Sixty-eight years ago today, President Franklin Roosevelt -- flanked by several dour-looking people, including the mysterious "bowtie man" -- signed into law the Social Security Act of 1935.
How far has the program come since the mid-30s? Earlier this summer, the Social Security Administration (SSA) released Fast Facts & Figures About Social Security, which contains a wealth of information. Contained therein are some instructive nuggets for the aspiring Social Security recipient.
For those who choose not to work
Sixty-five percent of "aged persons" rely on Social Security for at least half of their monthly income; for 20%, it's the only source of income. On the aggregate, Social Security provided 39% of the income for the aged population in 2001.
Clearly, Social Security is a major source of retirement income. This is a startling state of affairs. Why? Because the average monthly benefit is $914 for new retirees. In other words, there are millions of retirees living on approximately $10,968 annually.
For those who can't work
While most people think of Social Security as a retirement benefit, only 63% of recipients are retirees. The others are disabled workers and their spouses and dependents as well as the survivors of deceased workers.
So should Americans who pay FICA taxes (the chunk of the paycheck that funds the Social Security programs) not bother with disability or life insurance? Hardly. The average monthly benefit is $898 for disabled workers, $229 for their spouses, and $239 for their children. Widowed parents receive $650 a month, and their children receive $605 each. Both disability and survivors benefits are subject to family maximum limits.
How many families could survive on approximately $2,000 a month or less? That's why workers, especially those with dependents, need disability and life insurance.
Will the program continue to work?
Social Security's impending problems are well-known. It's a "pay as you go" system, whereas today's taxes pay today's beneficiaries. However, due to the looming retirement of the baby boom generation, there won't be enough workers to generate enough taxes in the future.
Today, the ratio of workers to recipients is 3.3 to 1. By 2031, that ratio will decrease to 2.1 to 1. According to Facts & Figures, "At that ratio, there will not be enough workers to pay scheduled benefits at current tax rates." By 2042, the projected inflow will be able to cover just 73% of program costs. The estimated cost of meeting the program's shortfall has risen 20% since 1999, from $2.9 trillion to $3.5 trillion.
So get to work!
Social Security was never meant to replace a worker's entire income. So if you want to retire on more than $11,000 a year, contribute to your 401(k) and IRA. And to make sure you'll have money to contribute while working -- and that your survivors will have money if you take a "permanent vacation" -- get enough insurance. Finally, if you'd rather talk to an expert about all this instead of following a bunch of Internet links, consider TMF Money Advisor.
