Carl W. Battle - Social Security for Everyone 2021-2022

Copyright 2021 by Carl W. Battle

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Print ISBN: 978-1-62153-781-6

eBook ISBN: 978-1-62153-782-3

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TABLE OF CONTENTS

Information in this book is taken from various publications and other sources which are free from the US Social Security Administration. This information is not intended as an endorsement or recommendation of this book, the author, or the publisher by US Social Security Administration or any governmental agency.

INTRODUCTION

Almost every person in the United States is either paying Social Security taxes or getting Social Security benefitsor is closely related to someone who is. While many of us associate Social Security primarily with retirement, it also provides, among other things, vital income to families of workers who are disabled or who die before retirement age. More than 60 million Americans receive some form of Social Security benefit. That figure represents about one out of every six Americans.

The Social Security System, created under the Social Security Act of 1935, was comprehensive in scope and designed to provide for the general welfare. It covers a broad range of programs, including retirement insurance, disability insurance, survivors insurance, hospital and medical insurance for the aged and disabled, black lung benefits, Supplemental Security Income (SSI), unemployment insurance, and varied public assistance and welfare services. This book will focus primarily on the typical Social Security benefits such as retirement, disability, and survivors benefits.

There is no doubt that Social Security establishes an important foundation of retirement protection for nearly every American, and there are a lot of positive features of its benefits. These positive features of Social Security include i) guaranteed and defined payments, ii) progressive benefits based on the level of earnings history, iii) payments which increase based on the US inflation rate, iv) benefits which are safe from the risks of the stock market and other investment channels, v) income which is not based on level of wealth, and vi) an income base designed to keep the typical American retiree above the US poverty level.

Social Security is one of few options for receiving a guaranteed and defined retirement benefit for most Americans. Many employers have shifted from offering traditional defined-benefit pension plans (which guarantee a certain benefit level upon retirement) toward defined-contribution plans such as 401(k)s. These defined-contribution plans only pay a benefit based on a workers or employers contributions into the plan and the rate of return they earn. This means that Social Security will be most workers only source of guaranteed, lifetime retirement income.

Social Security benefits are progressive in their effect, because they represent a higher proportion of a workers prior earnings for those workers making lower earnings. The result is that someone (retiring at age 65 in 2020) who earned about 45 percent of the average US wage will have a Social Security retirement benefit which replaces about half of his or her prior earnings. However, the Social Security retirement benefits for high earners (with about 160 percent of the average US wage) replace about one-third of their prior earnings. Social Security benefits are based on the earnings on which you pay Social Security payroll taxes. The higher your earnings are (up to the current maximum taxable amount of $137,700), the higher your Social Security benefit will be.

Once you start receiving Social Security, your benefits increase to keep pace with inflation. This important feature helps to prevent people from falling into poverty as they get older. This is a major difference from most private pensions and annuities which are not generally adjusted for inflation.

Your Social Security benefits are free from the general uncertainties and speculations associated with regular investments and defined-contribution pension plans. This means that your Social Security benefits are essentially guaranteed and are not subject to the threats of investment risks or financial market fluctuations. This is because your Social Security benefits are paid out of Social Security Trust Fund and backed by the full faith and credit of the United States government.

Social Security benefits are not means-tested and thus do not depend on your needs. In other words, Social Security does not reduce or deny benefits to people whose income or assets exceed a certain level. This feature makes Social Security almost a universal program. The broad inclusiveness of Social Security is why nearly all American workers participate in Social Security by making payroll tax contributions, and nearly 97 percent of all elderly Americans (ages 6090 years) will receive some form of Social Security benefit.

Social Security provides a foundation of retirement protection for people at all earnings levels. Social Security was not intended to be the sole source of retirement income, rather, it fosters private pensions and personal saving because it is not based on need. It is also noteworthy that Social Security provides a higher annual payout than private retirement annuities per dollar contributed because its risk pool is broader and its administrative costs are relatively lower.

The average Social Security retirement benefit in 2019 was about $17,000 a year. Social Security benefits have been important for children and their families as well as for the elderly. Approximately 6 million children under age 18 lived in families that received income from Social Security in 2019, and nearly 2 million children were lifted out of poverty last year.

The average retiree gets about $1,400 per month ($17,000 per year) from Social Security. The maximum Social Security benefit a 65-year-old retiring in 2020 can get is $2,857 per month. The absolute maximum a new 70-year-old retiree can get in 2020 is $3,790 per month.

A recent study showed that over a third of elderly Americans would be poor without Social Security, and that the program lifts more than 10 million elderly Americans out of poverty. Note that Social Security provides the majority of income to most elderly Americans. For about half of elderly Americans, it provides at least 50 percent of their income, and for about one fifth of elderly Americans, it provides at least 90 percent of income.