Social Security is an important social insurance program that many Americans have come to rely on for retirement, disability, and survivor benefits—according to the Social Security Administration (SSA), about 63 million Americans will receive $1 trillion in benefits in 2018. Because Social Security was designed to only replace roughly 40 percent of a worker’s income in retirement, most financial advisors suggest supplementing its benefits with other sources of income, such as personal savings and investments. Nevertheless, the SSA estimates that about one-third of beneficiaries depend on Social Security benefits for more than 90 percent of their retirement income.
Due to several factors, primarily changing demographics in the U.S., the trustees of the Social Security Trust Fund—the surplus of funds created by collecting more tax dollars than are being paid out—project that it will be depleted by 2034 without meaningful entitlement reform. Given that Social Security has served as the foundation of most American workers’ retirement income for decades, many current workers and young retirees are concerned about what the future of Social Security looks like and how it will impact their retirement plans.
A Brief History of Social Security
The Social Security Act, which, among several provisions for general welfare, created a social insurance program designed to pay retired workers age 65 or older a continuing income, was signed into law by President Franklin D. Roosevelt in 1935. The program was designed for workers to fund their own benefits through additional income taxes. Originally, Social Security only provided retirement benefits to workers with a history of earned income, but in 1939, two amendments to the program extended benefits to dependents and survivors of those with earned Social Security benefits. Regular, ongoing monthly retirement benefits started in January 1940.
The program remained virtually unchanged until the 1950s, when Congress passed legislation to increase monthly benefits to offset the effects of inflation and expand Social Security coverage to disabled workers. Social Security began to experience financial stress in the 1970s as U.S. economic conditions worsened, and the program faced its first short-term financing crisis in the early 1980s. In response, President Ronald Reagan appointed the Greenspan Commission to make recommendations for legislative changes that would address the program’s funding issues. As a result, several changes were made to Social Security in 1983, including the partial taxation of benefits and gradually raising the program’s full retirement age from 65 to 67. The goal of these reforms was to solve the program’s immediate financing problems, while creating a surplus of funds over the next few decades to prepare for the retiring baby boomer generation, which was expected to be a drain on the program’s reserves.
The earliest age at which (reduced) benefits are payable is 62. Full retirement benefits depend on a retiree's year of birth.
Year of birth Normal retirement age 1937 and prior 65, 1938 65 and 2 months, 1939 65 and 4 months, 1940 65 and 6 months, 1941 65 and 8 months, 1942 65 and 10 months, 1943 to 1954 66, 1955 66 and 2 months, 1956 66 and 4 months, 1957 66 and 6 months, 1958 66 and 8 months, 1959 66 and 10 months 1960 and later 67
A worker who delays starting retirement benefits past normal retirement age earns delayed retirement credits that increase their benefit until they reach age 70. These credits are also applied to their widow(er)'s benefit. Children and spouse benefits are not affected by these credits.
The normal retirement age for widow(er) benefits shifts the year-of-birth schedule upward by two years, so that those widow(er)s born before 1940 have age 65 as their normal retirement age.
If a worker covered by Social Security dies, a surviving spouse can receive survivors' benefits. In some instances, survivors' benefits are available even to a divorced spouse. A father or mother with minor or disabled children in his or her care can receive benefits which are not actuarially reduced. The earliest age for a non-disabled widow(er)'s benefit is age 60. The benefit is equal to the worker's basic retirement benefit (PIA) (reduced if the deceased was receiving reduced benefits) for spouses who are at, or older than, normal retirement age. If the surviving spouse starts benefits before normal retirement age, there is an actuarial reduction. If the worker earned delayed retirement credits by waiting to start benefits after their normal retirement age, the surviving spouse will have those credits applied to their benefit.