Social Security at 80: What's Ahead for Your Benefits?

Image: SSA

Social Security celebrated its 80th birthday last week, and over the course of its long history, the government program has paid benefits to hundreds of millions of Americans. Yet when President Roosevelt signed the Social Security Act legislation that created the retirement-income program on Aug. 14, 1935, he probably never imagined just how all-pervasive it would become over the course of 80 years, with a large portion of those who receive benefits now heavily relying on their Social Security checks in order to sustain themselves financially in retirement. With the program at a crossroads right now, the octogenarian event is a good time to take a look back at Social Security's history as well as turning forward to see what lies ahead.

How Social Security has evolved in 80 yearsSocialSecurity has grown immensely in scope since 1935. When the program was first created, it paid benefits only to workers, and what they received was a single lump-sum payment. Yet within a few years, lawmakers saw the value of paying ongoing monthly benefits and providing for additional family members. In 1939, Social Security added survivors benefits as well as spousal and children's benefits in certain circumstances, and the first monthly Social Security check went to Vermont's Ida May Fuller in January 1940.

It wasn't until 20 years had passed that Social Security went beyond retirement-related benefits. In 1956, benefits for worker disability were added to the Social Security program, filling a vital gap that had previously left many younger workers in dire financial straits after injuries or illnesses.

Image: SSA

Various other provisions have changed or been added over time. In 1983, the traditional retirement age of 65 was increased, with age 66 being the current full retirement age for those retiring now. Cost-of-living increases to Social Security payments became permanent in 1975, allowing for benefits to keep pace with inflation.

Meanwhile, the taxes collected to support Social Security have risen dramatically. Up until 1949, employers and employees each paid 1% of annual earnings up to $3,000 into the Social Security system. Now, payroll taxes amount to 6.2% on up to $118,500 in annual earnings, meaning the maximum taxes paid has gone from $30 to $7,347 per year over that 80-year timeframe.

What changes will Social Security see in the next 80 years?Social Security now finds itself at a crossroads, with widely disparate views on the future direction of the program. Some emphasize the financial burdens that the program faces, arguing the need to slow the rate of increase of Social Security benefits in order to avoid having the Social Security Trust Fund run out of money and require either a cut in benefits or additional financial support from the federal government's general fund. To do so, advocates have looked at a number of measures, such as increasing the taxable wage base, boosting tax rates, means-testing benefits, using different cost-of-living adjustments, or raising the full retirement age further. Each of these proposals has raised controversy.

At the same time, though, others believe that expanding Social Security is the better course. Proposals have included establishing an absolute minimum benefit to alleviate poverty among retirees, using a cost-of-living index that more accurately reflects senior citizens' actual costs, and changing the formula for calculating monthly benefits to give low-income retirees higher payments than they would under current law. To pay for expanded benefits, most of these proposals look at raising the wage base to tax more of the earnings of higher-income workers.

How to plan for Social Security's changesGiven all the uncertainty about what could happen to Social Security in the next 80 years, it might seem hopeless to try to plan for your own retirement. Yet what just about every proposal regarding the program has in common is that Social Security's existence continues indefinitely into the future. The details of exactly how much you might receive and what you might have to pay in taxes in order to get coverage aren't set in stone, yet although you therefore won't be able to do a penny-for-penny analysis of your financial situation, you can figure that Social Security will provide some help during your retirement.

At the same time, though, it makes a lot of sense to make your own plans outside of Social Security. Saving for retirement using tax-favored accounts like IRAs and 401(k)s will ensure that you have an additional safety net no matter what changes to Social Security occur in the future.

As Social Security turns 80, many remain uncertain about what impact it will have on their retirement -- or even whether the program will still exist by the time they retire. Based on its long history and immense value to current and future retirees, though, the odds are good that Social Security will survive beyond its current crisis, and it could easily go another 80 years if lawmakers can agree on the proper role for the program in the future.

The article Social Security at 80: What's Ahead for Your Benefits? originally appeared on Fool.com.

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