Ever since President Franklin Roosevelt signed the Social Security Act into law in 1935 there have been major changes over the decades. While the first benefits came in the form of a one-off lump sum payment, the program has gradually broadened to incorporate benefits for workers’ dependents and survivors.
The first check then was for $22.54. Adjusted for inflation, the amount is equivalent to $420.15 today. But it was not until 1950 that the first cost-of-living-adjustment (COLA) was added including an increase of 77%.
The original Social Security Act of 1935 was put together to provide comprehensive economic security for the nation’s workers. Originally, the scope was limited to providing benefits to retired individuals aged 65 or older. They had to earn their retirement benefits through jobs that were listed in the system.
The formula was weighted to give a greater return to low-wage workers in terms of percentage. By 1939, significant amendments were made that shifted the emphasis of Social Security from the protection of the individual worker to total coverage for the family. The monthly benefits now included dependents and survivors. The program now includes Old-Age and Survivors’ Insurance.
The following decades have mostly been about expansion. The only exception to universal coverage of workers has been employees of local and state governments who opted out of the system.
Two significant inclusions were disability insurance in 1956 and the Medicare program for the disabled and aged recipients of Social Security benefits. The Medicare program was introduced in 1965.
The types of increased since and so have the level of benefits. But these inclusions came at a cost for workers who now pay 7.65% on the pay of employees and employers each.
One significant move was in 1975 when legislation enacted in 1972 ensured that benefits would increase by a percentage identical to the increase in the cost of living. Disability payments for older workers were included in the 1956 program. President Dwight D. Eisenhower signed a law in 1960 that extended disability payments to workers irrespective of age and also to their dependents. By the end of the first year over half a million people were in line to receive disability payments, which then averaged $80 a month.
Changes Over The Years In The Social Security Retirement Age
When the law was enacted, the age to claim Social Security payments was 65. Subsequently, the 1961 law enabled workers to claim Social Security payments by the age of 62, but the amount was permanently reduced.
Now a majority move towards claiming their Social Security benefits starting at 62. Another amendment to the law increased the full retirement age to 66 for the baby boomers and 67 years for people born in 1960 or later. The reduction in monthly payments was reduced for people who signed up before they reached the full age of retirement. Provisions have also been introduced to increase the Social Security payments for retirees who delay claiming their benefits past the full retirement age and wait until seventy.
Social Security Benefits And Income Tax
Social Security payments first became taxable for people with an Adjusted Gross Income above a certain amount. This was introduced in 1984. If your Adjusted Gross Income, 50% of the Social Security benefits, and non-taxable interest together exceed $25,000 for single filers and $32,000 for married couples filing jointly, you will be taxed for it.
And if the total income on the same lines mentioned above is over $34,000 for individuals and $44,000 for married couples filing jointly, 85% of the Social Security payments will be subject to taxes.
The threshold for calculating taxes is not set up against inflation. So people will be taxed for a part of their Social Security income.
The original Social Security payroll tax contribution was a mere 1% of pay when it was first introduced almost a century ago. This amount was matched by employers. In 1950, the tax rate increased marginally to 1.5%. By 1978, there was a substantial increase and it crosses the 5% mark. By 1992 it has gone up to 6.2% and that is the figure that has continued to this day.
The tax cap too has increased over time to $51,300 in 1990 and again to $147,000 in 2022. An Adjusted Gross Income higher than this amount is exempt from the Social Security payroll tax or factored into benefit payouts.
Only special acts of Congress could increase the Social Security payments in its initial years. When the payments first started in 1940, workers received an identical amount until the payments received a boost from Congress. Further increases continued to take place on an ad hoc basis.
The increases were generally linked to an election year. A 1972 law passed by Congress created an automatic cost-of-living adjustment to Social Security payments based on an annual increase in consumer prices. This increase in payments first started in 1975 and went up to 0 in 2010. 2011, and 2016 to 14.3% in 1980.
At present beneficiaries can sign up and receive the Social Security payments online. A 2013 law now requires all beneficiaries to receive payments through direct deposit to a bank account or loaded onto a prepaid debit card. It has come a long way in the past 8 decades from direct cash payment to beneficiaries.
The SSA is now gradually giving out additional products online.
The SSA has also done away with mailing the Social Security payment statement to beneficiaries. But you can access the statement through your online account and check your earning details and history. You will also get details of your tax paid and also get a personalized forecast of Social Security payments.
The earning statements have helped people to check the accuracy of the statement before they retire. It is also advisable to sign in and check the statements at least once every year.