Give me the benefit of the doubt and at least read paragraphs 3 and 4, pretty please :)
So, what the hell is social security? A tax? A benefit? An annoying way the government steals money from every one of your paychecks? Are you wondering why you stopped getting Social Security statements in the mail in the month leading up to your birthday? Or maybe you’ve never even seen your Social Security statement. Why should you care about it at all? Maybe you believe the media when they tell you that Social Security won’t be solvent for much longer. Whatever the case may be, I’m here to tell you that you should care about Social Security. Hopefully by the end of this post I will have you convinced to at least take a look at your statement.
Starting in 1999, the SSA (Social Security Administration) began mailing paper statements to all workers over the age of 25 who were not currently receiving social security benefits. Eventually, the cost of sending out paper statements to all these Americans reached a high of $70 million every year. Due to budget restrictions, in April of 2011 mailing of paper statements stopped. An on-line version of the social security statement was created so that people could still access their statements and people could begin enrolling to access the site in May of 2012. In February of 2012, the SSA resumed sending paper statements to workers over 60 who weren’t already receiving benefits. Now that the boring history lesson is over… here is why you should care enough to go on-line and register to view your statement at http://www.socialsecurity.gov/myaccount/
Social Security is more than just a retirement plan for workers. In the event that you become disabled and can no longer work, your social security wages will be used to calculate a disability benefit. If you die, then your spouse and children will receive benefits that are calculated using your social security wages. I know we all want to believe that we will live long, healthy lives and we don’t want to think about the possibility of something bad happening to us. The reality of life is that it’s unpredictable and it’s better to be prepared for the bad stuff then to be blindsided by it because you never take off your rose colored glasses. SSA gets your social security wages directly from your employer every year when your W2 is submitted by your employer to the Federal Government. If you’re self-employed, then you report your wages when you file your taxes every year. If, for some reason, your wages are reported incorrectly to the SSA, then your benefits could suffer. So, checking your statement every year for wage errors is a good idea so that you get the benefits that you worked for. All you need to do is compare your social security wages (W2 box 3) and Medicare wages (W2 box 5) to what the SSA has on file.
Are you worried about identity theft? A good way to see if someone is illegally using your social security number to obtain work is to check your statement. If any of the wages look wrong, you should call the SSA to verify the numbers. If you try to create an account on-line and you’re told that someone with that SSN is already registered, then that means another person has used your SSN to register with the SSA and you should call them and find out what’s going on. Catching identity theft early is important. You don’t want someone else to be able to collect your benefits or make it so that you can’t collect your benefits. You can call the SSA at 1-800-772-1213 or you can go to SSA.gov and look up the information for your local SSA office.
Why should you care about checking your wages if you aren’t going to retire until you’re in your seventies? Well, your final benefit is calculated based on your 35 highest years of wages. The SSA uses a formula called AIME (Average Indexed Monthly Earnings) to put your wages into current years dollars and determine what your retirement benefit will be. If you start working at age 14, and you work until you’re 68 that is 58 years worth of earnings that have been reported to the SSA. Ostensibly, the highest years of your earnings will be when you’re between the ages of 30 and 65. But, if you take time off to be a stay at home parent or go to college, and you aren’t earning social security wages, then your 35 highest years will be impacted. So, once you turn 18, you should really be paying attention to your earnings record. (You have to be 18 in order to register at SSA.gov to view your statement.)
So, if all this talk about death and identity theft hasn’t scared you into signing up on SSA.gov to view your statements, the only thing left for me to say is that this is your money. Every paycheck you get has social security taken out of it, and your employer has to match that dollar amount, with few exceptions. This is your money. It belongs to you and you’re basically letting the government hold onto it until you decide to ask for it back (disability, death, or retirement). If you care about how much money you have sitting in the bank, then you should care about how much money you have sitting in the social security trust. So please go sign up and take a look at your statement. The SSA has done an excellent job creating a very secure website, and they partnered with Experian to create a set of questions that they use to verify your identity. So, it will take you a few minutes to sign up. Once you’re signed up, you can view your earnings record, estimate your benefits, see your benefit at different retirement ages, and be able to apply for benefits.
Now, if you’re worried about the solvency of social security, I can give you a brief history lesson. If you’re not worried, then you can stop reading and go to http://www.socialsecurity.gov/myaccount/
Social Security began as a social insurance program in the United States as part of the WPA during President Roosevelt’s administration. Before the 1930’s, many individual states had started creating programs for the unemployed, disabled, or elderly, but there was not a national system in place. The precursor to Medicare was also established during the Roosevelt administration. At first, Social Security benefits were not available to Federal or State government employees because of the pension benefits that they already received. In the 1950’s, contributions rates were 1.5% (today the rate is 6.2%) Also beginning in the 1950’s social security coverage was extended to state government employees on a voluntary basis for any employees that were already covered under a retirement system. Federal employees were granted Social Security benefits during the Reagan administration in 1986. It was also in 1986 that every dependent over the age of 5 that is listed on a tax return must have their own Social Security number. From 1937 to 1990 the contribution rate (tax rate) for social security went from 1% to its current rate of 6.2%. A lot of reforms were made during the Reagan administration and the Bush (H.W.) administration to ensure that social security would remain solvent and be able to pay out benefits into the 2000’s. Current reports indicate that the social security program should be fully funded until sometime between 2030 and 2040. Social security and Medicare money is put into a trust that is administered by the Federal Government. Obviously, when social security was established not many people were thinking about population growth and extending the program to all working Americans for more than one hundred years. The contribution rate for social security has remained stagnant at 6.2% since 1990 (with the exception of the employee contribution rate briefly going down to 4.2% in 2011 and 2012). So, for over two decades, the contribution rate has remained the same despite inflation and the percentage of American workers applying for benefits. Obviously, this is a problem that needs to be addressed so that those of us who have been paying into the trust our entire careers will be able to draw that money out when we need to. This is something that Congress will have to address soon by making amendments to the Social Security Act. If this concerns you at all, might I suggest writing to your congressman about it? If Congress and the President have been able to keep the trust solvent for almost a century, I’m sure they can continue to do so for decades to come. Obvious ways to keep it solvent are by increasing contribution rates, changing the retirement age, or changing the benefit calculations. Personally, I don’t see a reason to worry that something won’t get figured out and I will be out all the money I’ve paid into the trust… but you just never know.
If you want to learn more, you can visit http://www.ssa.gov/history/chrono.html for a chronological history of social insurance and social security.
A table of historical contribution rates can be found here http://www.ssa.gov/oact/progdata/oasdiRates.html
And of course, please register to view your statement here http://www.ssa.gov/history/chrono.html
If you’ve read this entire post without falling asleep, CONGRATULATIONS! Now carry on with your day.
*I am in no way affiliated with the Federal Government or the Social Security Administration. I’m just a nerd who likes this kind of stuff and enjoys learning about strange things like the history of social security.*