The Economic Policy Institute has released A Young Person’s Guide To Social Security. Take a minute and learn about how this program could be a literal lifesaver. Of course, if the GOP has it’s way maybe not…
When asked, “What is Social Security?” most people answer with some variation of, “It’s money that old people get from the government.” But that is like saying that the Pentagon is the world’s largest office building— it’s not that it’s incorrect, it’s that it tells you nothing informative. Why is the Pentagon so large? Who works there? What do they do? The answer that Social Security is money for old people doesn’t tell us much either. How much money? Why old people? Why does it have its own tax? Why do some children receive it, and the disabled? Will I get it? The answer is simple. Social Security is insurance. Workers pay premiums (the payroll tax) to secure coverage for themselves and their families. And like any insurance, their coverage protects them on the occurrence of a specific event. With Social Security, that event is being no longer able to work. This happens in three instances—old age, disability, and death. As early as age 62, you can claim reduced old-age benefits for yourself, your spouse, and your young children. If you become disabled, you can claim benefits for yourself, your spouse, and young children. And if you die, your spouse and children can claim benefits based on your earnings record. Insurance exists to protect individuals from risk.
What are the risks associated with not being able to work? Poverty. It is the risk that you can end up with nothing, nothing because you made low wages and could never save, nothing because you never had pension or 401(k) benefits through your job, nothing because you were laid off during a recession and had to burn though your savings to make it to the next job, nothing because you became ill and had to stop working, nothing because your child became ill and you had to stop working, or nothing because the company you work for went belly up or the stock market crashed and wiped out half of your 401(k).
If you are 22 years old and starting your first job in the Spring of 2016, you have 45 years before you can claim full Social Security benefits. On the day you begin your first job, someone who began work 45 years earlier, in 1971, will retire. In his or her 45 years, this worker witnessed six recessions—in 1973, 1980, 1981, 1990, 2001, and 2007; lived through inflation, stagflation, oil shocks, oil rationing, the stock market crash of 1987, the savings and loan collapse, the bursting of the dotcom bubble, the bursting of the housing bubble, the stock market crash of 2008, and the bailout of AIG, the financial industry, and the auto industry; saw unemployment climb above 10% twice—in 1982 and 2009; and all this over a time period with slowing wage growth for the bottom 50% and the decline of traditional pensions. This worker faced risks beyond his or her control and so will you. And the answer to risk is not to work harder at accurately predicting the future, but to insure against it. Even the best drivers get in car accidents. The safest homes can be destroyed by fires. The healthiest people get sick. It’s not a matter of intelligence, it’s that certain things are beyond your control. Some of us will need Social Security before reaching retirement age— either due to disability or death. Some of us will not need Social Security until retirement. We cannot know which category we will fall into until we get there. But like all insurance, it’s better to have it and not need it than need it and not have it.