Approximately 97% of older Americans (ages 60 to 89) are either receiving Social Security benefits or will receive them in their lifetime1. Given this substantial percentage, Pure’s Senior Financial Advisor, Nate Ritchison, CFP®, AIF®, examines the history of Social Security, its current usage, and its future implications and impacts on Americans.
You will learn:
- History of Social Security
- Social Security current statistics
- Future impacts
FREE GUIDE | Social Security Handbook
Transcript
Let’s start at the beginning. A 37-page document signed into law by President Franklin Roosevelt on August 14,1935 forever changed the American Dream and in the early 20th century introduced Americans to the idea of retirement. With so many questions swirling around about the future of Social Security, let’s take a minute to talk about the past, the present, and what the future might hold for this entitlement program enjoyed by millions.
The signing of the Social Security Act of 1935 necessitated the creation and distribution of Social Security numbers, and issuance of cards start a year later. It wasn’t until 1940, a full five years after the law was signed, that the first monthly payment of $22.54 was sent to Ms. Ida May Fuller. And from that time on, we’ve seen many of the current features added like a Cost of Living Adjustment (COLA) in 1950, the lowering of the retirement age to 62 in 1961, and the start of the taxation of benefits in 1983. Over the last almost 90 years, there have been over 20 different changes and adjustments to the original program.
Today, the program has near universal adoption with 97 percent of older Americans (aged 60 to 89) either receiving Social Security or will receive in their lifetime1. Today there are about 67 million people, or 1 in every 5 Americans currently collecting a Social Security benefit.1
These benefits are determined by your earnings, the time you paid into the system and the age at which you begin collecting, the most recent average monthly benefit stated in September 2023 for the average American, was $1,7062. As of 2022, the total annual cost of the Social Security program was $1.244 trillion or about 5.2 percent of U.S. GDP.3
It’s estimated that about half of the population aged 65 or older live in households that receive at least 50 percent of their family income from Social Security benefits and a full 25 percent of households rely on benefits for at least 90 percent of their family income.4 In a recent Gallup poll released in June 2024, 80% of adults age 65 and younger said they are “worried” or “extremely worried” about their Social Security benefits.5 With the popularity and the reliance on the program by so many Americans you can understand why there is a real fear of change and why this at the center of many political discussions.
Each year, since 1941, the Social Security Board of Trustees has presented a required report on the financial status of the program to the Congress. The most recent report projects the program costs to rise by 2035 so that taxes will be enough to pay for only 75% of scheduled benefits.6 This applies to all current and future benefits, so no one is exempt. This increase in cost results from the American population aging, not just because we are living longer, but because birth rates dropped from three to two children per woman. In short, the number of people claiming benefits is rising, while the income from working-age people contributing to Social Security via payroll taxes is projected to stay relatively flat. After 2033 the shortfall is basically stable.
Efforts to increase the solvency of the program often focus on increases to taxes or a reduction of benefits or income means-testing to offset the effects of the lower birth rate. As with most problems there are rarely one-size fits all solutions, there is only compromise. And, as with most financial decisions like the decision to save and invest, starting sooner than later will increase your probably of success.
Problems have been reported for decades, the Social Security Board started reporting shortfalls back in the 1970s. Although this isn’t unique to just the United States, many nations face this, we might just need to use a little bit of our American ingenuity along with a degree of creativity and more than a little compromise to help provide a clear and bright future for so many Americans.
If you would like to see ways to optimize Social Security benefits in your overall retirement plan, contact Pure for a free financial Assessment.
Subscribe to our YouTube channel.
IMPORTANT DISCLOSURES:
• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor.
• Pure Financial Advisors LLC does not offer tax or legal advice. Consult with your tax advisor or attorney regarding specific situations.
• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.
• Pure Financial Advisors, LLC, is not affiliated with any government agency, including, but not limited to the Social Security Administration.
CFP® – The CERTIFIED FINANCIAL PLANNER™ certification is by the Certified Financial Planner Board of Standards, Inc. To attain the right to use the CFP® designation, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. Thirty hours of continuing education is required every two years to maintain the designation.
AIF® – Accredited Investment Fiduciary designation is administered by the Center for Fiduciary Studies fi360. To receive the AIF Designation, an individual must meet prerequisite criteria, complete a training program, and pass a comprehensive examination. Six hours of continuing education is required annually to maintain the designation.
Sources:
-
Center on Budget and Policy Priorities, “Policy Basics: Top Ten Facts about Social Security,” May 2024.
-
Social Security Administration, “Quick Facts,” September 2023.
-
Social Security Administration, “2023 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds,” March 2023.
-
Social Security Administration, ” The Importance of Social Security Benefits to the Income of the Aged Population,” 2017.
-
Gallup, “Rising Concerns Over Future of Medicare and Social Security,” June 2024.
-
Social Security Administration, “Research: The Future Financial Status of the Social Security Program,” 2010.
