These are odd times. The coronavirus disease 2019 (COVID-19) pandemic has made it almost impossible for friends and family members (outside of their own household) to gather together in order to celebrate special events, like birthdays. But that doesn't mean milestones aren't occurring on a daily basis.
Even though there's a very good chance you're not able to travel or gather like normal, that's no reason not to don a party hat. That's because today is a very special day for the vast majority of Americans. It's the 85th birthday for the Social Security program.
Social Security has come an incredibly long way in 85 years
Back on Aug. 14, 1935, President Franklin D. Roosevelt signed the Social Security Act into law. With his John Hancock, a social program was born that was specifically designed to care for elderly workers who could no longer earn a wage after decades in the labor force.
Keep in mind, though, benefits didn't commence immediately. On Jan. 1, 1937, Social Security's payroll tax kicked in, which got the ball rolling on revenue collection in preparation for eventually paying out benefits. The very first retired-worker benefit was dispersed on Jan. 1, 1940, and those payouts to eligible retirees have continued uninterrupted for 80-plus years.
The Social Security program you see before you today has changed pretty dramatically from its early days. For instance, today, Social Security provides benefits to retired workers, as well as the long-term disabled and survivors of deceased workers. This protection for survivors was added a few years after the Social Security Act was signed into law, whereas long-term disability benefits were signed into law in the Amendments of 1956 under the Dwight D. Eisenhower administration.
Another big difference between Social Security today and the early days can be seen in its cost-of-living adjustments (COLA). Think of COLA as the "raise" that beneficiaries receive to true-up monthly benefits so as to properly account for inflation from one year to the next. Since 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers has guided Social Security's annual COLA calculation. But prior to this date, special sessions of Congress were needed to arbitrarily increase monthly benefits to account for inflation. During the 1940s, there wasn't a single COLA passed along to the program's beneficiaries.
Social Security's greatest gift
But the greatest gift afforded by Social Security to a majority of Americans is the guarantee that they'll be receiving a Social Security benefit or perhaps be covered by disability or survivor protections at some point in their lives.
Although it's a misconception that Social Security is simply given to U.S. citizens, the bar to earn your way to a retirement benefit has been set pretty low. A total of 40 work credits is needed to guarantee yourself a Social Security retirement benefit, and a maximum of four credits can be earned each year.
In 2020, each quarter of coverage equates to $1,410 in earned income (wages or salary). Thus, $5,640 in earned income in 2020 will max out your Social Security credits for the year. Essentially, 10 years of part-time work would guarantee a person a Social Security retirement benefit.
According to Social Security, approximately 89% of workers aged 21 to 64 in covered employment were protected in the event of a long-term disability, as of 2018. Also, 95% of persons aged 20 to 49 have survivors insurance protection in place for their children under the age of 18, as well as surviving spouses caring for children under the age of 16.
Thanks to Social Security's two recurring sources of revenue -- the 12.4% payroll tax on earned income and the taxation of benefits -- the program can't go bankrupt, short of Congress completely altering how revenue is collected.
Want to return the favor? Talk to your elected representative(s)
There's no doubt Social Security has been good to us, with over 22 million beneficiaries a year pulled out of poverty as a result of their monthly benefit. Now, it's time for us to return the favor.
You see, Social Security is facing a mammoth cash shortfall. The latest Social Security Board of Trustees report estimates the program to have $16.8 trillion in unfunded obligations between 2035 and 2094. Again, this doesn't mean bankruptcy. But a number of ongoing demographic changes does suggest that Social Security's existing payout schedule, inclusive of COLA, isn't sustainable beyond 2035. Once the program's asset reserves are fully depleted, a sweeping benefit cut of up to 24% may await retired workers.
The way you can reward Social Security is by contacting your local elected representative(s) and letting them know you want Congress to get to work on fixing this essential program.
Mind you, lawmakers aren't lacking for solutions. The Democrats' core proposal calls for an increase in payroll tax collection on high-income earners. Meanwhile, Republicans have favored the idea of gradually increasing the full retirement age to combat rising longevity. If our nation's two parties simply worked together to create a bipartisan solution, Social Security's problems could be knocked out in short order. But the inability to find common ground has exacerbated Social Security's shortcomings.
Social Security is going to be around for a long time to come. But if you want to see it continue to benefit tens of millions of Americans in the same manner it does today, you'll want to speak with your elected officials to let them know how important this program's well-being is to you and this country.