MONEY Ask the Expert

When Investment Growth, Income, and Safety Are All Priorities

Investing illustration
Robert A. Di Ieso, Jr.

Q: I’m 64 and retired. My wife is 54 and still working, but I’m asking her to join me in retirement. We have about $1 million in savings, with about half in an IRA and the rest in CDs. How can try I try to preserve the principal, generate about $2,000 in monthly income until I collect Social Security at age 70, and somehow double my investment? — Rajen in Iowa

A: The first thing you need to ask yourself is what’s really more important: Growth, income, or safety? You say you want to preserve your principal – and your large cash position suggests that you are risk averse – but you also say you want to double your investment.

“Why do you need to double your investment?” asks Larry Rosenthal, a certified financial planner and president of Rosenthal Wealth Management Group in Manassas, VA. “Everybody likes the idea of doubling their investment, but there’s a high cost if it doesn’t work out.”

Given that you’re already retired, doubling your investment is a tall order. You probably don’t have that kind of time. At a 5% annual return, it would take you more than 14 years, and that’s without tapping your funds for income along the way. Nor can you afford to take on too much additional risk.

Either way, you do need to rethink how you have your assets allocated.

A 50% cash position is likely far too much, especially with interest rates as low as they are. “You’re effectively earning a negative return,” factoring in inflation, says Rosenthal.

And while cash is a great buffer for down markets, the value is lost in the extreme: The portion of your portfolio that is invested in longer-term assets such as stocks and bonds needs to do double duty to earn the same overall return.

If generating growth and income are both priorities, “look at shifting some of that cash into dividend paying stocks, a bond ladder, an annuity, or possibly a combination of the three,” says Rosenthal, who gives the critical caveat that the decision of how to invest some of this cash will depend on how your IRA money is invested.

Meanwhile, you should take a closer look at the pros and cons of claiming Social Security at full retirement age, which is 66 in your case, or waiting until you’re 70 years old.

The current conventional wisdom is to hold off taking Social Security as long as possible in order to maximize the monthly benefit. While that advice still holds true for many people, you need to look at the specifics of your situation – as well as that of your wife. The best way to know is to run the numbers, which you can do at Social Security Timing or AARP.

The tradeoff of waiting to claim your benefit, says Rosenthal, is spending down more of your savings for six years. You may in fact do better by keeping that money invested.

What’s more, “if you die, you can pass along your savings,” adds Rosenthal. But you don’t have that type of flexibility with Social Security benefits.

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%.

150223_RET_WorkingLate
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 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 Social Security

Why a Better Job Market Can Mean a Social Security Bonus

Getting back to work for even a few years before you retire can make a big difference to your income.

More Americans over 55 are finally getting back to work after the long recession. The strong national employment report for January released last week confirmed that. The unemployment rate for those over 55 was just 4.1% in January, down from 4.5% a year ago and well below the national jobless rate. The 55-plus labor force participation rate inched up to 40% from 39.9%.

That is good news for patching up household balance sheets damaged by years of lost employment and savings, and also for boosting future Social Security benefits.

Social Security is a benefit you earn through work and payroll tax contributions. One widely known way to boost your monthly benefit amount is to work longer and delay your claiming date. But simply getting back into the job market can help.

Your Social Security benefit is calculated using a little-understood formula called the primary insurance amount (PIA). The PIA is determined by averaging together the 35 highest-earning years of your career. Those lifetime earnings are then wage-indexed to make them comparable with what workers are earning in the year you turn 60, using a formula called average indexed monthly earnings (AIME); finally, a progressivity formula is applied that returns greater amounts to lower-income workers (called “bend points”).

But what if you are getting close to retirement age and have less than 35 years of earnings due to joblessness during the recession?

The Social Security Administration still calculates your best 35 years. It just means that five of those years will be zeros, reducing the average wage used to calculate your PIA.

By going back to work in any capacity, you start to replace those zeros with years of earnings. That helps bring your average wage figure up a bit, even if you are earning less than in your last job, or working part time.

“Any earnings you have in a given year have the opportunity to go into your high 35,” notes Stephen C. Goss, Social Security’s chief actuary.

I ran the numbers for a an average worker (2014 income: $49,000) born in 1953, comparing PIA levels following 40 years of full employment with the benefit level assuming a layoff in 2009. The fully employed worker enters retirement at age 66 (the full retirement age) with an annual PIA of $20,148; the laid-off worker’s PIA is reduced by $924 (4.6%). Getting back into the labor force in 2014, and working through 2015, would restore $720 of that loss.

That might not sound like much, but it would total nearly $25,000 in lifetime Social Security benefits for a female worker who lives to age 88, assuming a 3% annual rate of inflation. And for higher income workers, the differences would be greater.

You also can continue “backfilling” your earnings if you work past 60, Goss notes. “You get credit all the way along the way. If you happen to work up to age 70 or even beyond, we recalculate your benefit if you have had more earnings.”

The timing of your filing also is critical. You’re eligible to file for a retirement benefit as early as age 62, but that would reduce your PIA 25 percent, a cut that would persist for the rest of your life. Waiting until after full retirement age allows you to earn delayed filing credits, which works out to 8% for each 12-month period you delay. Waiting one extra year beyond normal retirement age would get you 108% of your PIA; delaying a second year would get you 116%, and so on. You can earn those credits up until the year when you turn 70, and you also will receive any cost-of-living adjustment awarded during the intervening years when you finally file.

Getting back to work will be a tonic for many older Americans, but what they might not realize is that it is also a great path to filling their retirement gap with more robust Social Security checks.

MONEY Social Security

Why We Make Irrational Decisions About Social Security Benefits

piggy bank and hourglass
iStock

Everyone tends to over-weigh a sure gain compared with a slightly riskier gain, even if the expected value of the certain gain is lower.

Financial professionals often recommend that you wait until full retirement or even later before applying for social security benefits. An individual who’d receive $1,000 per month at full retirement age would get a mere $750 by claiming early at age 62. And that same person could get as much as $1,320 per month by waiting until age 70. For many Americans, it appears to make a lot of sense to wait.

As a general rule of thumb, if you expect to live beyond your late 70s, waiting until at least full retirement might be the smart choice. According to the Social Security Administration, a man reaching 65 today can expect to live until 84.3. And a woman turning 65 can expect to live until age 86.6. Given that one out of every four 65-year olds today lives past age 90, you’d assume that most folks would hang on until full retirement before applying for benefits.

That assumption would be wrong, however. In practice, many Americans seem to be ignoring the data. According to The New York Times, 41% of men and 46% of women choose to take their benefits at 62 — the earliest age possible. Why aren’t they listening to the experts?

Your Social Security and your brain

Obviously, there are some very rational reasons for claiming your benefits at 62. For example, you might have some serious health concerns. Or you may just really need the money. Sometimes real life is more complicated than insurance data and actuarial tables.

There might be another powerful reason that people aren’t even aware of, however. According to psychological research, we are all hardwired to lock in certain gains, even if such a decision has a lower expected value. In other words, our psychology could be leading us to make suboptimal financial choices when it comes to social security.

The price of certainty

The underlying principle involved here, which was highlighted in the work of Daniel Kahneman and Amos Tversky, is called the “certainty effect.” This idea is actually quite easy to understand. Essentially, everyone tends to over-weigh a sure gain compared with a slightly riskier gain, even if the expected value of the certain gain is lower.

Here’s an illustration of how it works. Suppose there are two options. Option 1 gives you a chance to win $9,500 with 100% certainty. Option 2, on the other hand, provides you with the opportunity to win $10,000 with 97% certainty, though there’s a 3% chance you will win nothing.

Even though the expected value of Option 2 is higher ($9,700 compared to $9,500), the “certainty effect” would predict that more individuals would choose Option 1 than Option 2. According to Kahneman:

People are averse to risk when they consider prospects with a substantial chance to achieve a large gain. They are willing to accept less than the expected value of a gamble to lock in a sure gain.

A team of academics recently tested this theory, and reported their findings in a paper titled “Risk preferences and aging: The ‘Certainty Effect’ in older adults’ decision making“. They discovered that “older adults were more likely than younger adults to select the sure-thing option when it was available — even if it had a lower expect value.” In other words, they not only found evidence supporting the “certainty effect,” they found that older adults were moresusceptible to it than younger ones. The overall conclusion of the study is very instructive:

… [W]hen it comes to the important decision whether to claim social security benefits at the earliest retirement age (i.e., 62 years old) and receive a sure but lower-dollar payout (i.e., up to 20% less) versus a higher-dollar payout a few years later at full (between 65–67 years old) or after full retirement age (at 70 years age at the latest, with a benefit increase between 4% and 8% for each year after full retirement age until age 70) at the risk of not being alive, older adults might sub-optimally go for the sure payout at the earliest possible age rather than delaying their retirement benefits; thus, permanently reducing their benefits.

Clearly, our instincts can inadvertently lead us astray on financial matters. As Jason Zweig notes in his classic book Your Money and Your Brain, “[I]nvestors habitually are their own worst enemies, even when they know better.” When deciding when to apply for social security benefits, it might be wise to remember how our brains are wired. Otherwise, you could be leaving a lot of money on the table.

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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 identity theft

Millions of People’s Data Stolen in Health Insurance Hack

Anthem, the second-largest health insurer in the U.S., says hackers obtained names, Social Security numbers, dates of birth, and more.

MONEY retirement income

Simple Steps to Avoid Outliving Your Money in Retirement

Nearly all workers say guaranteed lifetime income is important in retirement. Yet few are doing anything about it.

The slow switch from defined-benefit to defined-contribution retirement plans has been under way for three decades. But only now are workers starting to fully appreciate the impact.

The vast majority of Americans say that having a guaranteed monthly check for the rest of their lives is important, according to a TIAA-CREF lifetime income survey. Nearly half say securing enough guaranteed income to cover monthly expenses should be the top goal of their retirement plan.

Just a year ago, only one third believed guaranteed income should be their top priority. Meanwhile, more Americans now say they would accept bigger risks and smaller returns in exchange for guaranteed income, the survey found.

Few saw this coming in the 1980s, when companies began to abandon their traditional pensions in favor of 401(k) savings plans. The thought was that the 401(k) would complement the guaranteed income from a traditional pension—not supplant it. Today the only guaranteed income most Americans will enjoy in retirement comes from Social Security. Meanwhile, the majority of workers keep the bulk of their liquid savings in a 401(k) plan. And they must manage those distributions throughout retirement, while trying not to run out of money before they pass away.

This new reality is just now hitting a generation that figured their 401(k) plan would grow so big that making the money last in retirement would be fairly simple. But for most it didn’t work out that way—and now they are searching for answers. Guaranteed lifetime income, once a staple of old age for many Americans, has become an elusive grail.

One big problem is that workers typically do not understand how to convert savings into a lifetime stream of income, and they generally do not trust the annuity products available to them. While 84% say lifetime income is important only 14% have bought an annuity, TIAA-CREF found. Fixed annuities through a high-quality insurance company are among the simplest ways to purchase guaranteed lifetime income.

With this gap in mind, policymakers and employers have been taking steps to make it easier and more palatable for 401(k) plan participants to convert some or all of their plan assets to an income stream. Yet 44% of Americans have no idea if their plan offers a lifetime income option. Some 62% have never tried to calculate lifetime income from their current level of savings.

Fortunately, it’s getting easier to figure out the amount of income your 401(k) is likely to provide. For starters, check with your benefits department and ask if your employer has, or is considering, an option that will convert savings into a lifetime annuity. If so, and you’re close to retirement, you can get an estimate of the amount of income it may provide.

There are also online tools for do-it-yourself annuity shoppers.You can get quotes for immediate and deferred annuities at immediateannuites.com. And for pre-retirees, you can get an idea of how far your savings will go by plugging in your age and savings on BlackRock’s CoRi calculator. Currently, BlackRock estimates that a 58-year-old with $1 million in savings and who retires at 65 will be able to purchase $51,600 of annual guaranteed lifetime income.

Annuities come in many varieties—and some have a checkered past, while others may be linked to high fees and hard sales pitches. But immediate and deferred fixed annuities are fairly straightforward and offer the most direct way to secure lifetime income. Typically advisers recommend that you put only a portion of your income into one. (For more on annuities, click here.)

If an annuity sounds right for you, consider moving slowly. If interest rates move up the second half of the year, as many expect, you’ll get more income for your dollars by waiting.

Read next: The Right Way to Tap Income 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 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

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