Social Security For Dummies
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If you have years until retirement, you have a vital stake in the future of Social Security, and this article explores many of the reasons why. For starters, proposals to modify benefits — such as by raising the retirement age or reducing benefit levels — usually are designed with younger workers in mind. (Policymakers have traditionally felt that changing the rules for current retirees or workers who will soon join their ranks is unfair and that young people have time to plan.)

Whatever you may think of the nation’s budget issues and how best to address them, it’s worth knowing that future beneficiaries would feel the brunt of proposals aimed at curbing Social Security benefits. If you’re a young person, that future beneficiary is you.

But younger Americans have a stake in Social Security that goes beyond even the benefits they’ll get one day. Benefits that go to older family members — and others in the community — help all of us by fostering independence and reducing poverty. If such support were to be decreased, we would pay the price in other ways.

If You’re Lucky, You’ll Be Old Someday

What kind of world awaits you in old age? Who can say? But if you believe in planning, you can’t ignore sweeping trends that have eroded retirement benefits and retirement security for hardworking Americans. Private pensions have become much less common. Wages have grown little. Financial markets are volatile. Health care gets more expensive all the time. Meanwhile, gains in longevity mean you may be old for decades. The odds of reaching 100 are better than ever.

older couples on Social Security © sirtravelalot /

Maybe envisioning old age is difficult if you’re still young. But no matter how old you are, you can probably agree with the following:

  • You want to be secure in your later years.
  • You want to be as independent as you can.
  • You don’t want to worry about the necessities.
  • You don’t want to lean on others to help pay your bills.
That gives you a stake in preserving a strong Social Security program.

Social Security benefits don’t just go to someone else. Someday, they’ll go to you.

Your Parents Will Be Old Even Sooner

Even if Social Security still seems like some far-off concern to you personally, it may already be helping support your parents. As a loving child, presumably you want your parents to have independence and dignity after a lifetime of hard work. For most middle-class families, Social Security makes that possible.

Yet that’s not the whole story. By helping your parents stay independent, Social Security may offer you an advantage you don’t much think about. There’s no delicate way to put this: Do you want your folks to move in with you?

Of course, some adult children would be happy for that. Intergenerational families are a growing phenomenon, particularly during tough economic times. It’s safe to say, though, that ideally such households should be created through voluntary choice, not as a last resort in desperate circumstances.

Besides, even if you’re game for mom and dad moving in, who’s to say they want that? Older Americans typically prefer to have their own space, as long as they can afford it and have the physical ability to manage on their own. That’s the arrangement most adults — parents and grown kids — want.

Social Security plays a critical role in preserving your parents’ independence — and yours as well.

You’re Paying into the System Now

One easy-to-grasp reason young workers have a stake in Social Security is that they’re helping to pay for it. Social Security payroll tax contributions come straight out of your paycheck and add up to many thousands of dollars over the years. Many people, particularly those of moderate income, pay more money in Social Security taxes than they do in income taxes.

The basic Social Security tax rate is 6.2 percent of earnings up to a certain limit ($137,700 in 2020), each paid by the employee and the employer, for a total of 12.4 percent.

The payroll tax means that young workers pay a lot of money into the system in the course of their lifetimes. In return, they earn Social Security benefits for themselves and their dependents — benefits they may need long before retirement if misfortune strikes.

Young workers have a personal financial stake — perhaps larger than they recognize — in keeping Social Security strong for the day they receive benefits.

You Benefit When Social Security Keeps People Out of Poverty

Social Security keeps more people out of poverty than food stamps, earned income tax credits for the poor, and unemployment insurance combined. As a result, all of society benefits.

Before Social Security, needy older Americans could end up in the county poorhouse, where they lived out their final days in misery. Social Security has become the nation’s most successful anti-poverty program, keeping about 22 million older Americans out of poverty, and perhaps significantly more, according to some measures. That includes more than 1 million children and more than one-third of older Americans.

Helping people stay self-sufficient isn’t just humane. It also solves problems that would have to be dealt with one way or another and at potentially significant costs to the public. If Social Security were to play a smaller role in easing hardship, demand would soar for other services provided by the federal government and the states, creating pressure to raise taxes.

If you’re a middle-class worker, Social Security’s role in combating poverty may not be the first thing you think about when it comes to the program. But you benefit as a result.

You May Need Benefits Sooner Than You Think

Even when you’re young, you may be covered by Social Security for important benefits. These protections may apply not only to you but also to your immediate family. It’s natural to think of Social Security as a retirement program. But millions of people benefit from protections that were created with the young in mind.

For example, Social Security may provide survivor benefits to young families if a breadwinner dies. These benefits may last until the worker’s child reaches the age of 18. A widow or widower who is caring for the child may get benefits until the child reaches age 16. Similarly, you can build up disability benefits that you also may need at a young age. Such benefits also may go to dependent family members.

The Social Security Administration (SSA) recognizes that cases of death and disability can create extreme need when you and your family are still young. As a result, the eligibility requirements are designed with that in mind. You can become eligible for certain benefits after a relatively brief period of covered work, compared to the rules for retirement.

If you’re still in your 20s, you can build up some eligibility for survivor and disability protections with as little as six credits — typically, 18 months of work. (Requirements vary based on age and tenure in covered work, but the idea is to give some protection to workers before they’re old.) By contrast, you have to work about ten years to build up the earnings credits required for retirement benefits.

Bottom line: Social Security is set up to protect people of all ages.

Social Security Ensures That Time Doesn’t Eat Away at Your Benefit

I bet you’ve heard your parents or grandparents reminisce about the “good old days” when bread cost a quarter and candy cost a penny. Maybe they even told you how proud they were to get that first job that paid a grand total of $10,000 a year. (I sure was.)

Just as the prices and wages our parents experienced 20, 30, or 40 years ago seem quaint today, without certain adjustments that are built into the Social Security program, our benefits would seem like a pittance to us 20, 30, or 40 years in the future.

Social Security shields benefits from economic erosion in two primary ways:

  • The benefit formula makes sure that payments increase from one generation to the next with growth in average wages. It achieves this goal through indexing and other adjustments that can add hundreds of dollars a month to future benefit amounts.
  • Social Security is designed to keep up with rising prices (a feature that isn’t part of most pension plans). This protection can make an enormous difference in your future standard of living, because inflation eats away at the dollar as the years pass. For example, if you’re 35 years old, a 3 percent rate of inflation would mean that a dollar you have today will be worth only about 40 cents when you’re 65. To shield your benefit from inflation, Social Security applies a cost-of-living adjustment (COLA) to benefits, so that a dollar in benefits today will still be worth a dollar 10, 15, or 35 years from now.
Social Security benefits are supposed to be meaningful, not quaint relics of the past. The built-in wage and inflation protections mean that the benefits you earn while you’re younger will retain real purchasing power when you need them.

Social Security Benefits Are One Thing You Can Hang Your Hat On

Retiring with financial security is increasingly difficult. You probably don’t have a pension. If you own a home, it may have dropped in value, possibly below what you paid for it. Health care costs continue to rise, as do other necessities of life, including energy costs and food. Meanwhile, the gift of longevity means that old age can last a very long time. How will you pay for all those years?

Hopefully, you have various resources to draw on, and you keep your living expenses in line with income. Hopefully, these resources can endure, rewarding you for years of hard work and thinking ahead. But for many older people, it’s a struggle. Account balances decline. Income fails to keep up with inflation. And you can’t control these things.

Social Security’s guaranteed income stands out as the one thing you can count on — a reliable monthly foundation of income that will last the rest of your life. And Social Security’s inflation protection helps preserve its value no matter how long you live.

Unfortunately, the trends undermining retirement security are well established, and there’s little reason to believe that they’ll vanish anytime soon. Young workers need something they can count on to help them achieve financial security when they’re old. Social Security remains the bedrock.

The System Works

Social Security isn’t perfect. But by and large, it makes the right benefit determinations. Its administrative costs are low. Payments go out on time. You know what you’ve got coming, and you get it. This predictability is part of the value of Social Security.

I’m not saying that young people today know precisely what they’ll get in the future or that Social Security will never be modified. But the enduring outlines of Social Security are apparent:

  • It’s an efficient system of guaranteed benefits that can last a lifetime, with some inflation protection.
  • It’s designed to replace more income for modest earners, but some income for all who pay in.
  • It will remain a foundation for retirement security that people can count on every month for as long as they live.

Social Security isn’t based on theories of human behavior, such as the idea that you’ll save more or that you’ll save wisely, or expectations of how Wall Street will perform in the future. It isn’t an experiment. Social Security works.

The Alternatives Are Worse

You can bolster your retirement security in many ways. It was never Social Security’s intended role to do the job alone. Saving over a lifetime can make a tremendous difference. Postponing retirement and extending your work life is a powerful way to nurture your nest egg for the long haul. Investing with care (and patience) can help savings grow significantly over time. If you have many thousands of dollars, you may consider buying an annuity to guarantee more monthly income when you’re older.

None of these strategies, however, can match the broad, guaranteed protections of Social Security. For most people, savings rates are too low to protect them in a protracted old age. About a third of workplaces offer no retirement savings programs at all. When programs such as 401(k) plans are available, many workers fail to take full advantage of them, despite tax incentives and payroll deductions to encourage enrollment.

Financial investments — important as they may be — come with risk. When markets collapse, they pull down retirement assets with them. If that’s your fate, it can take years to recover. Working longer can be enormously helpful in boosting economic security later in life. But research has shown that many older people retire sooner than they had planned on. Various reasons account for this, including layoffs in a tough labor market, personal health problems that make it difficult to keep up the daily grind, and the need to serve as a caregiver for an ailing spouse.

An assortment of strategies can combine to strengthen economic security in retirement. Hopefully, some of them are part of your own family plan. For most people, however, Social Security remains the linchpin of well-being in retirement.

Life Is Risky

When you’re young, the fact that life is risky may be hard to grasp, especially if you’ve been spared tragedy. But that’s one of the reasons Social Security was created — as a form of insurance to help ease some of the bad things that can happen in life.

Out of all the young men entering the labor force, 35 percent will become disabled or die before reaching retirement age, according to an analysis by the SSA. Among young women, the figure is 30 percent. And the chances of becoming disabled are a lot higher than the chances of dying, for both men and women.

Bottom line: Devastating events happen, perhaps more frequently than you realize, especially when you consider a period of many years. And when bad things happen, the tragedy may affect not only the victim, but the victim’s entire family, whose livelihood may also be put in jeopardy.

The protections that Social Security offers for survivors and disabled breadwinners can be a lifeline for families of all ages. They help households stay afloat financially at a time of grave crisis, providing the foundation they need to rebuild their economic plans for the long haul. They’re an important reason that young people have a stake in a strong program of Social Security.

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