states nor the local communities nor private charities

had the financial resources to cope with the growing need had the financial resources to cope with the growing need among the American peopleamong the American people

The Setting for the Birth of The Setting for the Birth of Social SecuritySocial Security

By 1929, workers’ compensation laws were in effect in all but four By 1929, workers’ compensation laws were in effect in all but four states.states.

In the late 19In the late 19thth century (way before the Great Depression) the new century (way before the Great Depression) the new idea for solving this new problem of economic insecurity came from idea for solving this new problem of economic insecurity came from Europe. They called it Europe. They called it social insurancesocial insurance.. Social insurance – Social insurance – its basic features: its basic features:

the the insurance principleinsurance principle - a group of persons are "insured" in some way - a group of persons are "insured" in some way against a defined riskagainst a defined risk

a a social elementsocial element – usually means the program is shaped in part by broader – usually means the program is shaped in part by broader social objectives, rather than being shaped solely by the self-interest of the social objectives, rather than being shaped solely by the self-interest of the individual participants. individual participants.

First nation to adopt social insurance was Germany in 1889.First nation to adopt social insurance was Germany in 1889. 34 European nations had insurance programs before the US.34 European nations had insurance programs before the US.

Social insurance starts with workers compensation.Social insurance starts with workers compensation. A Federal law covering civilian employees of the Government in hazardous A Federal law covering civilian employees of the Government in hazardous

jobs was adopted in 1908.jobs was adopted in 1908.

The Social Security ActThe Social Security Act FDR signed the Social Security Act on August 14, 1935. The 1935 FDR signed the Social Security Act on August 14, 1935. The 1935

law contained:law contained: a retirement benefits system for the primary worker a retirement benefits system for the primary worker (changed in 1939 to include (changed in 1939 to include

survivors benefits and benefits for the retiree’s spouse and children, and disability benefits were added in survivors benefits and benefits for the retiree’s spouse and children, and disability benefits were added in 1956).1956).

the first national unemployment compensation program.the first national unemployment compensation program. aid to the states for various health and welfare programs.aid to the states for various health and welfare programs. the Aid to Dependent Children program.the Aid to Dependent Children program.

First taxes collected and some lump some payments made in 1937First taxes collected and some lump some payments made in 1937 Regular ongoing monthly benefits started in 1940Regular ongoing monthly benefits started in 1940 07/30/1965—President Lyndon B. Johnson signed the Medicare Bill 07/30/1965—President Lyndon B. Johnson signed the Medicare Bill

(as part of the Social Security Amendments of 1965) in the (as part of the Social Security Amendments of 1965) in the presence of former President Truman who proposed this legislation presence of former President Truman who proposed this legislation in his message to Congress in 1945.in his message to Congress in 1945.

Interesting Social Security FactsInteresting Social Security Facts

The groups of numbers of your Social Security number The groups of numbers of your Social Security number do have meaningdo have meaning The first three digits are assigned according to where you lived The first three digits are assigned according to where you lived

when you got your number (generally assigned beginning in the when you got your number (generally assigned beginning in the northeast and moving westward).northeast and moving westward).

The remaining six digits are randomly assigned.The remaining six digits are randomly assigned.

From November of 1936 (when social security numbers From November of 1936 (when social security numbers were first issued) to now over 400 million different were first issued) to now over 400 million different numbers have been used.numbers have been used.

From 1937 to 99 the Social Security program paid out From 1937 to 99 the Social Security program paid out over $5.896 trillion in benefits. Also, the medicare over $5.896 trillion in benefits. Also, the medicare program paid over $2.514 trillion in medical expenses program paid over $2.514 trillion in medical expenses between 1966 and 99.between 1966 and 99.

Social Security NowSocial Security Now

Requirements for Social Requirements for Social Security BenefitsSecurity Benefits

An individual must:An individual must: be at least 62 years oldbe at least 62 years old have workedhave worked have paid social security taxeshave paid social security taxes have earned at least 40 credits (10 years have earned at least 40 credits (10 years

of work)of work) apply.apply.

Disability BenefitsDisability Benefits

An individual must be disabled (unable to An individual must be disabled (unable to engage in substantial gainful activity), engage in substantial gainful activity), earned a minimum number of credits from earned a minimum number of credits from work covered under SS and apply.work covered under SS and apply.

Generally, you need 20 credits earned in Generally, you need 20 credits earned in the last 10 years, ending with the year you the last 10 years, ending with the year you became disabled.became disabled.

When a person dies, certain members When a person dies, certain members of the family may be eligible for of the family may be eligible for survivors’ benefits if the deceased survivors’ benefits if the deceased worked, paid SS taxes, and earned worked, paid SS taxes, and earned enough credits. The number of credits enough credits. The number of credits a person needs depends on their age at a person needs depends on their age at the time of death. The younger a person the time of death. The younger a person is , the fewer credits are needed to be is , the fewer credits are needed to be eligible for survivors’ benefits.eligible for survivors’ benefits.

Survivors RequirementsSurvivors Requirements

A former spouse can receive benefits A former spouse can receive benefits under the same circumstances as a under the same circumstances as a widow/widower if the marriage lasted 10 widow/widower if the marriage lasted 10 years or more. Benefits paid to a surviving years or more. Benefits paid to a surviving divorced spouse will not affect the benefit divorced spouse will not affect the benefit rates for other survivors receiving benefits.rates for other survivors receiving benefits.

Spouse RequirementsSpouse Requirements

Applying for BenefitsApplying for Benefits

You must apply for them using special You must apply for them using special forms. You may also have to provide forms. You may also have to provide several documents, including your SS several documents, including your SS card, birth certificate, and proof of U.S. card, birth certificate, and proof of U.S. citizenship, if you weren’t born in this citizenship, if you weren’t born in this country.country.

Checking Your Benefit AmountChecking Your Benefit Amount

Most Americans receive a SS statement Most Americans receive a SS statement every year.every year.

This statement lists the amount of money This statement lists the amount of money you have contributed each year to SS.you have contributed each year to SS.

Make sure you’re getting full credit for the Make sure you’re getting full credit for the years you worked. It’s important to correct years you worked. It’s important to correct any mistakes, so you will receive all your any mistakes, so you will receive all your benefits.benefits.

Do I have to pay income tax on Do I have to pay income tax on my SS benefits?my SS benefits?

Some people who get SS benefits have to pay Some people who get SS benefits have to pay income taxes on them. This will apply to you income taxes on them. This will apply to you only if you have other substantial income in only if you have other substantial income in addition to your benefits (for example, wages, addition to your benefits (for example, wages, self-employment, interest, dividends and other self-employment, interest, dividends and other taxable income that you have to report on your taxable income that you have to report on your tax return). No one pays taxes on more than 85 tax return). No one pays taxes on more than 85 percent of his or her SS benefits and some pay percent of his or her SS benefits and some pay on a smaller amount, based on these IRS rules:on a smaller amount, based on these IRS rules:

IndividualIndividual

- If you file a federal tax return as an - If you file a federal tax return as an "individual" and your combined income* is "individual" and your combined income* is between $25,000 and $34,000, you may between $25,000 and $34,000, you may have to pay income tax on 50 percent of have to pay income tax on 50 percent of your SS benefits. If your combined income your SS benefits. If your combined income is above $34,000, up to 85 percent of your is above $34,000, up to 85 percent of your SS benefits is subject to income tax.SS benefits is subject to income tax.

Joint ReturnJoint Return

- If you file a joint return, you may have to - If you file a joint return, you may have to pay taxes on 50 percent of your benefits if pay taxes on 50 percent of your benefits if you and your spouse have a combined you and your spouse have a combined income* that is between $32,000 and income* that is between $32,000 and $44,000. If your combined income is more $44,000. If your combined income is more than $44,000, up to 85 percent of your SS than $44,000, up to 85 percent of your SS benefits is subject to income tax.benefits is subject to income tax.

File Separate ReturnsFile Separate Returns

- If you are married and file a separate tax - If you are married and file a separate tax return, you probably will pay taxes on your return, you probably will pay taxes on your benefitsbenefits

Medicare CoversMedicare Covers

The medical expenses of almost all The medical expenses of almost all persons age 65 and older.persons age 65 and older.

Disabled persons younger than age 65 Disabled persons younger than age 65 who have been entitled to disability who have been entitled to disability benefits for at least 24 months.benefits for at least 24 months.

Persons younger than age 65 who need Persons younger than age 65 who need long term kidney dialysis treatment or a long term kidney dialysis treatment or a kidney transplant.kidney transplant.

Medicare Consists Of ?Medicare Consists Of ?

Hospital Insurance (Part A)Hospital Insurance (Part A) Supplementary Medical Insurance (Part B)Supplementary Medical Insurance (Part B) Medicare + ChoiceMedicare + Choice

The Problem of Social The Problem of Social SecuritySecurity

How will Social Security be How will Social Security be Funded?Funded?

In the 1940s-50s social security was In the 1940s-50s social security was successful because there was a high successful because there was a high ratios of contributing workers to retired ratios of contributing workers to retired individuals.individuals.

Today the ratio has dropped considerably Today the ratio has dropped considerably from 16:1 to 3.4:1 and speculation suggest from 16:1 to 3.4:1 and speculation suggest the ratio will continue to drop in the future.the ratio will continue to drop in the future.

Why did the ratio drop?Why did the ratio drop?

The reduction is a result of 2 factorsThe reduction is a result of 2 factors 1. Technology and manufacturing jobs 1. Technology and manufacturing jobs

leaving the US have reduced the amount leaving the US have reduced the amount of working, tax paying individuals.of working, tax paying individuals.

2. The population is living longer today 2. The population is living longer today than when social security was conceived. than when social security was conceived. The increase in life expectancy has also The increase in life expectancy has also increased the amount of retired people increased the amount of retired people who require benefits. who require benefits.

The reduction in jobs is causing a downward The reduction in jobs is causing a downward push on the working class side of the ratio while push on the working class side of the ratio while the increased life expectancy causes an upward the increased life expectancy causes an upward push on its side of the ratio. push on its side of the ratio.

This ratio will continue to fall as the baby boomer This ratio will continue to fall as the baby boomer generation begins to retiregeneration begins to retire

If things continue as they are Social Security will If things continue as they are Social Security will run out of funding in a a little more than a run out of funding in a a little more than a decade.decade.

Low Rates of ReturnLow Rates of Return

Social Security has very low rates of returnSocial Security has very low rates of return Low income workers receive 2.6%Low income workers receive 2.6% Average middle wage worker receives an Average middle wage worker receives an

approximate return of 1.8%approximate return of 1.8% High wage earners receive a paltry 0.03% 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 Raising taxes or reducing benefits could solve the problem but rates of return will solve the problem but rates of return will diminish even furtherdiminish even further

SummarySummary

Social Security will fail due to the current Social Security will fail due to the current trends in tax payer base and the number trends in tax payer base and the number of citizens requiring benefits.of citizens requiring benefits.

The significantly low rates of return The significantly low rates of return suggest that Social Security is not the best suggest that Social Security is not the best method to plan for retirement anymore.method to plan for retirement anymore.

Reform will be a hot political topic for the Reform will be a hot political topic for the upcoming election and hopefully we can upcoming election and hopefully we can get the program repaired.get the program repaired.

Social Security’s FutureSocial Security’s Future

President’s Commission to President’s Commission to Strengthen Social SecurityStrengthen Social Security

Established May 2, 2001Established May 2, 2001

16 member bipartisan commission16 member bipartisan commission

Preserve Social Security for seniors and build Preserve Social Security for seniors and build wealth for younger Americanswealth for younger Americans

President set forth guidelines to modernize and President set forth guidelines to modernize and stabilize Social Securitystabilize Social Security

Guiding Principles Guiding Principles

Modernization must not change Social Security benefits Modernization must not change Social Security benefits for retirees or near-retirees. for retirees or near-retirees.

The entire Social Security surplus must be dedicated The entire Social Security surplus must be dedicated only to Social Security. only to Social Security.

Social Security payroll taxes must not be increased. Social Security payroll taxes must not be increased. The government must not invest Social Security funds in The government must not invest Social Security funds in

the stock market. the stock market. Modernization must preserve Social Security's disability Modernization must preserve Social Security's disability

and survivors insurance programs. and survivors insurance programs. Modernization must include individually controlled, Modernization must include individually controlled,

voluntary personal retirement accounts, which will voluntary personal retirement accounts, which will augment Social Security. augment Social Security.

3 Reform Plans for Social Security3 Reform Plans for Social Security

The Commission released 3 plans to The Commission released 3 plans to reform and modernize Social Securityreform and modernize Social Security

All 3 feature personal accounts and they All 3 feature personal accounts and they all expect benefits equal or greater then all expect benefits equal or greater then today’s benefitstoday’s benefits

Reform Model 1Reform Model 1

Creates voluntary personal account (up to Creates voluntary personal account (up to 2% of taxable wages)2% of taxable wages)

Social Security benefits are offset by Social Security benefits are offset by contributions compounded at a rate 3.5% contributions compounded at a rate 3.5% above inflationabove inflation

No other changes to Social SecurityNo other changes to Social Security

Reform Model 2Reform Model 2

Creates voluntary personal account where Creates voluntary personal account where workers can redirect up to 4% of their workers can redirect up to 4% of their payroll taxes (up to 1000/year)payroll taxes (up to 1000/year)

Social Security benefits are offset by Social Security benefits are offset by contributions compounded at a rate 2% contributions compounded at a rate 2% above inflationabove inflation

Positive cash flows by the end of 2075Positive cash flows by the end of 2075

Reform Model 3Reform Model 3

Personal accounts are created by a match of Personal accounts are created by a match of part of the payroll tax – 2.5 percent up to $1000 part of the payroll tax – 2.5 percent up to $1000 annually – for any worker who contributes an annually – for any worker who contributes an additional 1 percent of wages subject to Social additional 1 percent of wages subject to Social Security payroll taxes.Security payroll taxes.

Social Security benefits are offset by Social Security benefits are offset by contributions compounded at a rate 2% above contributions compounded at a rate 2% above inflationinflation

1% contribution subsidized by tax credit1% contribution subsidized by tax credit

United States Social Security United States Social Security System vs. Japan’sSystem vs. Japan’s