ShmoopTube

Where Monty Python meets your 10th grade teacher.

Search Thousands of Shmoop Videos

Finance: What is Social Security? 11 Views


Share It!


Description:

What is Social Security? Social Security is a Federally administered program signed into law by President Franklin Roosevelt during the Depression. It created an agency for providing retirement payments, supplemental income, and medical insurance for tax paying citizens, and is funded by payroll taxes.

Language:
English Language

Transcript

00:00

Finance Allah Shmoop What is Social Security Our people will

00:09

FDR Franklin Delano Roosevelt established Social Security in nineteen thirty

00:15

five as a reaction to seeing one too many old

00:18

people destitute dying and begging for Bitcoin on the streets

00:22

After you know the great stock market crash in depression

00:25

that followed were basically Social Security is welfare insurance So

00:30

that even the most modestly talented or worst savers for

00:34

retirement or worst financial victims of some scheme brought on

00:39

by you know them City slickers would have at least

00:42

enough money to eat and have a place to live

00:44

Other than you know under the freeway that's what Social

00:48

Security means meaning their social life is secured It was

00:51

supposed to be or at least well it started out

00:54

as a safety net this whole social security thing But

00:58

then it became the retirement vehicle that people ended up

01:01

relying on you know like a groupon for a free

01:04

hotel night where if you paid for five you've got

01:07

that sixth one free Almost makes staying an extra day

01:09

at Disneyland with kids Sound like a good idea Well

01:12

the act that established Social Security was also called always

01:17

D or o A S T I which stands for

01:19

old age survivors and disability insurance and notionally It was

01:25

funded by payroll taxes That is an additional tax It

01:28

was levied on everyone who saved up Hey check to

01:31

pay for their retirement right The government would take a

01:34

little slice out of your paycheck put it away and

01:36

then kind of give it back to you after investing

01:38

in decades later right And that would also pay for

01:40

the retirement of others not just you even deadbeats who

01:44

chose to not work and just live in Mom's basement

01:46

their whole life Yep In theory they would get Social

01:49

Security to Pika is the most commonly known thief of

01:52

cash from your paycheck and it stands for federal insurance

01:56

contributions Tax should be fi cat Well Social Security generally

02:01

worked for a long time anyway as this nation saw

02:05

the poverty rate go from somewhere in the forty ish

02:08

percent at its worst down to somewhere below ten ish

02:11

percent today depending on how you define poverty Well under

02:13

any definition however we don't have millions of people standing

02:17

on street corners of this country begging for food Many

02:20

of them aren't covered by Social Security but under the

02:23

same brother's keeper vibe We have soup kitchens now in

02:26

other places that those who failed to find financial security

02:29

along the way in society well you know can go

02:31

to eat It is nothing like the nineteen thirties in

02:34

America no matter what horror stories you hear So the

02:37

notion of being able to hang on to your social

02:39

status or even your material levels of wealth in your

02:42

old age was kind of a new thing back then

02:44

and in this FDR driven era knew was good Remember

02:48

New Deal new era New York New ton The fig

02:53

Yes they came out around this time as well Well

02:55

the structure of Social Security is pretty simple in concept

02:57

The individual pays in some amount each month called a

02:59

few hundred bucks in today's dollars and the government invest

03:02

that money for decades Eventually that money comps pounds away

03:05

to become a big number and the individual gets monthly

03:07

payments back to themselves after they reach a certain age

03:10

Well the payments then continue until the socially securitized is

03:15

here So the concept was simple and the key problem

03:18

it tried to solve was the undecided and wanton disregard

03:21

that so many Americans of the era had for their

03:24

future Many had come from a World War one mindset

03:27

where there may or may not have been a future

03:29

or they were feeling the effects of America emerging as

03:32

a super power and wealth And you know other good

03:35

things that came from those confluences of good fortune Well

03:38

basically Social Security was kind of positively forced savings It

03:42

was done so that even the worst offenders of non

03:45

saving Americans would have at least enough waiting for them

03:48

in their retirement So they could you know eat and

03:50

not live like this Well the key drivers financially however

03:53

didn't fulfill the original vision of the acts Promulgate er's

03:57

That is the government assumed a pretty high rate of

04:00

investment return And instead what happened is that a lot

04:03

of government entities hired government workers to invest that money

04:08

And well bottom line is they did a lot worse

04:11

than the very highly paid people on Wall Street Like

04:14

if you were a highly talented money manager who could

04:16

make today's dollars tens of millions of dollars a year

04:19

why would you become a government portfolio Manager and make

04:23

one hundred fifty grand Right talent wins That was one

04:26

reason that we have problems with soul security The investment

04:29

returns have been poor Thie Other reason Well the government

04:32

also assumed that people would continue to smoke which meant

04:36

that most would die at a young age like late

04:38

sixties early seventies and well in fact America kicked the

04:42

but for the most part and from an average life

04:45

span in nineteen fifty of about sixty seven or so

04:48

for an American male Well Americans today live in average

04:51

of eighty ish years depending on a whole bunch of

04:53

things but a whole lot longer than they did in

04:55

nineteen fifty when smoking was you know good for you

04:58

So if Social Security payments were supposed to compound at

05:01

ten percent as investments and they only compounded at well

05:05

six or seven percent well that was a big problem

05:08

After three or four decades of paying money into the

05:10

system instead of having say five hundred grand to retire

05:13

on well retirees only had three hundred grand And instead

05:17

of living just three years after the Social Security distributions

05:20

kicked in I'ii from eight sixty five on you know

05:23

when they would then start dying on Mass at sixty

05:26

eight issues so well Those three years of payout ended

05:29

up being some twenty or thirty years of payout today

05:33

and growing two thousand eighteen mark the first year that

05:35

the combination of cash collected from young people paying into

05:38

the system plus the growth of the invested money in

05:41

the system was less than money taken out of the

05:44

system by old people Translation We're starting tohave to fund

05:48

Social Security with current tax dollars from other sources or

05:52

set another way We're taking bridge and toll money for

05:55

people paying five bucks to drive over the bridge that

05:57

was supposed to go to repair the roads That money

06:00

is now coming out of that fund and going tio

06:03

this guy Or set another way If something doesn't change

06:05

soon like well you know people die sooner or young

06:08

people who are still working pay in a lot more

06:11

dough to the social security system The U S will

06:14

go bankrupt paying out these entitlements to retirees at some

06:18

point in the next decade or two Or three or

06:20

four Something like that Well the good news a bunch

06:22

of states like Illinois in California and a few others

06:25

Well they'll go bankrupt first and they'll test the court

06:28

system to see how these kind of bailouts work So

06:31

by the time the chickens come home to roost for

06:33

Social Security while the financial future of this country will 00:06:37.142 --> [endTime] be clear yeah clear as mud

Up Next

Finance: How Are Risks and Rewards Related?
589 Views

How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...

Related Videos

Finance: How Do Credit Card Companies Work?
116 Views

How do credit card companies work? Credit card companies are, in a way, lenders. They give consumers a rectangular piece of plastic that allows the...

Finance: How Do Some Accountants "Cook the Books"?
103 Views

How do some accountants “cook the books”? Cooking the books refers to accountants making company’s financials look much better than they are....

Finance: How Do You Become Incorporated?
48 Views

How do you become incorporated? Go to Legal Zoom. Pay $150, file with the state of Delaware or whoever each year. Pay another $150. Most file as LL...

Finance: How Do You Get Your Startup Funded?
96 Views

How do you get a startup funded? Depends if we're talking about a tech startup, or a non-tech startup. If you've got a promising, budding tech comp...