5 easy pieces of Social Security advice, information and trivia

August 31, 2011

Why has Congress raised the Social Security full retirement age but not the early age? Why don’t we fix Social Security’s finances by cutting administrative overhead? Why do Social Security numbers have nine numbers and what do the numbers mean? Who got the first Social Security card?

I get a constant stream of questions about Social Security — no surprise, since benefits are the most important source of income for most retirees. In fact, new data from the Social Security Administration shows benefits accounted for 38 percent of total income for Americans over age 65 and older in 2009 — up from 30 percent in 1962.

The flow of questions picked up speed after I published a primer on the program in the September issue of AARP Magazine. Here are some of the Qs along with my As . . . along with answers to a few questions I wish readers had asked, but didn’t.

Q: They have raised the retirement age for Social Security from 65 to 67 and now want to raise it to 70. Can anyone explain to me why haven’t they raised the minimum retirement age (62) to keep up with the maximum retirement age? Would raising the minimum age to keep it within three years of the maximum help to keep Social Security solvent longer?

A: Social Security’s Normal Retirement Age (NRA) is increasing gradually from 65 to 67 under reform legislation passed in 1983. Lawmakers kept the early retirement age at 62 to continue giving workers a choice to retire early, even though they would receive a proportionally smaller benefit as the retirement age increased.

Monthly Social Security benefits are reduced when you take early retirement. When the full retirement age was 65, the amount of the reduction for taking benefits at 62 was 20 percent; now that the age is 66, the amount of the reduction is 25 percent. When the full retirement age hits 67, the reduction will be 30 percent. The purpose here is to assure that someone filing at age 62 receives about the same in lifetime payments as someone who files later in life.

Keeping 62 as the early retirement age enables workers employed in physically-demanding jobs to retire without having to apply for disability benefits. In fact, proponents of increasing the early retirement age usually feel compelled to include some sort of mechanism to accommodate manual laborers who are no longer able to perform their past employment but are not impaired enough to qualify for disability.

Raising the early retirement age would save money, but only modestly. The reason for this is that for the most part, early retirement doesn’t increase the amount of lifetime benefits paid to a retiree. Any savings associated with increasing the early retirement age stem mostly from avoiding payments to individuals who live to age 62 but die prior to attaining a higher early retirement age, say 63 or 64. These savings would be reduced if increasing the early retirement age were to be accompanied by a fully developed plan for accommodating workers in physically demanding occupations.

Q: Why doesn’t the Social Security Administration simply cut its costs to solve the program’s long-term financial problems? As a business owner, I am constantly aware of increasing revenue as well as trimming the fat from our overhead.

A: Social Security’s overhead expense already is amazingly low. Administrative costs for Social Security’s key programs – old age and disability — account for less than 1 percent of what the Social Security Administration expends – 99.1 percent goes back out the door as benefit payments. That figure includes the Treasury Department’s expense of collecting the taxes and issuing payments. Administrative expense is funded through the same FICA taxes that fund benefits, and they’re included in the long-term projection of the Social Security Trust Fund’s health.

The old-age program is so efficient because it is so automatic — the agency doesn’t have to spend money to administer a means-test for benefit applicants. Although some reform advocates propose means testing as a way to solve Social Security’s long-range imbalance (a poor idea for other reasons), it likely would be a financial wash.

Economist Dean Baker of the Center for Economic and Policy Research points out that, “the vast majority of Social Security benefits go to relatively low- and middle-class people,” with more than 75 percent going to individuals with non-Social Security incomes of less than $20,000 a year, and 90 percent going to individuals with non-Social Security incomes of less than $50,000 a year.”

More to the point: The cost of administering a means test likely would eliminate “most, if not all, of the savings from a plausible means test on affluent beneficiaries,” according to Baker’s research.

Q: Why does Social Security assign nine-digit personal identification numbers, and what do they mean?

A: At its inception in 1935, Social Security posed a mammoth organizational challenge in a pre-computer era. At the time, there were 26 million people working for 1.7 million employers, so the challenge was to create a reliable, efficient way to track their earnings and benefits. The solution was the nine-digit unique identifier still in use today. The first three numbers identify the state where a number is issued; the middle set of two numbers and the final set of four are central to the system’s filing system, which can allow enough permutations to create one billion unique Social Security numbers. A plan to issue a metal nameplate — like a dog-tag — was considered very briefly but rejected in favor of a simple card. An Albany, New York artist designed the card — and that design is still used today.

Q: Who received the first Social Security card, and how was that determined?

A: Number 001-01-0000 was issued on November 24, 1936 to Grace D. Owen of Concord, New Hampshire, who just happened to apply early on the first day that cards were issued. The state of Maine originally was slated for the 001 “area” designation, but it was shifted to New Hampshire with the intent of assigning the first number, on an honorary basis, to John G. Winant, a former governor of the Granite State and chairman of the Social Security board. When Winant declined the honor, it was decided that the first New Hampshire applicant would get the number.

Q: Are there any famous or funny lines about Social Security in movies or television shows?

A: Yes. In Season One, Episode Four of Friends, Rachel Green looks at her first paycheck and asks: “Who’s this FICA guy? I earned this. I wiped tables for it, I steamed milk for it, and it was totally … not worth it! Who is FICA and why is he getting all my money?

Do you have a question about Social Security? Ask it below in our comments section and we’ll get back to you.



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Can you please explain why it’s taking so long to simply raise the income cap for SS contributions? That seems like such an easy, immediate way to partially ensure that the fund remains solvent. And the cap hasn’t been changed in years!

I’ve never understood why upper income people who make more than $106K/year pay a lower percentage into Social Security than I and other lower-income people do.

Posted by bola | Report as abusive

With all the “hoopla” regarding Social Security being about to go belly up, what is the truth without benefit of a political rejoinder by someone with an axe to grind? It is my understanding that SS would have always been self sustaining had it not been for Congress which has helped itself to an atrocious amount of the SS money over the years. Is this also the truth?

Posted by Wassup | Report as abusive

Answers follow

The income cap would be offset by potential higher payments for those who would pay it. I agree that it is a good idea especially if only raised for inflation. Apparently you don’t understand math as they pay the same percentage as you do and pay a lot more total money than lower paid folks.

Congress has spent the cash and issued Treasuries for the difference. It is my understanding that this would make no difference in the running out of money unless you assume that some other investment would pay more.

I was surprised that institution means testing would net so little due to the administration costs.

Posted by vulcanalex | Report as abusive

I don’t understand why so many people don’t pay into social security such as government or state workers. My father was a teacher in MA and never paid into SS – he only paid into the state retirement program. The ones making the decisions in congress do not pay into the system in the first place – I think it puts them out of touch with the problem.

Posted by MargoFL | Report as abusive

Why is obama and congress cutting social security tax when they know SS is in trouble? Why does the govt. keep robbing SS to fund give away programs to people who don’t want to work and are just looking for a hand out? When I was working I had to take a drug test in order to have a job. The same should be for people want food stamps,wic, unemployment and free housing. The govt. is giving SS to people all the illegals. Illegals can get meicade, I can’t. obama is giving this country away.

Posted by buddy7777777 | Report as abusive