History
The Social Security Act, signed into law by President Franklin D. Roosevelt in 1935, created Social Security, a federal safety net for elderly, unemployed and disadvantaged Americans. The main stipulation of the original Social Security Act was to pay financial benefits to retirees over age 65 based on lifetime payroll tax contributions. The Act also established the Social Security Board, which later became the Social Security Administration, to structure the Social Security Act and figure out the logistics of implementing it.
Source: History.com
Visual overview
Where does the money go?
Slightly less than 3/4 of the money collected from social security goes to retiree benefits.
Source: Open Retirement
Two ways to address the Social Security funding issue
- Fix 1: Raise the payroll tax rate. To remain fully solvent over the next 75 years, payroll taxes would have to rise by 3.14 percentage points to 15.54%. At the moment the rate is 12.4%, with 6.2% coming each from workers and their employers.
- Fix 2: Raise the ceiling on which Social Security taxes must be paid. The ceiling was $137,700 for 2020, but the cap is adjusted for inflation each year and rose to $142,800 in 2021.15 According to a Congressional Research Service report issued Sept. 27, 2019 (and based on 2019 statistics), eliminating the payroll cap while leaving in place current rules for capping benefit calculations would eliminate 84% of the projected 75-year shortfall.