Is Social Security forcing seniors onto the street?

Social Security Administration SealPhoto byU.S. Government - Social Security Administration

In 1935, President Franklin Delano Roosevelt signed into law the Social Security Act. The Act was intended originally to provide temporary relief that “would eventually disappear as more people were able to obtain retirement income through the contributory system.” In other words, as more workers paid into the system that we now call Social Security, those who retired at the age of 65 would be able to rely on benefits that they had contributed into the system to sustain themselves through retirement.

Social Security taxes began being collected in January 1937 under the Federal Insurance Contributions Act (FICA), which were then distributed into Special Trust Funds. The Trust Funds were then used to pay benefits to retirees.

The first Social Security benefit payments were made in one-time, lump-sum payments to provide “payback” to those who had paid into “the program but would not participate long enough to be vested for monthly benefits.” Originally slated to last until 1942, this payment plan lasted from 1937 to 1940 as the Trust Funds were built from the FICA taxes.

President Franklin Delano Roosevelt signs the Social Security Act into Law, August 14, 1935Photo byWisconsin Historical Society

Over these three years, the average lump-sum payment was $58.06, equivalent to about $1259.30 in today’s dollars. With the average monthly wage at $148.33, these lump-sum payments equated to less than a year of salary for recipients.

Legislation in 1939 expedited the transition to monthly payments, having them begin in 1940 instead of the originally-intended 1942. The legislation also added new payment categories: “payments to the spouse and minor children of retired worker (so-called dependent benefits) and survivors benefits paid to the family in the event of a premature death of a covered worker.” It additionally increased benefit amounts.

The monthly payments distributed in 1940 averaged $21.97 per month, equivalent to $490.14 in today’s dollars. This equated to an annual benefit of approximately $263.64, with the average annual income for workers set at $1,368.

New amendments to the Act were legislated in 1950 that brought Cost of Living Adjustments (COLAs). The applied COLAs almost doubled some of the payments to retirees. Annual worker income had more than doubled by this time reaching $3,300.

Cost of Living Adjustments (COLAs)Photo byReason Foundation

While occasional COLAs were enacted since that original – 1952, 1954, 1959, 1968, 1970, 1971 – legislation in 1972 made COLAs an annual event, to begin in 1975. From 1974 to 1982, COLAs were implemented in June of each year; beginning in 1983, that was changed to December.

Original publicizing of the program indicated that Social Security would essentially provide a retirement for those leaving the workforce due to old age on which they could continue to live, but the program has failed to provide the funds to do that. From the outset, average Social Security benefits have fallen far short of this anticipation.

From the beginning of the program through the 1960s, benefits provided roughly half the rate of the average household income. By 1975, though, this rate had fallen to less than one-fifth that of the average income. In the almost 50 years since then, this is where the ratio has remained, with the average Social Security annual payments equaling approximately 20 percent of the average household income.

Even doubling the benefit payment amount to account for a two-income household, Social Security recipients receive less than half of the average working household income. While retirees are not generally in the market to purchase a new home or vehicle, the largest investments that families make, the overall cost of life is constantly increasing.

Inflation StreamPhoto byUAB (University of Alabama Birmingham)

Since 1975, inflation has averaged 3.73 percent year-to-year, while COLAs have averaged 3.77 percent over that same period. More than half the time, though – 27 of the 49 years – COLAs have not matched the rate of inflation. Inflation is caused, in part, by an increase in worker wages. As those wages increase – 2023 incomes are almost 8.5 times what they were in 1975 – so do prices for common goods such as food, fuel, electricity, and other necessities. Social Security benefits have barely kept up with this rate being just over nine times what they were in 1975, but still equaling around twenty percent of the income of a working household.

As the 2024 inflation rate has been reported to currently be at 3.4 percent, the 3.2 COLA that retirees received for the current year is, as the Motley Fool headlined, “falling short of retirees’ needs.” Many retirees are finding it difficult to afford just to live, as indicated by the situation of Crystal as chronicled by Business Insider.

Similar to Crystal’s story, but on an increased scale, Cynthia, whose last name is being withheld for privacy, finds herself in financial straits.

Having worked and paid into Social Security since she was 16, Cynthia was basically forced to enroll for her Social Security benefits at age 62, during the height of the COVID-19 pandemic.

By enrolling early instead of waiting until age 65, Cynthia receives a lower monthly payment than others. This because she was released from a contracted position with the federal government during a time when nobody was hiring.

Comparison of COVID-19 vs. the EconomyPhoto bySimon Business School, University of Rochester

Even with Cynthia’s husband employed in a position with pay and benefits somewhat commensurate with his almost three decades in the industry, the combined income of his salary and her Social Security fell short of meeting their needs.

Their lifestyle was not extravagant by any means. They lived in a three-bedroom house which they had rented for three years at that point. Their rent, which the landlord had not increased from the original terms, was $1,500 per month while similar rental homes were being priced at upwards of $2,300 per month. Their only vehicle is fully paid for, requiring only normal upkeep, maintenance, and insurance. Cynthia’s husband worked from home, lowering those obligations from the norm of a similar household as there were no costs for commuting.

The two did have five pets at the time: three beagles and two cats at the time of their move-in. In the time since, though, the elder of the cats ran off into a snowstorm and was lost; another cat had recently joined the family keeping that number at two. Later, one of the beagles ate part of an ant bed that had been laced with ant killer, reducing the number of beagles to two.

As Cynthia’s husband made the food for the dogs, based on recipes from one of the world’s top veterinary nutritionists, and as they chose high-quality but not overly-expensive food for the cats, pet costs were minimal. The diets meant that the animals did not need regular veterinary services.

Two Beagles and a CatPhoto bynhpip - Reddit - r/beagles

The couple only dines out generally for special occasions, instead choosing for less-expensive and healthier home-cooked meals. Even when dining out, though, they choose budget-friendly restaurants.

Having to “borrow from Peter to pay Paul” by using credit cards to their maximum limits just to keep the lights on and water flowing, Cynthia found a part-time job to supplement their incomes. Seven months into this job, Cynthia fell at home and broke her ankle such that 11 screws and a metal plate had to be inserted. This essentially ended that job for her as the duties required walking throughout a grocery store for her shift.

On bed rest for several weeks, followed by physical therapy sessions, Cynthia now uses a cane to walk but does not qualify fir Disability payments as she had already enrolled for her Social Security benefits. She still often and regularly experiences pain from that ankle.

To make matters worse for her, Cynthia fell again just over a year later, as she and her surgeon were discussing whether to remove the screws and plate from the ankle. This time, she was able to catch herself on a stool but still fractured her humerus and ripped the rotator cuff from the bone. That added another screw to her body and another literal pain point.

Handicap ParkingPhoto byDeposit Photos

This solidified Cynthia’s categorization as “Disabled” and unable to work, and has resulted in her being referred to a Pain Management program some 18 months after the shoulder surgery and after Occupational Therapy.

With the couple already struggling to survive on only the two forms of income, Cynthia’s husband was laid off in early August 2023. Even though he received a severance package that included a lump-sum payment, his income was reduced to the amount of his Unemployment Compensation, about half of what he had been previously earning.

Seeming to almost coincide with the layoff, Cynthia turned 65 in August. This meant that her income, too, was being reduced as she was being forced to enroll in Medicare.

Having been with the company for a little under five years, there was a balance available in his 401(k) and some stock options that he had been issued.

All of the couple’s investments now were being used just to survive instead of to supplement their Social Security in retirement.

Worker experiencing job lossPhoto byWalls Career Coaching

Through the fall and winter, Cynthia’s husband sought work. It seemed potential employers viewed him as overqualified, despite his history of having no issue “starting over.” He consistently received the dreaded “We’ve decided to move forward with other candidates” emails if he received any response at all.

To make sure that the necessities – water, electricity, internet, telephone, and, of course rent – were paid, other obligations were put aside. This included credit card payments, student loan payments, and a payment plan with the Internal Revenue Service (IRS). The couple was even forced to allow insurance for their personal property and automobile to lapse.

In February, Cynthia’s husband was able to gain a new job, but one that paid substantially less than his previous. Even between Cynthia’s Social Security payments and her husband’s new salary, they were unable to keep up with their bills and rent. This led to them eventually being evicted from their home.

Eviction NoticePhoto byDeposit Photos

Had the original 1935 promise of Social Security been kept, neither Crystal nor Cynthia would have to work a job beyond retirement, and Cynthia would still have a home and roof over her family’s heads.

Not only do Social Security benefits not meet the needs of retirees, limits on the amount of job income they can receive further restrict the retirees’ ability to provide for themselves. It is as if Social Security is forcing seniors out of their homes.