On August 14, 1935, Franklin Delano Roosevelt signed a bill into law that promised to safeguard “against the hazards and vicissitudes of life.” This plan is known as Social Security. While Social Security is now currently accepted as a good thing by its approximately 71million recipients, there was quite a bit of resistance to it when it was instituted. For one, The American Liberty League, made up of a group of wealthy businessmen and political figures, opposed Roosevelt’s “New Deal” on the grounds that it appeared to be setting the country on a course to state socialism and unchecked presidential power. This same conglomerate of wealthy elites proposed that the Social Security Act of 1935 would “mark the end of democracy.” They also felt that this was part of a federal government overreach.
Our Safety Net
Ninety years ago, the big fear was that Roosevelt and his “New Deal” were welcoming in socialism and communism. The new Social Security Act was constitutionally challenged, and in 1937, the Supreme Court ruled on its constitutionality stating that it was a “proper use of the federal government’s power to spend for the general welfare.” The same court ruled that Social Security did not violate the Constitution’s Tenth Amendment, which states, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” Simply stated, this defines the balance of power between the federal government and the states.
To be clear; our politicians have been arguing about entitlements since their inception, and in our current situation, it is no different. Entitlements are deserved rights, not to be confused with a sense of entitlement, which is a sentiment reserved for those who feel they deserve more. In 1965, Lyndon Johnson signed into law the Medicare and Medicaid programs. Medicare is for those people who are 65 years and older or for younger persons who might have certain disabilities. Medicaid is for those that fall below the federal poverty level which, as of 2025, is $15,650 a year, or $300 per week for a single person household. Other eligible applicants are elderly and/or disabled people.
Medicare and social security are financed by a specific payroll tax applied to every worker’s paycheck which is matched by the employer. The current withholding for Social Security is 6.2%, and when matched by the employer, it adds up to a total of 12.4% that is applied to the worker’s Social Security account. This tax is applied to a maximum yearly salary of $178,000 after which the tax is not applied. So, if one is making $2 million per year, they are not taxed on the balance between the $178,000 cap and the annual salary of $2 million. Maybe, as a suggestion for those who are trying to keep Social Security solvent, the payroll tax should be applied to full salaries for those who make more than $178,000. Just saying….
The current withholding for Medicare is 1.45% for each individual and, when matched by an employer, the combined total is 2.9%, making one’s payment to Social Security and Medicare a total of 7.65% of their paycheck and, when matched by their employer, a total of 15.3% that is applied to one’s Social Security account. Be aware that the SSA also administers payments for Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI) and for Temporary Assistance for Needy Families (TANF). These programs are funded by the federal government from general revenue, including personal and corporate taxes and not from payroll taxes.
Medicaid is a separate entity and is funded by the federal government and each state. It breaks down to the federal government and each state contributing 30-35% of the Medicaid revenues, although many poorer states receive a higher rate from the federal government. I know quite a few engineers and musicians who have fallen on hard times and otherwise might not still be with us if it were not for Medicaid and SSI. Be aware that if one is self-employed under an LLC or S-Corp title, they will be responsible for both the employer and employee payroll tax.
There When You Need It
While there is an influx of young audio personnel into the field of live audio, there is also an aging population of engineers and techs that are still working in the business. Many road-weary engineers are still working, or at least trying to work out of a love for their job or just a need to keep the lights on. I know quite a few engineers and musicians who have reached retirement age, but due to circumstance are unable to retire. The circumstance being that they need the money and medical coverage if they are below age sixty-five, the qualifying age for receiving Medicare. I am fully aware that many younger people don’t pay attention to the entitlement programs, but it is good to understand them even if you’re years away from retirement. I know that I never paid much attention to the programs when I was younger, but let me say that for most of us in this industry, there is usually no pension or 401K plan offered to us, and these entitlements are our only safety net.
Because I was in good health, I opted not to take Social Security at the age of 62, the first year of eligibility. I was still working and had a decent health care plan, so I waited. I understood that with each year from eligibility to 70 years of age, the amount I would receive increased. Also, I wasn’t ready to retire, and while 62 might sound old to some, I didn’t feel it. At 65, one can join Medicare without receiving Social Security, and at that point, I officially joined the ranks of senior citizens. While I am still fortunate enough to be in good health, the Medicare plan fully covers blood tests and certain preventative procedures. This is a great perk, and I sometimes lament that I don’t need to take some of the expensive drugs I could be getting for free with Medicare, if I needed them. There is also supplemental insurance that, for a few hundred a month and deducted from your Social Security check, will cover copays, coinsurance, and deductibles not covered by Medicare.
Taking the Plunge
Right around March 15, 2020, Covid shut down the country and I was laid off from my job. I was 69 years old and only half a year away from turning 70, at which point I would be able to collect the max amount of social Security in regard to my salary and the years I worked. I was receiving unemployment compensation and the government Economic Impact Payments, but it wasn’t quite enough since my wife was still struggling with her new business when Covid 19 basically shut her down. So, I took Social Security. It was a decent amount per month, a little less than if I had waited, but I also did take advantage of the retroactive benefits. This program is where the SSA gives the claimant six months of their payments in a lump sum. The downside is by taking the retro payment, one loses about 4% of their monthly allotment for the duration of the payments, but it certainly was a needed boost at the time.
Remember that Social Security and Medicare might be your only pension, so there are a few things to consider about taking Social Security. You can take your benefit before it reaches maturity, which is now at the age sixty-seven, but if you’re not ready to retire and want to keep working full-time before the maturity date, your benefits will be reduced. The reduction formula is for every two dollars one earns above the allotted income, one dollar of your entitlement is deducted from your monthly check. Now, once you reach full maturity age, you can work as much as you want with no penalty. Unfortunately, there is a caveat. In 1983, Ronald Reagan amended Social Security to say that if one’s income exceeded a certain amount, their benefit could be taxed up to 50%. Therefore, if you still need or want to work after full retirement age, there will be no penalty, but your Social Security will be taxed. Also, if you choose to work after the age of 70, you will be paying into the system with no increase to your benefit. It’s enough to make one feel like retiring and working forever.
Contact Baker Lee at [email protected]
