Development of the Social Security System and The Calculation of Benefits

• In Event: Taxes 1

Abstract

Development of the Social Security System
And
The Calculation of Benefits
BY: Mary Recor, CPA

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It was on an August 14th when President Franklin D. Roosevelt signed the Social Security Act of 1935 which gave birth to our Social Security System. Originally, the purpose of Social Security was to provide financial means for individuals in their later years and to provide assistance for needy individuals. As with most things in this world, our Social Security system has expanded and grown more complex with the passage of time.
One purpose of this paper is to provide a brief history of our Social Security System - from its birth to the present day. Its original purpose was to provide retirement benefits, and only to the worker. Since then our Social Security System has evolved into being so much more – covering the premature death of a worker, benefits for widows, benefits for children and also disability coverage.
A second purpose of this paper is to examine the calculation of benefits. The calculation of benefits is a very complex matter. It will be helpful to understand the below listed terms which are used in the calculation. We can then proceed and examine a complete example.
• PIA – Primary Insurance Amount
• AME – Average Monthly Earnings
• AIME – Average Indexed Monthly Earnings
• Base Years
• Computational Years
• Elapsed Years
• Average Wage Index

In conclusion, as we explored the history of our Social Security System we can affirm that it is forever changing. It has expanded in more ways than one. The Social Security System has grown and expanded from being primarily a retirement system to becoming so much more.
Our examination of the calculation of benefits has indicated that timing is an important decision regarding the commencement of benefits. Each individual has different circumstances and needs to evaluate his or her own situation. While considering when to begin collecting benefits, one should also consider whether or not to take spousal benefits and make a switch later in time. This option is often a costly oversight. A little planning can provide a valuable return. When preparing to collect benefits one should keep in mind the eligibility requirements as well as the formula used to calculate benefits.

Author

• Mary Recor, College of Staten Island–CUNY