The Social Security program officially began in the US in 1935, after President Franklin D. Roosevelt signed the Social Security Act. Beginning in 1937, workers were required to pay a payroll tax of two percent to contribute to the program. Initially, the benefits given in Social Security only covered the person who was working. The Act was amended in 1939 to cover the spouse and family of the working person and to cover the family in case of the death of the worker. Over time, the amount in payroll taxes increased to 12.4 percent.
Concerns about the future of Social Security benefits began to arise in the 1970s. There was an indication that there would not be enough funding to pay all the benefits by 1979. To make up for this, the amount of payroll taxes was increased. In 1996, there was concern that the fund would be depleted by 2029, as the number of people retiring was greater than the number of people in the work force.
Social Security benefits will only provide about 40 percent of the retirement needs of most people. Some retirees will have to make adjustments to their standard of living if they do not have other sources of income. Because many companies are reducing or completely eliminating pensions there is corner that the people of the baby boomer generation may not have enough income to support themselves once they retire. It is for this reason that it is wise to consider other retirement savings options such as 401k plans and IRAs if they are not already being contributed to.
401k plans are retirement savings plans sponsored by a person’s employer. Some employers offer a match, meaning they will contribute up to a certain amount to the account when the employee contributes. For example, an employer may match up to five percent of a person’s salary. If an employee earns $50,000 and contributes at least $2,500 to their 401k in a year, the employer will also contribute $2,500. The employee is free to contribute more than five percent if they wish, though there is an annual limit on the total they can contribute. There are usually limits and restrictions on a 401k plan. The employee may not withdraw the money without penalty before the age of 59 ½ in most cases.
Other retirement savings options include IRAs, or individual retirement agreements. An IRA can take many forms, from a savings account to a mutual fund. The most a person can contribute to an IRA each year is $5,000, or $6,000 if they are over age 50. There are two types of IRA, a traditional IRA and a Roth IRA. Contributions to traditional IRA are tax-deductible, but the retiree will need to pay taxes when they withdraw the money. A person pays taxes on contributions to a Roth IRA, but does not pay tax on withdrawals or on the earnings.
- History of Social Security – Timeline from the Social Security Reform Center showing important years and dates in the history Social Security.
- Pre-Social Security Period – History of retirement payments before the Social Security Act. Includes information on similar plans proposed around the same time period.
- History of Major Changes to the Social Security System – Article on the development of Social Security through time and concerns about its function and future.
- Top 25 Social Security Questions – Answers to frequently asked questions and concerns about Social Security from AARP.
- What is a 401k? – 401k plans explained by the Wall Street Journal.
- Summary Plan Description – Information from the IRS that every saver should know about their 401k plan.
- Why You Need a Roth IRA – Explanation of Roth IRAs and their benefits from Kiplinger.
- How a High Earning Couple Got Roth IRAs and You Can Too – Article from Forbes on rolling over funds in a traditional IRA to a Roth IRA to save money on taxes in retirements. People who earn over a certain amount cannot contribute to a Roth, but they can roll over traditional IRAs into a Roth.
- All About IRAs – General information on traditional and Roth IRAs from the Motley Fool.
- Seniors and Social Security – Issue page from the White House on strengthening Social Security.
- The Retirement Prospects of Baby Boomers – Brief from the Congressional Budget Office on retirement options for the baby boomer generation.
- What You Should Know About Your Retirement Plan – Information from the Department of Labor on the different types of retirement plans and the rules for each.
- Evaluating Your Retirement Options – Article from the Securities and Exchange Commission on 403(b) plans, a retirement savings option commonly available to teachers and those employed by non-profits.
- Why We Need Social Security – Article arguing for the continuation of Social Security over privatized retirement plans.
- The Right Reason for Saving Social Security – Article from a senior fellow at the Brookings Institution explaining the real reason why saving Social Security is important.
- Public Perceptions of Social Security Future Solvency – Discussion of the perception of Social Security and argument stating that the future of Social Security is stable.
- As Target Funds Falter, Pros Mull Options – Article from Smart Money discussing the wavering of target-date funds, once a popular retirement savings option.
- Should We Raise Social Security’s Earliest Eligibility Age? (PDF) – Report discussing the benefits of increasing the lowest eligibility age for Social Security benefits.
- Social Security: Old Age and Survivors’ Insurance (OASI) – Social Security eligibility requirements. Includes a chart showing the age people are eligible to receive benefits based on their year of birth and how much the benefit increases for each year they wait.
- The President’s Commission to Strengthen Social Security – Website of the Commission to Strengthen Social Security. Includes a list of the guiding principles of the commission.
- Concern As Baby Boomers Prepare for Retirement – Article from the Financial Times discussing other retirement concerns, such as the skills gap and concerns that there are not enough new workers to replace retiring workers.
- 12 Ways to Fix Social Security – Story from US News offering 12 suggestions to fix the Social Security program.
- Choosing a Retirement Option – Options for retirements savings offered by the University of Oklahoma. Includes a list of questions an employee can ask themselves to help them decide.
Written by Phil Danforth