I was born in May of 1946, in the first year of the generation that became known as the Baby Boomers, the last of whose members were born in 1964. Thus the last three American Presidents have been members of our generation, Clinton and the younger Bush, like me, on the leading edge, and Obama, born in 1961, near its tail.
In June I will attend my 50th high school reunion, Mamaroneck High School class of 1963. I was one of the younger members, with most of my classmates born in 1945.
Many of us are now retired. Many of us have lived through the major changes of Social Security. I would like as my part of the Social Security Defenders blogathan, explore what I have lived through, and what I - and many of my compatriots - face now.
Please join me below the squiggle.
I first began working for pay subject to Social Security taxes near the end of my senior year in high school, first for our local McDonald's (back before the chain had sold its first 100,000,000 burgers) and then for our the day camp of the nearby New Rochelle Boys Club. The minimum wage was $1.15/hour, except in retail establishments like McDonald's it was only $1.00/hour. Only the first $4,800 of wages was subject to payroll taxes on the employee of 3.625% (for historic tax rates look here and for the ceiling on income subject to such taxes look here).
For the present year, the limit on income is now many times that, $113,700, which is subject to a combined payroll tax rate of 7.65%, of which 6.20 is Social Security related, the rest being Medicare, which was not yet in effect when I first began working.
For a good chunk of my working career, I did not pay Social Security on all of my income (which was almost exclusive pay for my jobs). Even as the income ceiling continued to rise, so did my salary, and it was not at all unusual that by sometime in October my take-home pay would jump up, as I had fulfilled my obligations to the Social Security system and money was no longer being deducted. Further, on occasion I would have a second part-time job from which payroll taxes were also deducted, and since I was fulfilling my obligations in my primary job those social security taxes would be added to whatever income tax refunds I would receive from the IRS.
Consider the following changes in the ceiling over the period of my working career:
Until I left my previous career in data processing in mid-1994, I was used to having at least a couple of months where I did not pay Social Security taxes.
Since then? Well, teachers rarely reach that "stratospheric" level of salary!
Another way to look at it is to compare those rates with the minimum wage. You will remember that when I began it was about a 4000-1 ratio. You can examine the historical data on minimum wage here Let us simply note that until the recently voted increases, the Federal minimum wage a 7.25/hour when compared to 2012's ceiling of 110,100 represents a ratio of over 15,000-1.
One reason the ceiling kept getting raised was to keep Social Security financially viable. Clearly were the ceiling to be raised or even eliminated, there would be no need to even consider means-testing benefits (which would undercut support for the program) or limiting benefits, either directly or by using Chained CPI to calculate the need to raise benefits to keep up with inflation.
We have also seen the age at which one can draw full Social Security benefits rise. Historically one has been able to begin drawing Social Security benefits (old age, not survivor or disability) at age 62, but the age one had to be eligible for full benefits has been rising depending upon when one was born, as one can see here:
Year of birth Normal retirement age
1937 and prior 65
1938 65 and 2 months
1939 65 and 4 months
1940 65 and 6 months
1941 65 and 8 months
1942 65 and 10 months
to 1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
and later 67
As a baby boomer, I became eligible for full benefits when I turned 66. Because I knew I was going to take a buyout and retire from teaching position less than 6 weeks after I turned 66 in May of last year, I chose to begin drawing Social Security benefits as of January 1 of last year. I pay a small monthly penalty because of it, which over the long term could add up to a significant total, but over the short term it provided me with greater financial flexibility, which given what has happened with my wife's health has become quite important.
For far too many, Social Security benefits are insufficient to maintain one's lifestyle. Even when defined benefit pensions are added in for those of us still fortunate enough to have them, it can still fall short. Thus many of us have to work. Many others choose to continue working.
Whereupon if we are drawing Social Security benefits, we get penalized.
You read that right. In a society in which we emphasize the importance of working, if we continue to work while drawing Social Security we are penalized for doing so. It is not as bad as it used to be before President Clinton signed a relevant law in 2000.
As you can read here the penalties on income earned while drawing Social Security can be severe, and I will feel them somewhat as I file taxes for last year:
How much can I earn while receiving Social Security retirement benefits?I am paying Social Security taxes on wages I earn, I am penalized for the wages/salary above a certain level, and oh by the way I also pay taxes on the benefits - in my case on 85% of the benefits received.
The amount you can earn while receiving Social Security depends on your age. Your earnings in (and after) the month you reach full retirement age will not affect your Social Security benefits. However, your benefit is reduced if your earnings exceed certain limits for the months before you reach your full retirement age.
If you are under full retirement age for the entire year:
• You can earn $14,640 gross wages or net self-employment a year and not lose any benefits in 2012.
• We will deduct $1 in benefits for every $2 earned above $14,640.
In the year you reach full retirement age:
• You can earn $38,880 gross wages or net self-employment prior to the month you reach full retirement age and not lose any benefits in 2012.
• We will deduct $1 in benefits for every $3 earned above $38,880.
I am not complaining. Perhaps I should note that I actually first received Social Security benefits when I was 17 - my mother died shortly after I graduated from high school, and part of my college expenses were paid by my receiving benefits as her survivor.
I am also fortunate in that I make my living using my mind. I am able to continue my working - even if I am somewhat penalized for doing so - because I am not yet limited by infirmity or exhaustion.
I really think we should be adjusting the age for full benefits downward to accomodate those whose work cannot be continued even into their mid-60s.
I think we should reexamine part of how we fund Social Security, including lifting the cap on earned income subject to the taxes.
Under no circumstances should we continue to raise the age of eligibility.
Under no circumstances should we limit the benefits, whether directly or through the back door of chained CPI or means testing of receiving benefits. In fact, the penalties that I an others pay for continuing to work probably ought to be reexamined.
I am a Baby Boomer.
It is my generation that in theory represented the threat to the financial security of the system.
We have addressed that with changes over time, in ceilings, in rates, in age eligibility.
Any remaining problems are more than addressed simply by raising the cap on earnings subject to the tax.
I have benefited from Social Security.
I want those behind me also to benefit.