SOCIAL SECURITY

Social Security

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Social Security

Introduction

The Social Security Act was enacted in 1935. It has been amended and expanded on many times. The 1939 amendments, also known as the Federal Insurance Contributions Act (FICA), changed its funding arrangement, established trust funds and add benefits for survivors of deceased workers.

In 1940, the system paid its first monthly retirement benefit to the legendary Ida May Fuller. She had contributed a total of $24.75 to the system over 2½ years and collected $22,889 in benefits over the next 35 years.Her story demonstrates three important features about Social Security.

Development

In 1950, coverage was extended to the self-employed, farmers, clergy and most state and local government employees (on a voluntary basis). This was followed by the Self-Employment Contributions Act (SECA) in 1954, the counterpart to FICA for the self-employed. In 1956, Social Security was extended to active-duty military personnel. Disability benefits were added in 1957 and expanded on in 1960. Early retirement at age 62, with a reduced monthly benefit for life, was added in 1956 for women and 1961 for men. Medicare was added in 1965.

The 1983 amendments shaped the Social Security program as it is today. The program began running an annual surplus in 1984, which grew significantly over the years. The OASDI Trust Funds now have assets of more than $2.5 trillion, at least on paper. The trust fund ratio relates assets at the beginning of the year to the projected expenditures of that year. The 360 ratio projected for 2010 indicates that the trust funds can pay benefits for 3.6 years from existing reserves (Table 1).

Coverage Today

Roughly 156 million individuals, or 93% of those in paid employment and self-employment, were covered by OASDI in 2010.Those not covered include railroad employees, some older federal employees, about 25% of all state and local government employees, some low-income domestic and agricultural workers and some clergy and religious groups (Amish and Mennonites).

More than 53.4 million people received Social Security benefits in 2009. That is about one in every six Americans. They include 37.0 million retired workers and their family members, 6.4 million survivors of deceased workers, and 9.7 million disabled workers and their families (Table 2). About 91% of Americans aged 65 years and older receive benefits (Hahn, 2).

Social Security benefits make up 41% of the income of the elderly. Fifty-four percent of elderly married couples and 74% of unmarried individuals receive at least half their income from OASDI. Most striking, 21% of elderly married couples and 43% of unmarried elderly persons depend on Social Security for at least 90% of their income.

Retirement Benefits

Social Security is not a welfare program. Retirement benefits are a statutory right for any participant who has attained the age of 62 and has 40 credits (quarters of covered work). A participant must have earned at least $1,120 for a quarter to count as a credit as of 2010.

The workers' primary insurance amount is the monthly retirement benefit to which he or she is entitled ...