Primer on Social Security
Entitlement reform. Everyone seems to think that it’s inevitable, now that the elections are over.
Two big targets of reform are programs that serve seniors: Medicare and Social Security.
In a new tip sheet, Bob Rosenblatt, one of the most experienced aging reporters around, explains the ins and outs of the Social Security and how essential it is, financially, to many older adults. Without Social Security, large numbers of seniors would be poor and unable to afford healthcare bills, as well as other expenses.
As Rosenblatt explains, the cost of benefits provided through Social Security will start exceeding funds that come into the program from payroll taxes in 2021. A dozen years later, in 2033, surpluses that Social Security has accumulated will be exhausted and benefits will have to be reduced by as much as 27 percent. That is, unless partisan gridlock in Washington eases and President Obama and Congress act to avert this scenario, which would be devastating to seniors.
Rosenblatt’s tip sheet gives the background needed to understand why Social Security is at a crossroads, as well as numerous resources and story ideas for reporters on the aging beat. Also, you’ll learn details about how benefits are calculated that sheds light on why many older women find themselves unexpectedly impoverished after divorce or the death of a spouse.
As for Medicare, we’ll be updating materials on the AHCJ site as new issues arise and new information becomes available. — Judith Graham
By Bob Rosenblatt
What is Social Security?
The Social Security Act was enacted in 1935 during the Great Depression to reduce poverty among older adults. The government didn’t measure poverty until the mid-20th century, but life was desperately hard in the Depression for anyone too old to work and too poor to have their own home. If they had no relatives or friends who would take them in, the indigent elderly were sent to county-run “poorhouses.”
Under Social Security, workers pay taxes so people who are retired or disabled have a steady source of income and can live independently and afford essential services. In 2011, 158 million workers paid Social Security taxes, with benefits going to 55.4 million people.
According to a recent report by the left-leaning Center on Budget and Policy Priorities, “Without Social Security benefits, 43.6 percent of elderly Americans would have incomes below the official poverty line, all else being equal; with Social Security benefits, only 8.7 percent do.”
Who Gets Benefits?
38.5 million retired workers and their dependents, including:
35.6 million retired workers
2.9 million spouses and children of these workers
10.6 million disabled workers and their dependents
8.6 million disabled workers
2 million spouses and children
6.3 million survivors of deceased workers
How They Get the Money
The retirement benefit is calculated based on a worker’s top 35 years of earnings. Beginning at age 62, someone can start collecting Social Security. However, the age of full eligibility is currently 66 and there is a permanent lifetime reduction if someone starts receiving benefits before then. After age 66, there is a bonus of 8 percent a year if someone delays getting Social Security until the age of 70.
Here’s an example of how this works: John Smith turned 62 in 2012 and decided to start getting Social Security. If he’d continued working until he was 66, he would have collected $1,500 a month. But because he is retiring early, there is a 25 percent penalty and his benefit will be $1,125 a month.
Let’s look at a slight different scenario. Suppose John waited until age 70 to retire. He would get a bonus of 8 percent a year (on top of his full benefit of $1,500), giving him a benefit at age 70 of $1,980 a month.
Most workers do not get the full benefit because they begin collecting before age 66.
Story idea: Many people don’t realize they will get a bigger benefit if they wait until age 66, and a special bonus if they wait until age 70,
Story idea: Medicare eligibility starts at age 65. Social Security can start at age 62. Many people don’t realize there is no connection.
The spouse of a retiree can collect Social Security benefits in two ways: based on her/his own earnings or based on 50 percent of the spouse’s retirement benefit, whichever is larger.
Let’s consider the situation of Samantha Jones. She worked outside the home for fewer than 35 years, not earning anything when her children were young, and later, when she was a full-time caregiver for her ailing mother. Based on her earnings, her Social Security check would be $700 a month. But her husband Arnold’s benefit is $1,600 a month and her spousal benefit , 50 percent of that amount, would be $800 a month. It’s a better deal and she goes for it.
With his check and hers, total household income from Social Security is $2,400 a month.
Arnold dies. Samantha receives the survivor’s benefit, which is equal to Arnold’s full benefit of $1,600. She no longer receives her spousal benefit. Total household income is now $1,600 a month.
This is why many elderly widows are poor.
Story idea: You have to be married 10 years to qualify for a spousal or survivor’s benefit, even if you later get divorced. Baby boomers have a much higher rate of divorce than their parents, so this can be an important but sometimes overlooked benefit and it’s a story worth writing.
Let’s use the example above, with a twist. Say, Samantha and Arnold get divorced after being married 15 years. Samantha can collect a spousal benefit when Arnold reaches retirement age, even if he has not retired. She must be unmarried and 62 or over to qualify for the spousal benefit. If Arnold has remarried, his current spouse also can collect a spousal benefit based if they stay married for 10 years. There’s no limit on the number of ex-spouses who can collect benefits.
To quality for Social Security disability, someone has to have an illness, physical or mental, that makes him or her unable to work for at least a year.
The official definition is this: “Inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.”
Once someone qualifies for Social Security disability, he or she becomes eligible for Medicare coverage – but only after a waiting period of two years.
Claims for Social Security disability have soared as the economy soured during the recent recession. The bureaucracy of this program is daunting and routinely draws criticism. The average waiting time for people filing Social Security disability claims to get a decision peaked at 532 days in 2008, and was reduced to 354 days by April 2012.
Story Idea: Write about people caught in the two-year waiting period for Medicare coverage after qualifying for Social Security disability benefits. Advocates have attempted to remove this restriction, with no success to date. The Social Security Administration has developed a “compassionate allowances” list of 165 serious medical conditions: people with these condition who get disability benefits can qualify immediately for Medicare, skipping the 24-month waiting period.
Here is the Compassionate Allowance home page.
And here is the full list of diseases.
It would be interesting for reporters to talk to people in the advocacy community for various diseases and see how they view the selection process for Compassionate Allowances.
Story Idea: Check the waiting list in your local and regional offices. How does it compare with the national figures?
How Much Do People On Social Security Get?
The average monthly benefit as of December 2011 was:
Spouse of retired worker
Children of retired worker
Spouse of Disabled Worker
Child of Disabled worker
Survivor of deceased worker
Widowed mother or father
Social Security and Poverty
Social Security has succeeded in lifting large numbers of older people out of poverty.
There are no precise figures, but it is virtually certain that a majority of people 65 and older were destitute when Social Security was enacted. By 1959, the earliest date for official government figures, the poverty rate for seniors had dropped to 35 percent and it’s declined rapidly since. Social Security began adding automatic cost-of-living increases to benefits (based on the inflation rate) in 1973, and this has made a substantial difference.
Also, in 1965, older Americans gained access to health insurance with the establishment of Medicare, a national health programs for people 65 and older. This greatly reduced the burden of healthcare costs on older adults.
In 2011, the poverty rates for people over 65 were: 4.2 percent for married people, 12.9 percent for single men, 15.8 percent for single women, 7.7 percent for whites, 18 percent for blacks, 18% for Hispanics. The national poverty rate for the entire U.S. population was 15 percent.
The importance of Social Security. For the population aged 65 and over, 65 percent of all beneficiaries depend on Social Security for 50 percent or more of their income. This includes 53 percent of married couples and 74 percent of single persons
FINANCES OF SOCIAL SECURITY
Total Social Security expenditures in 2011 were $736 billion, while total income was $805 billion and assets held in special issue U.S. Treasury securities amounted to $2.7 trillion.
When Social Security collects more in taxes than it spends on benefits, the surplus money is invested in special issues of U.S. Treasury bonds, backed by the full faith and credit of the United States. When the trustees report talks about $114 billion in interest earnings, this is interest from the special Treasury securities.
As the baby boomers age, the cost of benefits will exceed the payroll taxes, starting in 2021, and the special Treasury bonds will gradually be sold to make up the deficit. All the bonds will be exhausted by 2033 and in that year, the payroll taxes will be sufficient to pay only 73 percent of the benefits promised under current law, according to projections.
To avoid slashing future benefits, future legislators and presidents must figure out a way to make up the financing deficit. They can do it by raising revenues, cutting benefits or a combination of both approaches.
The Social Security trustees report gives examples. The deficit could be closed and the system made solvent for 75 years by an immediate increase in the payroll tax from 12.4 percent (6.25 percent each for worker and employer) to 15.01 percent (split equally between workers and employers).
A worker making $50,000 a year now pays $3,100 a year in payroll taxes. An increase to the higher rate would result in a tax of $3,752.50.
Many people believe this is politically unacceptable.
Another option is to close the financing gap by an immediate 16.2 percent cut in benefits. The average retired worker now gets $1,229 a month. A cut of that magnitude would reduce the monthly benefit to $1,029.90.
This approach, too, is deemed politically unacceptable.
Most likely is a combination of approaches and, perhaps, a slight increase in the age of full eligibility for Social Security as well.
The trustees want Congress to act. “Implementing changes soon would allow more generations to share in the needed revenue increases or reductions in scheduled benefits.”
Story Idea: What will the president suggest when it comes to Social Security reforms, if anything, and how will Congress react?
Estimate benefits: If you wait till age 70 to collect benefits, you give up the money you would have collected between 66 and 70. The cross-over point is about age 81. If you make it, you will have a bigger total lifetime collection of income from Social Security. Is it a good bet for you? Social Security has a life expectancy calculator to help answer that.
If you want to know how many people in your state or ZIP code get Social Security benefits, here’s where you find the numbers.
The 2012 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Fund presents the current and projected financial status of the trust funds.
The benefit figures and population figures in this primer come from “Fast Facts & Figures About Social Security, 2012,” which is full of fascinating and educational data.
Fact sheet on women and Social Security
Social Security website on women’s issues
The National Academy of Social Insurance is a nonpartisan source of expert information on Social Security and Medicare
AARP Public Policy Institute has just published another valuable resource – Social Security: A Key Retirement Income Source for Older Minorities – documenting the degree to which African Americans, Hispanics, Asian Americans and other groups rely on this government program.
Bob Rosenblatt is a freelance writer specializing in aging issues. He is a contributing writer for MedicareNewsGroup.com and NextAvenue.org, a member of the editorial board of Aging Today, the newspaper of the American Society on Aging, and a Senior Fellow at the National Academy of Social Insurance, a non-partisan think tank dealing with Social Security and Medicare. He was a Washington correspondent for the Los Angeles Times, created the paper's first beat on aging, and wrote on column for the health section called "Benefits Bob" dealing with insurance and Medicare issues.