Making Social Security Work for You

Advice, Strategies, and Timelines That Can Maximize Your Benefits

Emily Guy Birken

• Publisher: Adams Media
• Year: 2016
• ISBN:
  9781440593383
• Topic: Personal Development
• Subtopic: Personal Finance

Featured in The Washington Post An up-to-date guide to getting the most out of Social Security under the new regulations that took effect on April 29, 2016. Despite reports of Social Security's impending bankruptcy, Social Security remains an important part of most Americans' retirement plans. But will it be enough? Making Social Security Work for You teaches you what you need to know about Social Security retirement benefits and the options you can choose to help meet your retirement goals. In straightforward, easy-to-understand language, this compact guide provides advice on the advantages and disadvantages of delaying benefits as well as the best ways to maximize your benefits depending on your financial or marital situation. Featuring a glossary of terms to help you better understand Social Security jargon; a full explanation on how the system works under the new regulations that took effect on April 29, 2016; and practical, actionable advice on how and when to save additional retirement funds, this book shows you how to make your retirement the best it can possibly be. "Guy Birken brings her breezy style to explaining a system that can be mind-numbing." -- The Washington Post

Part One

What Social Security Is, and What It Isn’t

Chapter One

Social Security’s History

What You’ll Learn in This Chapter

If you want to understand what you are entitled to from Social Security, you need to start with an understanding of the program as a whole. That includes learning about the history of social insurance in general, and America’s Social Security program in particular. In this chapter, you will learn about the beginning of one of America’s most popular government programs. We will explore the various changes and tweaks that have been made to Social Security since its inception in 1935. Finally, we will discuss and debunk several common misconceptions about the program.

Why Look at Social Security’s History?

For anyone reading this book, Social Security probably feels like a simple fact of life. Most of us were assigned Social Security numbers soon after we were born and have seen FICA (Federal Insurance Contributions Act) taxes taken from every paycheck starting with our very first job. You are probably not old enough to remember Social Security being signed into law on August 14, 1935, nor do you likely recall the enormous political, logistical, and organizational work that followed to set up an entirely new government agency over the course of just a few years.

But our comfort with Social Security’s long-term presence in American life means that many of us are unfamiliar with the original intentions and expectations of the program. This can lead to false assumptions. That’s why it’s important to start your plan to maximize your Social Security benefits with an understanding of the program’s history—from the pioneering nineteenth century European idea of social insurance to the creation of Social Security in response to the Great Depression to the adjustments made to the program over the years as society has changed.

Social Insurance: The Nineteenth Century’s Radical Idea

At its heart, insurance is a pretty simple concept. Insured individuals spread the risk of unforeseen losses among a larger group. We have done this in some form or another since ancient times. Today, we all use various types of private insurance—which involves a contract between the individual who is insured and the company that offers protection.

It was not until the 1800s, however, that governments began to consider the idea of social insurance. With this radical new idea, nations took the principles of private insurance and adapted them to create a social insurance designed to protect their citizens from common economic risks. Like private insurance, social insurance helps spread out the risk of an individual loss among a larger group, thereby protecting the most vulnerable in society. Though social insurance shares similarities with private insurance, there are five important differences between them:

• Mandatory participation. This is a necessary part of social insurance, because it prevents what is known as “adverse selection,” wherein those who have a low risk of needing the insurance buy into the insurance in lower numbers than those who have a higher risk. When only those individuals who need the insurance (the higher-risk people, or “bad risks”) opt into the program, costs rise.
• Adequacy of benefits. Private insurance aims to offer equitable coverage to all insured individuals, while social insurance is more concerned with providing benefits that are socially adequate for all participants, since adequacy benefits all of society. This is why Social Security benefits are progressive, meaning that they offer lower-income beneficiaries a higher percentage of their preretirement earnings, with the goal of ensuring an adequate retirement income for all. (See Chapter 3 for more on how Social Security’s benefits work.)
• Statutory rights. If you are insured through private insurance, you have a right to coverage because you have signed a contract. Social insurance, on the other hand, is based on a statute rather than a contract, so your right to benefits can change if the statute is changed, as we all saw with the changes to Social Security in October 2015. (We will talk in Chapter 2 about other potential changes to Social Security’s statute.)
• Government creation. Only governments can mandate participation in and write statutes for such a program and therefore are the only creators of social insurance programs.
• Funding through taxation. Unlike private insurance, the mandatory nature of social insurance requires compulsory funding, generally through taxation.

Germany adopted the world’s first old-age social insurance program in 1889, following the design of the plan’s author, Chancellor Otto von Bismarck. The German program covered workers from every profession, and it entitled workers who reached the age of seventy to receive a pension annuity. The program was funded by employers, workers, and the government, which contributed a portion of the underwriting costs.

Despite his conservative bona fides, Bismarck was often accused of being a socialist for pioneering this program. His motivation for introducing social insurance was twofold: He wanted to keep the economy of Germany operating at its maximum efficiency by offering German workers greater security, and he wanted to avoid calls for alternative plans that were much more radically socialist. His program was a success, and it played an important role in the sharp decline of emigration of young German men to America.

The Great Depression and FDR

It is difficult for anyone who did not live through the Great Depression to comprehend the financial devastation that people experienced. America faced 25 percent unemployment, and more than half of the elderly population lived in poverty. With so many suffering, the American government was called to take action.

In particular, Dr. Francis E. Townsend, who found himself unemployed in 1933 at the age of sixty-six, took up the cause of guaranteed government pensions for the elderly. In his Townsend Plan, he proposed that the government provide a pension of $200 per month to every retired American above the age of sixty. Citizens would have been eligible for the pension if “their past life is free from habitual criminality,” and they would have been required to spend their monthly pension within thirty days of receiving the money.

The Townsend Plan enjoyed incredible popularity. Within two years of Dr. Townsend’s publication of the plan in early 1933, about 7,000 Townsend Clubs, encompassing some 2.2 million club members, were established across the nation. Club members actively worked to make the Townsend Plan the law of the land.

This plan was so popular that Franklin D. Roosevelt worried that Dr. Townsend and the Townsend Club members could threaten his reelection in 1936 if he did not have an alternative to offer the American public. In 1934, Roosevelt created a Committee on Economic Security and appointed Secretary of Labor Frances Perkins as chair. Over six months, the Committee conducted a comprehensive study of economic security in America and made an analysis of the social insurance experience in other countries. This information was developed into a report to Congress, which included a detailed legislative proposal.

“Isn’t This a Teeny-Weeny Bit of Socialism?”

American legislators of the 1930s were just as leery of the specter of socialism as Bismarck’s contemporaries had been forty-some years earlier—and just as their political descendants continue to be some eighty years later. During a Senate Finance Committee hearing, Thomas Gore, a Democratic Senato...

Table of contents

• Title Page
• Copyright Page
• Dedication
• Acknowledgments
• Introduction
• Part One: What Social Security Is, and What It Isn’t
• Part Two: Timing Is Everything
• Part Three: The Nuts and Bolts of Claiming Your Social Security Benefits
• Conclusion
• Appendix A: Glossary: The Alphabet Soup of Social Security Terms
• Appendix B: Bibliography
• About the Author