How social security has changed over 80 years

How Does Social Security Really Work?

President Franklin D. Roosevelt signed the Social Security Act on Aug. 14, 1935. Regular monthly payments to retirees began in 1940 and have continued ever since. But there have been several important adjustments to the program, including changes in the retirement age and increases in benefits to keep up with inflation. Here's how the Social Security program has changed over 80 years.

Electronic payments. "When we first started 80 years ago, we were mostly providing face-to-face service," says Carolyn Colvin, acting commissioner of the Social Security. "Over the years we have moved to our 800 number, and we are gradually offering additional products online." Retirees can now sign up to receive Social Security payments online. "There is waiting time on the phone and wait time in the office. On the Internet it is immediate," Colvin says. The Social Security Administration no longer mails paper checks to most retirees. A 2013 law requires all beneficiaries to receive payments electronically via direct deposit to a bank account or loaded onto a prepaid debit card

Online statements. Workers can create an account​ to view their Social Security statement online, which includes their earnings history, taxes paid and a personalized estimate of their future Social Security benefit. "We introduced the earnings statement so people could check the accuracy of the statement before they retired," Colvin says. She recommends that workers sign in to check their statements once a year. Paper Social Security statements are mailed to most workers who don't opt into online statements about once every five years.

Automatic cost-of-living adjustments. Social Security payments were initially increased only by special acts of Congress. When payments began in 1940, workers received the same amount for 10 years until Congress decided to boost payments, and further increases were implemented on an ad hoc basis. "A lot of those increases occurred in election years," says John Palmer, a Syracuse University professor and former public trustee for the Medicare and Social Security programs. Congress passed a law in 1972 creating automatic cost-of-living adjustments to Social Security payments based on the annual increase in consumer prices. These annual increases in payments, which were first paid out in 1975, have ranged from zero in 2010 and 2011 to 14.3 percent in 1980.

Changes to the retirement age. The original age to claim Social Security payments was 65. A 1961 law allowed workers to begin claiming permanently reduced Social Security payments as early as age 62, but they still needed to wait until the full retirement age, 65, to receive the entire payment they qualified for. "Anytime from 62 on you could claim, but the benefit was reduced proportionally to how much earlier you did start to claim," Palmer says. "Now a majority of people opt to start claiming at 62." A 1983 law raised the full retirement age to 66 for most baby boomers and 67 for people born in 1960 or later and increased the reduction in monthly payments for people who sign up before their full retirement age. Provisions were also added to increase payments for retirees who delay claiming benefits past their full retirement age up until age 70.

Elimination of the earnings test. A 2000 law eliminated the earnings test for people at their full retirement age or older, meaning they can work and claim Social Security benefits at the same time without penalty. However, if you work after signing up for Social Security prior to your full retirement age, part of your payments will be temporarily withheld. Beneficiaries under age 66 can earn up to $15,720 in 2015, after which $1 in benefits is withheld for every $2 earned above the limit. Retirees who turn 66 in 2015 can earn $41,880 before one benefit dollar is withheld for each $3 earned above the limit. However, after you reach your full retirement age, there is no limit on earnings, and Social Security payments are recalculated to factor in the temporarily withheld benefits. "If you are 66 or older, now you can work full time and collect Social Security benefits," Palmer says. "It's meant to put much more emphases on work incentives for people to both be able to collect Social Security and still be able to work at least part time."

Taxation of benefits. Part of Social Security benefits became taxable for people who earn above a certain amount beginning in 1984. If the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefit exceeds $25,000 for individuals and $32,000 for couples, up to 50 percent of your Social Security benefit becomes subject to income tax. And if these sources of income top $34,000 for individuals and $44,000 for couples, 85 percent of your Social Security payments may be taxable. "The thresholds that are set up are not indexed to inflation, so more people will have some portion of their Social Security income be subject to taxation," Palmer says.

Addition of spousal and child payments. Amendments were made to the Social Security program in 1939 that added payments to the spouse and minor children of retired workers and benefits for survivors of prematurely deceased workers. Spouses continue to be eligible for up to 50 percent of the higher earner's benefit, if it's greater than the payments they are due based on their own work record. Dependent children under age 19 can also claim payments. "Participating in Social Security provides core protection for all of our children," says Eric Kingson, a professor of social work at Syracuse University. "It's life insurance, in effect."

Addition of disability payments. Disability payments for older workers were first added to the program in 1956. President Dwight D. Eisenhower signed a law in 1960 extending disability payments to workers of all ages and their dependents. Within a year, half a million people were receiving disability payments that averaged $80 per month. "Social Security is really the underpinning of economic security it the country," Colvin says. "It was a security program designed to help people in periods of transition."

Tax rate. The original Social Security contribution rate was 1 percent of pay, which was matched by employers. The tax rate grew to 1.5 percent in 1950 and gradually increased to top 5 percent by 1978. The current tax rate of 6.2 percent has been in effect since 1990. However, some workers don't pay Social Security taxes on all of their income. The Social Security tax applied only to earnings of $3,000 or less in 1950 and earlier. The tax cap has increased over time to $51,300 in 1990 and $118,500 in 2015. Earnings above this amount are not subject to the Social Security payroll tax or factored into benefit payouts.

Payouts. The first monthly retirement check was paid to Ida May Fuller of Ludlow, Vermont, in 1940 for $22.54. The average monthly payment for retired workers has since climbed to $1,335 in June 2015.

Copyright 2015 U.S. News & World Report

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