So, do you think the Social Security taxes that you currently pay go into a trust fund to pay you retirement income in the future? The answer to that question would be “no”.
In the next few blogs we’ll take a look at Social Security – the basics of how it works, and how it is funded (or not). We are only briefly discussing the major concepts regarding Social Security. The laws are complex – very complex, and changes are likely. Direct links are provided throughout this blog series to the Social Security Administration for further information and greater detail on a variety of topics.
Social Security Background
Hot on the heels of the Great Depression and stock market crash, the quest for economic security became increasingly elusive for many Americans. President Franklin D. Roosevelt in conjunction with Congress sought to increase the economic security of Americans, particularly in their retirement years. The Social Security Act was an attempt to do that – signed into law by President Roosevelt in 1935, it created a social insurance program designed to pay retired workers age 65 or older a continuing income after retirement.
Over the years the program has been tweaked and expanded. Key changes included: 1) the addition of a Social Security Disability Insurance program (SSDI) in 1954 under President Eisenhower which provided benefits to disabled workers and disabled adult children, 2) the addition of a medical insurance program for individuals 65 and older (Medicare) in 1964 under President Johnson, 3) the extension of benefits to lower-income and disabled Americans through Social Security Insurance (SSI) in the 1970s under President Nixon, and 4) in a response to funding concerns, changes under President Reagan that made Social Security payments subject to taxation and raised the retirement age for full benefits in the next century.
For more information and detail on the history of Social Security:
Social Security Administration (SSA): Social Security History
CBEI Blog Series: Social Security
Part 1: How it Works and How it is Funded (or not)
Part 2: Who Gets Benefits?
Part 3: How Are Programs Funded?
Part 4: Benefits – How Much Do You Get?
Part 5: Financial Status of Programs
Part 6: The Future
Kevin Bahr is a professor emeritus of finance and chief analyst of the Center for Business and Economic Insight in the Sentry School of Business and Economics at the University of Wisconsin-Stevens Point.