MONEY Social Security

The Taxing Problem With Working Longer

Earning money after you start collecting Social Security can be a tax headache.

The question of when and how to file for Social Security is a tough one for many retirees—I regularly field questions on the topic. Recently a reader wrote to say he’d like to draw Social Security benefits at age 66 yet keep working until 75. What are the tax implications?

When you continue to work and draw Social Security, your benefits are reduced temporarily if you’re 65 or younger and your outside income exceeds certain levels. After 65, these reductions do not apply. You may, however, owe taxes on your Social Security income.

How Earnings Can Hurt

Not all of your Social Security income is taxable. Social Security uses a measure it calls “combined income” to determine how much of your benefit is taxable, and it can be tricky to understand.

To determine your combined income, take your adjusted gross income (check last year’s tax return), then add any nontaxable interest income and half of your Social Security benefit. (If you haven’t started claiming, you can get a projection online by setting up an account at ssa.gov.)

If the total is less than $25,000 ($32,000 on joint tax returns), you owe no income taxes on your Social Security benefits. If the total is between $25,000 and $34,000 ($32,000 and $44,000 on joint returns), you may have to pay taxes on half of your Social Security that’s over that threshold. Above that, 85% of your benefits may be taxable—the top rate.

Here’s how that could play out. Take a retiree in the 15% federal tax bracket who is taxed on 50% of his Social Security. When he earns another $1,000, his so-called combined income rises by that much too, subjecting another $500 of Social Security income to taxes. So the tax bill on that $1,000 won’t be $150 (15% of $1,000) but $225 (15% of $1,500), for an effective rate of 22.5%.

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MONEY

Your Workarounds

Beefing up your tax-free holdings, especially Roth IRAs, can mean money coming in that won’t trigger more taxable Social Security income. (Working less lowers your tax bill too, but you’re usually better off earning the money.)

If you can live on just your salary, deferring Social Security until age 70 also helps. Your taxes should be lower while you wait. And delaying benefits will increase your monthly Social Security payments by 8% a year (plus annual inflation adjustments).

Hedging Your Bets

Single retirees should think about one other option: filing for and suspending Social Security benefits at age 66. By doing so you will be able to request a lump-sum payment for all the suspended benefits
anytime until age 70.

Even the best of plans can change, so that payment could come in handy if you face an emergency cash crunch. But there’s a downside: Once you request a lump sum, your payout will be valued as if you took benefits at 66, as will your regular monthly benefit going forward.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” was published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

 

MONEY housing

Boomers’ Homes Are Once Again Their Castles

House in Colorado
Getty Images

A new study looks at the relationship older Americans have with their homes and finds some surprises.

Aging Baby Boomers apparently missed the memo about how badly they’ve prepared for retirement. While study after study highlights inadequate retirement savings and planning, a new survey and report sponsored by Merrill Lynch finds that a broad cross-section of older Americans are eagerly looking forward to new adventures and, especially, freedoms, in their later years.

“Home in Retirement: More Freedom, New Choices,” prepared for Merrill Lynch by the Age Wave consulting firm, focuses on the age-related transitions that people are making in the way they live and how they regard their homes. According to the study, nearly two-thirds of retirees say they are now living in the “best home of their lives” and making active efforts to create living spaces that match their new retirement lifestyles. Nearly as many say they are likely to move during their retirement years, and most of this group has already relocated once.

“When I look out at the future of our aging population, I have concerns, too,” said Ken Dychtwald, head of Age Wave and a longtime leader in aging research. “I am not a beginner at this. But I think a lot of our worries are not a fait accompli,” he said. “I think we have, to a fair extent, overemphasized the misery of aging.”

After lives largely determined by work and family responsibilities, boomer retirees find they are experiencing a new sense of freedom about where and how they live. An estimated 4.2 million retirees moved into new homes last year alone, the report found. And while downsizing is often recommended as a new lifestyle for retirees, nearly a third of retirees who relocated actually moved into larger homes. (One reason: One out of every six retirees has a “boomerang” child who moved back in with them.)

Only one in six retirees who moved last year wound up in a different state, emphasizing the strong attachments that boomers have to their existing communities. Among future retirees, 60% say they expect to stay in their current state while 40% want to explore other parts of the country.

From their 60s to their late 70’s, people “think of this as a great time and a time of great freedom,” Dychtwald said. “That word—freedom—came up over and over again.”

Reaching age 60 seems to represent a “threshold event” for people, added Cyndi Hutchins, director of financial gerontology for Bank of America Merrill Lynch. With careers winding down and children out of the house, people take a new look at their futures. Another transition occurs in the early to middle 70s, when many begin to slow down and become less active. “We see a spike in that freedom threshold again at that age,” she said. “We see retirement as a succession of different time periods.”

Whether people move or not, or downsize or not, their homes assume added significance, the study found. “Prior to age 55, more homeowners say the financial value of their home outweighs its emotional value,” the report said. “As people age, however, they are far more likely to say their home’s emotional value is more important than its financial value.” More than 80% of people aged 65 and older own their own homes, and more than 70% of them have paid off their mortgages.

If boomers do reinvest in their homes, it would provide a major boost to the housing and home furnishings business. In the next decade, the study notes, the number of U.S. households will increase by nearly 13 million, with nearly all of this growth—nearly 11 million—occurring among people aged 65 and older.

“Age 55+ households account for nearly half (47%) of all spending on home renovations—about $90 billion annually,” the report noted. “While younger households slowed or reduced spending on home renovations between 2003 and 2013, spending among those age 65+ increased by 26%.”

Common renovations among retired homeowners include: home office (35%), improved curb appeal (34%), a kitchen upgrade (32%), improved bathroom (29%), adding age-friendly safety features in a bathroom (28%), and modifying their home so they can live on a single level if needed (15%).

The report found the South Atlantic states were the favorite place for people to live and to relocate, followed by Mountain and Pacific states.

It also echoed other research that finds people overwhelmingly prefer to “age in place” in their own homes, with 85% of people preferring this option as opposed to moving to a senior or assisted living community.

Leading age-ready home features include a no-step entry; single-floor living; extra-wide hallways and doors; accessible electrical controls; lever-style handles on doors and faucets; bathroom safety features, and, accessible countertops and cabinets.

The Merrill Lynch study is the fifth in its series of seven planned reports dealing with people’s life priorities for their health, home, family, finance, giving, work, and leisure. Its findings are based on a survey of more than 3,600 adults representative of the broader U.S. population in terms of age, income, gender and place of residence.

Philip Moeller is an expert on retirement, aging, and health, and co-author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY Social Security

How to Max Out Your Social Security Checks

Understanding how Social Security computes benefits for full-time workers past the age of 60 may make you feel better about working into your later years.

One of the most common misconceptions I hear about Social Security is that it makes no sense to work in your later years—and keep forking over payroll taxes—because your benefits won’t rise.

For full-time workers, this is absolutely not true. Social Security uses very favorable rules for measuring wages for people age 60 and older who are still working. And older workers are a big and growing army: More than 8.2 million persons age 65 or older were in the labor force last month, up from 4.7 million 10 years earlier, according to the U.S. Bureau of Labor Statistics.

Of course, one of the main reasons people are staying on the job is because they need the money. Their retirement prospects may be bleak to boot. So understanding these Social Security rules is more important than ever.

Social Security bases your benefits on the top 35 years of your covered earnings. As used here, “covered” means wages on which you’ve paid FICA (Federal Insurance Contribution Act) taxes. There is an annual cap on wages subject to these taxes, but it goes up each year to reflect the past year’s increase in national wages. In 2015, the cap is $118,500.

Each year, Social Security indexes your wage earnings, adjusting them to reflect the impact of wage inflation. It uses these indexed wage amounts to determine your top 35 years of earnings.

This way, people get fair credit for all of their past earnings years. Otherwise, a 66-year-old who earned most of his wages 30 years ago would receive less in benefits than a 66-year-old whose earnings occurred in more recent years.

Wage indexing stops at age 60. This is a big deal. The reasons aren’t important here—what is important is that your post-60 earnings are not indexed and thus flow directly into your earnings record in their unadjusted, or nominal, form.

Because wages have increased in this country nearly every year since 1950, the odds are very good that someone who keeps working full-time past age 60 will earn enough money to represent a new “top 35 year.”

This is automatically the case for high earners whose wages exceed the annual cap. As the cap rises, so will the amount of their covered earnings, automatically becoming a new top-35 year. But even lower-earning individuals face good odds of having their post-60 earnings become new top-35 years.

When this happens, Social Security will automatically recompute not only your retirement benefits but the benefits of anyone else—a present or former spouse, young children, and even your parents—that are linked to your earnings record. And it will do this for every year in which your unadjusted earnings are large enough to become one of your top 35 earnings years.

Having said this, I share the frustration that many older workers express for continuing to fork over payroll taxes even after they’ve reached their maximum Social Security benefits. Paying something for nothing is no fun, and in this case it’s not right.

My solution, which maybe has just a constituency of me, would be to cut payroll taxes for workers who are at least 70 years old—and to cut them for their employers as well. This will still bring new taxes into Social Security, but it also will recognize the reality that these workers largely have already paid for their Social Security benefits.

Giving their employers a break will also create needed incentives to encourage hiring and retaining older workers. Right now, many employers balk at doing do, citing higher health care and perhaps retraining costs for older employees. Yet the need for this and other “aging America” changes is becoming clearer with each passing day.

Philip Moeller is an expert on retirement, aging, and health, and co-author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY IRAs

The Retirement Investing Mistake You Don’t Know You’re Making

The investor rush to beat the April 15 deadline for IRA contributions often leads to bad decisions. Here's how to keep your investments growing.

It happens every year around this time: the rush by investors to make 11th-hour contributions to their IRAs before the April 15 tax deadline.

If you’ve recently managed to send in your contribution, congrats. But next time around, plan ahead—turns out, this beat-the-clock strategy comes at a cost, or a “procrastination penalty,” according to Vanguard.

Over 30 years, a last-minute IRA investor will wind up with $15,500 less than someone who invests at the start of the tax year, assuming identical contributions and returns, Vanguard calculations show. The reason for the procrastinator’s shortfall, of course, is the lost compounding of that money, which has less time to grow.

Granted, missing out on $15,500 over 30 years may not sound like an enormous penalty, though anyone who wants to send me a check for this amount is more than welcome to do so. But lost earnings aren’t the only cost of the IRA rush—last-minute contributions also lead to poor investment decisions, which may further erode your portfolio.

Many hurried IRA investors simply stash their new contributions in money-market funds—a move Vanguard calls a “parking lot” strategy. Unfortunately, nearly two-thirds of such contributions are still stashed in money funds a full 120 days later, where they have been earning zero returns. So what seems like a reasonable short-term decision often ends up being a bad long-term choice, says Vanguard retirement expert Maria Bruno.

Why are so many people fumbling their IRA strategy? All too often, investors focus mainly on their 401(k) plan, while IRAs are an after-thought. But fact is, most of your money will likely end up in an IRA, when you roll out of your 401(k). Overall, IRAs collectively hold some $7.3 trillion, the Investment Company Institute (ICI) found, fueled by 401(k) rollovers—that’s more than the money held in 401(k)s ($4.5 trillion) and other defined-contribution accounts ($2.2 trillion) combined.

Clearly, having a smart IRA plan can go a long way toward improving your retirement security. To get the most out of your IRA—and avoid mistakes—Bruno lays out five guidelines for investors:

  • Set up your contribution schedule. If you can’t stash away a large amount at the start of the year, establish a dollar-cost averaging program at your brokerage. That way, your money flows into your IRA throughout the year.
  • Invest the max. You can save as much as $5,500 in an IRA account in 2015. But for those 50 and older, you can make an additional tax-deferred “catch up” contribution of $1,000. A survey of IRA account holders by the ICI found that just 14% of investors take advantage of this savings opportunity. (You can find details on IRS contribution limits here.)
  • Select a go-to fund. Skip the money fund, and choose a target-date retirement fund or a balanced fund as the default choice for your IRA contributions. You can always change your investment choice later, but meantime you will get the benefits—and the potential growth—of a diversified portfolio.
  • Invest in a Roth IRA. Unlike traditional IRAs, which hold pre-tax dollars, Roths are designed to hold after tax money, but their investment gains and later payouts escape federal income taxes. With Roths, you also avoid RMDs (required minimum distributions) when you turn 70 ½, which gives you more flexibility. Vanguard says nine out of every 10 dollars contributed to IRAs by its younger customers under age 30 are flowing into Roths. Here are the IRS rules for 2015 Roth contributions.
  • Consider a Roth conversion. High-income earners who do not qualify for tax-deferred Roth contributions can still make post-tax contributions to an IRA and then convert this account to a Roth. The Obama Administration’s proposed 2016 federal budget would end these so-called backdoor Roth conversions, which have become very popular. Of course, it’s far from clear if that proposal will be enacted.

Once you have your IRA set up, resist tapping it until retirement. The longer you can let that money ride, the more growth you’re likely to get. Raiding your IRA for anything less than real emergency would be the worst mistake of all.

Philip Moeller is an expert on retirement, aging, and health. His latest book is “Get What’s Yours: The Secrets to Maxing Out Your Social Security.” Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: 25 Ways to Get Smarter About Money Right Now

MONEY Social Security

The Rising Toll of Inequality on Social Security

full jar of coins opposite a pile of empty jars of coins
Martin Poole—Getty Images

A new report looks at the rising toll of income inequality on Social Security.

Class warfare has stormed into the Social Security debate. As of Feb. 12, a provocative report says, people on track to earn $1 million in wage income in 2015 will have paid all of their Social Security payroll taxes for the year.

This statement appeared in a report this week from the Center for American Progress, which describes itself as a progressive think tank. It is a straightforward calculation: Up to $118,500 of wage income is subject to Social Security taxes this year, and anyone earning $1 million will have passed this payroll tax ceiling on that date.

Math aside, the CAP report takes a direct shot at wealthier Americans for failing to contribute their fair share in Social Security payroll taxes. You can expect more such attacks, which are both understandable and, as I’ll explain, regrettable.

The report accurately notes that the growing wage gap between richer and poorer folks in this country has resulted in a shrinking share of national wages being taxed to fund Social Security. Wage gains among wealthier workers have outpaced gains among lower-income taxpayers. Social Security’s annual cap on earnings subject to payroll taxes rises each year to reflect annual changes in national wages. Because these gains have been skewed toward the rich for many years, more and more of their income escapes payroll taxes.

MORE Why You Should Celebrate Social Security’s 75th Anniversary

This is a big problem for Social Security and needs to be addressed. The payroll tax system used to capture 90% of all wage income in the country. Now, according to the CAP report, it captures only 83%. And while the 7 percentage point gap may seem small, it is hardly that.

If the top wage for Social Security taxes had remained at 90% of national wages, the report estimates, the beleaguered Social Security trust fund would have $1.1 trillion more to pay out in future Social Security benefits. Also, productivity gains among workers have outpaced their wage gains. If wage gains had risen to match worker productivity increases—an emotionally if not economically satisfying premise—another $750 billion would have been added to the trust fund, according to CAP.

“Millionaire and billionaire earners stop contributing to Social Security early in the year, while the average worker contributes all year long,” the report says. “While policymakers cannot undo the past, they can take action to improve Social Security’s fiscal outlook by implementing policies that boost wages, combat rising inequality, and modernize the program’s revenue structure to reflect today’s economy.”

MORE Here’s the Key to Retirement Security

Rising economic inequality has become the hot button of national economic policy. And I’m all for such a debate. This imbalance long ago began to tear apart the social bonds that helped make this country what it is, or rather what it was.

It would, however, be a mistake to further turn Social Security into a tax-and-income-redistribution program. Why do I say “further”? Because Social Security benefits already are highly progressive.

People with low incomes receive a much higher percentage of their wages back in the form of benefit payments than do higher earners. This causes them to receive a lot more in benefits from Social Security than they ever pay into the program via payroll taxes. Program supporters rarely if ever acknowledge this progressivity. But it was the way the program was designed, and it’s worked very well.

On the upper end, the wages that exceed each year’s payroll tax cap do not entitle their earners to a single extra penny of Social Security benefits. They get absolutely no credit from Social Security for these earnings. Critics of the program leave the impression that rich people are somehow getting something for free from Social Security. But that’s not the case, and this also is the way the program was designed.

So a person who makes $1,118,500 or $2,118,500 or $3,118,500 will earn the same amount of future Social Security benefits this year as the person who makes $118,500. They won’t get something for nothing. They will get benefits that match what they paid in payroll taxes, just like everyone else.

This treatment has long been one of the strengths of the program. It would be a shame if we turned an equitable benefits program into an inequitable tax-the-rich program. If you believe wealthier Americans should pay higher taxes, fine. Change the tax code by raising their rates and closing loopholes that benefit primarily the rich. Don’t take a retirement program with historically broad social support and turn it into something it was not designed to be.

MORE Yes, Oxfam, the Richest 1% Have Most of the Wealth. But That Means Less Than You Think.

Having said that, there is little doubt that AARP and other supporters of expanded retirement benefits look favorably on asking wealthier Americans to play a larger role in reestablishing the financial sufficiency of Social Security. As matters now stand, the program will be able to meet all its obligations until 2033 and will then be able to pay only 77% of claims.

Simply raising the payroll tax ceiling until it once again covers 90% of U.S. wages would solve up to a third of the projected program deficit over the next 75 years. (Social Security is required by law to use a 75-year window for evaluating its financial condition.)

A detailed assessment of possible program changes maintained by the Social Security Administration includes some 120 measures that, in combination, would easily create 75-year solvency if not surpluses. These solutions should be broad-based. They should not single out any group, even if that group happens to be wealthy Americans who we are more and more loving to hate.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published next week by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY long term care

Why Long-term Care Insurance May Be a Better Deal Than You Think

The costs of long-term care insurance keep rising. But the coverage is still well worth considering.

Long-term care costs are the black hole of retirement planning.

With the fees for nursing home care averaging $212 a day, an extended stay can devastate the retirement savings of a typical household. Children of aging parents can see their own finances, and even their own children’s futures, undermined by their natural desire to help out Mom and Dad.

Private long-term care insurance can help, but only about one in eight Americans buy it, since the costs are high. Even so, I would argue that this coverage is well worth considering—especially if you have assets to protect, but can’t afford to pay for years of long-term care out of pocket.

Of course, it’s not an easy decision. Here are two key points to help you decide:

It’s Insurance, not an Investment

You’ve probably been hearing that buying long-term care coverage is a bad financial move for most people. Recently a study from the well-regarded Center for Retirement Research at Boston College found that fewer people will need long-term care— some 44% of men and 58% of women will need long-term care vs. estimates of 70%—and that those expenses may be less than previously thought.

One key reason for the lower costs, according to the Center, is that half of men and 39% women who enter nursing homes stay for less than three months—relatively short periods that are potentially covered by Medicare. (Contrary to what many people believe, Medicare does not cover long-term care expenses but will pay for up to 100 days of institutional care following a qualifying hospital stay.) Most Americans end up relying on Medicaid to pay for longer stays, although that program kicks in only after families have mostly spent down their savings.

Given these shorter stays and the availability of those safety nets, only 20% to 30% Americans were found to be economically better off buying long-term care coverage. “Few individuals would choose to buy insurance even if they were rational, far-sighted, and well-informed,” the Center concluded

These findings may very well be true, but they miss a bigger point. Insurance is not about optimizing your finances—it’s about protection against a catastrophic event. The odds of your house burning down are very, very small, but you have home insurance nonetheless. And even if your mortgage lender didn’t require it, I bet you’d still have home insurance.

The same case could be made for owning long-term care insurance. It offers valuable coverage that preserves choice and financial resources in the event you can no longer manage on your own.

Smart Shopping Lowers Costs

Of course, more people would probably own these policies if the premiums weren’t so steep and price hikes so frequent. Rates jumped another 8.6% last year, according to a recent report from the American Association for Long-Term Care Insurance, largely due to unexpectedly high claim expenses, which caused several insurers to leave the market.

Today a 60-year old couple buying coverage with a lifetime benefits cap of $328,000 might pay an annual premium of $2,170 a year, the association said. And if they bought inflation protection that boosted the value of their coverage to $730,000 at age 85, their annual premium would rise to $3,930.

Even so, wide price variances have become more common. “In some situations the difference between the lowest-cost policy and the highest-cost was 34%, but it could be as much as 119%,” association director Jesse Slome said. (The state of Texas has a helpful range of premiums for different coverage situations; your state insurance department may offer similar information.)

Clearly, smart shopping is crucial. Here’s what will influence the price you pay:

  • Your age. It’s the biggest determinant of costs. Younger buyers get lower premiums because their insurers usually have many years to invest that money before paying out any claims.
  • The level of coverage. The variables include the amount of allowable daily benefits, the number of years the coverage will last, and the number of days that expenses must be self-insured before benefits kick in (the so-called the elimination period). You can also add inflation protection to maintain the real value of coverage limits.
  • Your health. Expect to get grilled about your physical condition. Bluntly put, insurers prefer really healthy customers for long-term care insurance. And it’s not just your health being reviewed here, but the health of your parents and siblings as well, since family history is used to forecast future claims.

Look to see how adjusting the major coverage variables will affect your premiums. Choosing a longer elimination period than the standard 90 days, for example, can bring down the cost.

In the end, you’ll have to weigh the costs against your own assessment of the risks. Personally, I have long-term care insurance to protect my family from catastrophic health care expenses in my later years. And, yes, it is more expensive than I’d like. But if I never use it, and wind up paying more than $100,000 in premiums during my lifetime, I will have one reaction:

Whew!

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: Simple Steps to Avoid Outliving Your Money in Retirement

MONEY Social Security

Why You Should Celebrate Social Security’s 75th Anniversary

In this Oct. 4, 1950 file photo, Ida May Fuller, 76, displays a Social Security check for $41.30 that she received at her home in Ludlow Vt. On Jan. 31, 1940, Fuller received the country's first Social Security check for $22.54. By the time she died in 1975 at age 100, she had received nearly $23,000 in benefits.
AES—AP In this Oct. 4, 1950 photo, Ida May Fuller, 76, displays a Social Security check for $41.30 that she received at her home in Ludlow Vt. On Jan. 31, 1940, Fuller received the country's first Social Security check for $22.54. By the time she died in 1975 at age 100, she had received nearly $23,000 in benefits.

Social Security has been under almost constant attack since day one. But in the 75 years since its first benefit checks went out, the program has transformed retirement.

Surely, Social Security is important enough to merit multiple anniversaries.

So it is that over the weekend we celebrated 75 years of monthly benefit checks. The agency sent its very first on January 31, 1940, to one Ida May Fuller in the amount of $22.54. (That’s $372.81 in 2014 dollars for members of the Good Old Days Club.)

Aficionados may recall that Social Security’s formal 75th anniversary was held five years ago to mark enactment of the program in 1935, during the first of Franklin Delano Roosevelt’s unprecedented four presidential terms.

And some sticklers out there might note that you already missed the chance to raise a glass with me in January 2012. That was 75 years after the agency’s first lump-sum payment, made to a Cleveland streetcar worker named Ernest Ackerman.

The 17¢ Ackerman received isn’t much even by today’s inflated standards, but it represented a most impressive return. Ackerman, as it happened, retired one day after Social Security began and had a nickel withheld from his check. His payment less than two years later represented a return of 240%. That was a real 17¢ too, since benefits weren’t taxed back then.

Controversial From the Start

Whether we’re tooting the horn for Social Security’s 75th, 77th, or 80th anniversary, it’s worth noting that these are hard-won celebrations—the program has pretty much been under attack the entire time.

When he first proposed Social Security, FDR received blistering critiques from political and social-policy scolds, who denounced what they saw as redistribution of wealth and the creation of a large bureaucracy. The biggest threat may have been posed by Louisiana Senator Huey Long, known as The Kingfish, who was campaigning for the White House on his own populist plan. Long held up Senate funding for the new program for seven months, but before his attacks could derail Social Security, he was assassinated.

Fast-forward to today, and the battle continues. The program’s disability trust fund is projected to run out of reserves next year. Once the Republicans assumed control of the House of Representatives this year, they wasted little time in approving a measure trying to put Social Security reform back on the table as a precondition to shoring up program funding. This has placed the incomes of millions of disabled Americans at risk in another Washington game of political chicken.

In 2010, President Obama compared attacks on Social Security to those aimed at his signature health care law, the Affordable Care Act. Obamacare has been the subject of one major U.S. Supreme Court decision, and there’s another significant ruling scheduled soon. Three lawsuits about Social Security managed to reach the high court, and the constitutionality of Social Security was not decided until May 24, 1937. So we can look forward to popping the cork on the 80th anniversary of that milestone.

Meanwhile, the Social Security Administration continues to do what it does best—spend enormous amounts of money on a program that now far exceeds the dreams of its creators. Today the agency collects payroll taxes from 210 million workers. It pays out well north of $800 billion in annual benefits to some 60 million retired and disabled beneficiaries. And it remains a financial lifeline to older Americans, providing 90% or more of the income of 22% of elderly couples and 47% of elderly singles.

An Expanding Program

Along the way, Social Security has changed greatly since it first began. (To document its evolution, the agency even has a website with its official history, as well as an official historian and a dedicated web page saluting past occupants of the job.)

In 1939, moving beyond its initial focus on workers’ retirements, the program began making payments to their spouses, children, and survivors. The monthly payment of benefits began in 1940 (let’s have another tip of the hat to Ida May). A major boost in benefits was approved in 1950 and again in 1952, and disability benefits were added in subsequent years. In 1962 the age of early retirement was lowered to 62.

One of the biggest changes was the creation of Medicare in 1965, which Social Security was made responsible for administering. In the early 1970s, the agency took over another new program called Supplemental Security Income, providing benefits to qualifying low-income persons, which has since become enormous in its own right.

Annual cost-of-living adjustments, or COLAs, were added in 1972 and have had an enormous effect helping retirees maintain their standard of living. Recent proposals to change the way the COLA is calculated have triggered a new wave of attacks, with some critics claiming seniors deserve more protection and others saying the current formula is too generous.

Amendments to shore up Social Security’s financing were enacted in 1977 and, on a larger scale, in 1983. That last reform established today’s current rules for retirement ages and the start of federal taxation of Social Security benefits.

In 2000, the Retirement Earnings Test was changed so that people who reached retirement age would no longer see benefits reduced if their work wages exceeded certain levels. “This was a historic change in the Social Security retirement program,” the Social Security website states. “From the beginning of Social Security in 1935, retirement benefits have been conditional on the requirement that the beneficiary be substantially retired.”

Given today’s contentious mood in Congress, the 2000 amendments may have been historic for another reason: They passed without a single dissenting vote in either house of Congress.

America’s Gatekeeper

Finally, beyond its importance in providing retirement benefits, Social Security’s greatest impact has evolved through its role as the near-official gatekeeper of human arrivals and departures—and many of the life milestones along the way.

Is there a parent or grandparent who has not at some point sought inspiration or validation in the agency’s annual list of most popular baby names, which goes all the way back to 1880?

Occupying the less-popular departure lounge is the ominously titled Social Security Death Index, which keeps records of people with Social Security numbers who have passed on. Now approaching 100 million names, the database is widely used by genealogical websites. (The SSA itself does not offer it to the public.) Social Security data is also relied on by researchers analyzing trends in marriage, income and longevity.

Since those first checks to Ida May Fuller, Social Security has become an essential safety net and an important resource for all Americans. And for all its flaws, millions of elderly and disabled Americans depend on it. Younger workers should be able to trust that Social Security will be there for them as well. That’s the message that Congress should take to heart on this anniversary.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: How Social Security Calculates Your Benefits

MONEY retirement planning

Here’s What You’re Really Going to Spend on Health Care in Retirement

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Tim Robberts/Getty Images

These benchmarks will help you gauge your future medical spending and set the right savings goals.

For older Americans, figuring out how much you’ll need to save for future health care costs is the toughest part of retirement planning. The bills are not only daunting, but hard to predict. Now two recent studies from the Kaiser Family Foundation provide useful data that can serve as real-world benchmarks for your future health care expenses.

You already know Americans are living longer, and that health care spending is rising along with our life spans. To see how that increase varies over time, one Kaiser study, The Rising Cost of Living Longer, breaks down Medicare spending into its main components—such as hospitals, doctors and drugs—and measures how much Americans spend on these services at different ages.

Those between the ages of 65 and 69, who represent 26% of traditional Medicare beneficiaries, account for only 15% of program expenses in 2011, the most recent year for which data are available. (The study does not include Medicare Advantage plans). People between the ages of 70 and 79 comprise 32% of Medicare beneficiaries and 30% of spending.

Among the oldest Americans—those age 80 and above—the health care taxi meter runs up its largest charges, Kaiser found. These seniors represented 24% of Medicare beneficiaries but generated 33% of program expenses.

Below you can see the breakdown in spending by category for three different ages—70, 80 and 90. As Americans age, the demand for hospital, nursing, in-home care and hospice services climbs.

  • Age 70: Overall Medicare spending of $7,566, including $2,450 in Part A inpatient expenses, $2,054 in Part B doctors and services, $1,159 for hospital outpatient services, $1,191 for drugs (in both Part B and Part D drug plans) $349 for skilled nursing facilities, $279 for in-home care, and $84 for hospice.
  • Age 80: Overall Medicare spending of $11,618, including $3,962 in Part A inpatient expenses, $2,763 in Part B doctors and services, $1,440 for hospital outpatient services, $1,394 for drugs (in both Part B and Part D drug plans) $1,073 for skilled nursing facilities, $664 for in-home care, and $322 for hospice.
  • Age 90: Overall Medicare spending of $14,745, including $4,573 in Part A inpatient expenses, $2,640 in Part B doctors and services, $1,242 for hospital outpatient services, $1,344 for drugs (in both Part B and Part D drug plans) $2,583 for skilled nursing facilities, $1,233 for in-home care, and $1,132 for hospice.

Those are scary numbers, but the real issue for retirement planning is how much of that spending will be coming out of your own pocket. Another Kaiser study, How Much Is Enough, details the amounts older Americans spend on bills for health insurance premiums and uncovered health care expenses at different ages.

People between the ages of 65 and 74 spent $4,020 out of pocket on average in 2010 (he year analyzed by the study). Those between 75 and 84 spent $5,245, while those 85 and older spent $8,191—more than twice as much as younger seniors. On average, 42% of all out-of-pocket spending was for insurance premiums and 58% for uncovered health care expenses, including long-term term care (the biggest chunk, at 18%), medical providers, drugs and dental costs, which Medicare does not cover.

Will your retirement health care spending match these averages? Probably not. Medicare insurance plans differ, and no one can precisely forecast your future health or longevity. That said, even a rough guide can be a useful planning tool. So take a look at your own health care plan and see what coverage it provides for these common medical charges. Consider the likelihood for each type of expense, as well as the average Medicare costs by age, to come up with an estimate of the savings you might need to fund these costs.

To prepare for that spending now, take a look at the sources of your retirement income. If you have a health savings account, do everything you can not to touch it now but let its tax-advantaged balances accrue. It is an excellent vehicle for funding future medical expenses with no adverse tax consequences. Ditto for a Roth IRA, which lets your money grow tax free. For more tips on planning for retirement health care costs, check out MONEY’s stories here, here, and here.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: Why Women Are Less Prepared Than Men for Retirement

MONEY Social Security

The Best Way to Claim Social Security After Losing a Spouse

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q. My husband recently passed away at age 65. I’ll be 62 in July, and I’m working full time. I went to the Social Security office and was told I could file for survivor benefits now, but would lose most of the income since my salary is about $37,000 a year. They told me to wait as long as possible to start collecting. My own Social Security benefits would be about $1,200 per month at 62, but since I’ll keep working, I will forfeit most of it. I don’t want to give up most of the benefits. But if there’s money I can collect until I turn 66, I’d like to get it. —Deanna

A. Please accept my condolences at the loss of your husband. I am so sorry. As for your Social Security situation, let me explain a few things that I hope will make your decision clearer.

First off, it’s true that the Earnings Test will reduce any benefits you receive before what’s called your Full Retirement Age (66 for you). However, these benefit reductions are only temporary—you do not forfeit this income. When you reach 66, any amounts lost by the Earnings Test will be restored to you in the form of higher benefit payments.

The real consequence of taking benefits “early”—before your FRA—is that the amount you receive will be reduced. There are different early reduction amounts for retirement benefits and widow’s benefits.

That said, you can file for a reduced retirement benefit at 62 and then switch to your widow’s benefit at 66, when it will reach its maximum value to you. This makes sense if you are sure that your widow’s benefit will always be larger than your own retirement benefit; more on that in moment.

One caveat: if you take your retirement benefits early, the restoration of Earnings Test reductions probably will be lost to you once you switch later to a widow’s benefit. But if the widow’s benefit is larger anyway, this should not bother you.

To find out more precisely what you’ll get in retirement benefits, set up an online account at Social Security—you’ll see the income you’ll receive at different claiming ages. To get the comparable values of your survivor’s benefit as a widow, however, you will need to get help from a Social Security representative.

Once you see those numbers, it could change your thinking. For example, what if your own retirement benefit is larger than your widow’s benefit? It could happen, especially if you defer claiming until age 70 and earn delayed retirement credits. In that scenario, you would do better to claim your widow’s benefit—and perhaps even take it early if you need the money. You can then switch to your retirement benefit at age 70.

These claiming choices can be very complicated. Economist Larry Kotlikoff, who is a friend and co-author of my new book on Social Security, developed a good software program, Maximize My Social Security ($40), which can take all your variables and plot your best claiming strategy. But I’m not trying to sell his software, believe me; there are other programs you can check out, which are mentioned here. Some are free, but paying a small fee for a comprehensive program may be worth it, when you consider the thousands of benefit dollars that are at stake.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: What You Need to Know About Social Security Survivor’s Benefits

MONEY Social Security

What You Need to Know About Social Security Survivor Benefits

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q. My husband is 10 years 4 months older than me. He began drawing his Social Security benefits at 65 and 10 months. I will be 62 next month. My benefits will be less than his since he was the larger wage earner. Based on statistics, I am likely to outlive him. We don’t need my benefits now so we could wait. But since it’s likely he will pass away first, and I will get his benefits because they are higher, is there any reason to wait to draw my benefits? —Lynda

A. First off, I hope you both live forever. But in the interest of being practical, you need to choose the Social Security strategy that will give you the highest amount of income over both your lifetimes, based on your expectations for longevity. Here’s what to consider:

If, as you say, your husband’s Social Security benefits are much larger than your own, then you will be receiving spousal benefits while he is still alive and survivor benefits after he dies. So you and your husband should figure out the strategy that will provide the best balance of current and future income.

Your spousal benefits will be 30% larger if you wait to take them until 66, which is what Social Security defines as Full Retirement Age (FRA) for you. (This age will rise from 66 to 67 for people born after 1954.)

So your decision is whether to take reduced spousal benefits at 62 or wait four years to take them at age 66. I don’t know what these different amounts might be, but you and your husband can figure them out by signing up for online Social Security accounts that will let you see your projected benefits.

Your maximum spousal benefit at age 66 will be half of what’s called your husband’s Primary Insurance Amount, or PIA. This is half of what he was entitled to receive at his FRA, and from your description, it sounds like that’s when he began taking benefits.

For example, let’s assume your spousal benefit at age 66 will be $1,000 a month. Then, at 62 you will receive only $700 a month, because of the 30% early filing reduction. Even at a reduced level, this will total $8,400 a year, or $33,600 from age 62 to 66. If you waited until age 66 and thus qualified for the larger spousal benefit, you would be getting $300 more each month.

Given these amounts, it would take you 112 months to recoup the $33,600 you would have received by taking benefits early. Your husband would need to live to more than age 86 for this deferral strategy to just break even in unadjusted terms. And this doesn’t reflect what economists call the present value adjustment of getting that $33,600 many years earlier than your full spousal benefit.

Your survivor benefit will be the actual benefit your husband was receiving when he dies, or in your case twice your spousal benefit. So you would want to contact Social Security and switch to this higher benefit as soon as possible after his death.

By the way, if your husband had deferred his retirement benefit from his FRA to age 70, his benefit would have been roughly 31.2% higher than he actually received. So, your widow’s benefit would have been even higher.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: How to Use Social Security’s ‘File and Suspend” Option

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