Money Matters - Social Security Primer: The History
BOSTON (CBS) - Social Security has been around for 76 years. The Social Security Act was signed into law by President Roosevelt in 1935. This act created a social insurance program designed to pay retired workers age 65 or older a continuing income after they retired. The life expectancy of a 65-year-old then was about 12½ years; today it's over 18 years.
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Early on, benefits were only paid to the worker. In 1939, Congress added survivor benefits and benefits for the retiree's spouse and children. In 1956, disability benefits were added.
An estimated 159 million workers, 94% of all workers, are covered under Social Security. Today nine out of ten individuals age 65 and older receive Social Security benefits.
Another major change came about in 2000; the Senior Citizens' Freedom to Work Act, which eliminated the earnings test for those beneficiaries at or above normal retirement age.
In the past, Social Security benefits had been conditional on the requirement that the beneficiary be substantially retired, meaning you could earn only a limited amount of money while receiving Social Security benefits. If you exceeded that amount, you would lose some of your future Social Security benefits.
With the Freedom to Work Act, however, this is no longer the case for those retirees who have reached their full retirement age, which for this year is 66. If you have retired early and are between the ages of 62 and 66, you could lose some of your future Social Security benefits if you go back to work and earn more than $14,160 this year ($1,180/month). So do think carefully about when to begin your benefits.
Social Security benefits have had a COLA, cost of living adjustment, since 1975. This is the second year that retirees saw no increase in their benefits with their January checks.
I need to mention Medicare here briefly. The Medicare program was created 45 years ago in 1965 and it is a health insurance program for the retired population over age 65 and persons of any age with permanent kidney failure and certain disabled individuals. The program is now administrated by the Centers for Medicare and Medicaid Services.
Medicare is in tough shape and if the trustees are correct it will be broke in seven years, by 2029. It does not have the reserves that Social Security has.
I would expect for future retirees you may have to cover more of your own health care costs in retirement and the age for eligibility for Medicare to increase to match Social Security's. As for current workers what you will have to pay into Medicare taxes will increase.
One more thing:
History of Automatic Cost-Of-Living Adjustments
Automatic benefit increases, also known as cost-of-living adjustments or COLAs, have been in effect since 1975. The 1975-82 COLAs were effective with Social Security benefits payable for June (received by beneficiaries in July) in each of those years; thereafter COLAs have been effective with benefits payable for December (received by beneficiaries in January). COLAs received in 1975-2010 are shown below.
Automatic Cost-Of-Living Adjustments
| July 1975 8.0% | January 1988 4.2% | January 2000 2.5% |
| July 1976 6.4% | January 1989 4.0% | January 2001 3.5% |
| July 1977 5.9% | January 1990 4.7% | January 2002 2.6% |
| July 1978 6.5% | January 1991 5.4% | January 2003 1.4% |
| July 1979 9.9% | January 1992 3.7% | January 2004 2.1% |
| July 1980 14.3% | January 1993 3.0% | January 2005 2.7% |
| July 1981 11.2% | January 1994 2.6% | January 2006 4.1% |
| July 1982 7.4% | January 1995 2.8% | January 2007 3.3% |
| January 1984 3.5% | January 1996 2.6% | January 2008 2.3% |
| January 1985 3.5% | January 1997 2.9% | January 2009 5.8% |
| January 1986 3.1% | January 1998 2.1% | January 2010 0.0% |
| January 1987 1.3% | January 1999 1.3% | January 2011 0.0% |
1 The COLA for December 1999 was originally determined as 2.4 percent based on CPIs published by the Bureau of Labor Statistics. Pursuant to Public Law 106-554, however, this COLA is effectively now 2.5 percent.
The first automatic COLA, for June 1975, was based on the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the second quarter of 1974 to the first quarter of 1975. The 1976-82 COLAs were based on increases in the CPI-W from the first quarter of the prior year to the corresponding quarter of the current year in which the COLA became effective. After 1982, COLAs have been based on increases in the CPI-W from the third quarter of the prior year to the corresponding quarter of the current year in which the COLA became effective.
