Social Security

POLS 21: The American Political System

A Brief History of Social Security

• The Industrial Revolution • The urbanization of America • The disappearance of the “extended”

family • A marked increase in life expectancy

Beginning in the mid-19th century, four important demographic changes occurred that rendered the traditional system of economic security unworkable:

Male and Female Life Expectancy, 1900-2080

* Projection

How Does Social Security Work?

• Today, about 54 million Americans receive over $701 billion in Social Security benefits every year.

• The current age for full retirement benefits is 65, but that is being gradually increased to 67.

• Those benefits are paid for by over 140 million workers who are taxed at 7.65% of their earnings (the familiar FICA on your pay stub, which stands for the Federal Insurance Contributions Act), up to a maximum of $110,100 to fund the system.

How Much is a Social Security Benefit?

• How much time you spent in the workforce;

• How much money you made while working;

• Your age when you start receiving benefits;

The amount of a Social Security retirement benefit is based on several things:

An Impending Crisis?

• We are living longer and healthier lives.

• 76 million “Baby Boomers”—those born after World War II, between 1946 and 1964—will begin retiring beginning in the year 2010.

Key Dates

According to the Social Security Trustee’s Annual Report, here is a summary of key dates to keep in mind:

2010 Payroll taxes coming into Social Security were be insufficient to cover all promised benefits. The SSA began to draw on the interest earned by the Social Security Trust Fund to help pay full benefits.

2022 Incoming payroll taxes plus interest income from the Trust Fund will be insufficient to pay all benefits. The principal will be tapped.

2035 Principal will be exhausted, but revenues will cover a proportion of promised benefits.

Options for Reform

• Raise the payroll tax across the board, or just for the wealthy.

• Raise or eliminate the maximum amount of taxable earnings.

• Raise the age at which retirees become eligible for full benefits.

• Raise the rate of return by investing the trust fund more aggressively .

• Add to the trust fund by diverting funds from other areas.

• Privatize Social Security so that individual workers can contribute to (and manage) their own accounts.

• Grow the economy.

Which—if any—of these proposals is politically viable?

• Cut benefits across the board, or just for the wealthy.

Which—if any—of these proposals is politically viable?

Options for Reform

• Raise the payroll tax across the board, or just for the wealthy.

• Raise or eliminate the maximum amount of taxable earnings.

• Raise the age at which retirees become eligible for full benefits.

• Raise the rate of return by investing the trust fund more aggressively .

• Add to the trust fund by diverting funds from other areas.

• Privatize Social Security so that individual workers can contribute to (and manage) their own accounts.

• Grow the economy.

Which—if any—of these proposals is politically viable?

• Cut benefits across the board, or just for the wealthy.