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Social Security, Lies and Videotape – a Massachusetts Consumer Lawyer’s Perspective

This note is not intended as a primer on Social Security, but a brief essay, by a Boston bankruptcy attorney who regularly receives a host of questions from clients on where its going, where it came from, and what is does now. From its inception during the Great Depression in 1935, the Social Security Act was expected to “To provide for the general welfare by establishing a system of federal old-age benefits and by enabling the several states to make more adequate provision…” Essentially, the federal Act was intended to provide economic security for all; a matter too critical to be left to the several states and their various laws.

With the economy devastated by the Great Depression and no longer relying on local farming, there was need for a federal action. President Roosevelt established a Commission which modeled the Act on German leader Bismarck, who, in 1889 designed the contributory pension system. Most of Western Europe adopted some form of what we know as Social Security before 1935. The Act covered assistance to the states to provide for three basic needs: the aged, the blind and dependent children. The law has been amended and augmented numerous times since then. In 1965 Medicare was added, to provide for medical care for the aged and in 1972 the cost of living adjustments were added.
 
Today, Social Security is financed by a 12.4% tax, half paid by employees and half paid by employers; or, all paid by the self employed! The benefits are paid to over 53,000,000 Americans. Notwithstanding all of the news, for 25 years it is taking in more than it is paying out; the reserves, over $2,500,000,000. are all invested in U.S. bonds. According to the Congressional Budget Office the reserve fund plus anticipated payroll taxes, should keep full payment of benefits to 2052. Obviously, employment, taxes and politics will play a role in adjusting this outcome.
 
Where does the money go now? Notwithstanding what you may hear in the popular media, 64% of the money goes to retired workers, who paid into the system; 15% goes to disabled workers; 9% to widows, widowers and parents; 8% to children; and 5% to spouses.
 
Our editorial comments: prior to the Social Security Act and its amendments, there was a large developing problem with elderly people having insufficient income and care; they were no longer living on the family farm and they were living longer. Following the Act, this problem diminished. There is a new problem developing, however. In the second half of the last century, most workers were covered by pensions from their employers. Those pensions, a home, plus Social Security, enabled two generations to retire comfortably. Now, with corporations cutting back on pensions dramatically, most folks are expected to save for retirement themselves, through 401(k), 403(b), IRAs and other similar plans. If the stool has three legs — savings and or home ownership, Social Security, and self directed pensions – folks better be focusing on savings and self directed pensions. Otherwise, we’ll end up back where we were at the end of the agrarian period. We have many blog articles about 401(k), retirement and savings and welcome our clients and potential clients to call for assistance.