Many Americans believe that future Social Security payments are an “earned right” when they retire. As nice as that would be, that’s not the case and you’re sadly mistaken if you believe you’re entitled to these benefits down the road — even if you pay FICA taxes!
You can agree or disagree with this all day long, but the fact is Social Security payments are not guaranteed. I understand why people believe they are, though.
Why Aren’t Social Security Payments Guaranteed?
The government almost encourages the belief that Social Security benefits are guaranteed. In fact, in a 1936 pamphlet from the Social Security Administration, it specifically states, “The United States government will set up an account for you … The checks will come to you as a right.”
Whether or not it was intended this way, this pamphlet implied that the new tax would be somehow credit a personal account to which the worker would be lawfully entitled to receive. It didn’t take long for that to get “clarified” by the Supreme Court.
Not long after the Social Security began, a shareholder of the Edison Electric Illuminating Company challenged the tax that funded the program. He wanted to stop the company from making the tax payments and deductions from wages on the grounds that the Social Security Act of 1935 was unconstitutional.
For a period, it appeared that he won. The U.S. First Circuit Court of Appeals held that Title II of the Social Security Act (the heart of the program) was void as it was in direct opposition of the tenth amendment. However, once the case reached the Supreme Court, things changed.
The Ruling That Nixed Future Guarantees on Your Benefits
In Helvering v. Davis, the Supreme Court reversed the lower court’s opinion and held that the Social Security Act of 1935 was constitutional.
That in itself was not the interesting part. What was interesting was the language that was used in the written opinion. It said, “The proceeds of both taxes are to be paid into the treasury like internal-revenue taxes generally, and are not earmarked in any way.” [emphasis mine]
That eliminated the idea of the separate, personal account that the Social Security pamphlet originally implied.
Other Court Cases Made It Clear: Social Security Payments Not Guaranteed
In 1960, another case came up that made it clear how the government felt about the individual’s “right” to Social Security benefits.
Ephram Nestor was a Bulgarian immigrant who paid Social Security taxes from 1936 until his retirement in 1955. In 1956, he was deported for his membership in the Communist Party during the 1930s.
In accordance with a 1954 law Congress had passed a law saying that any person deported from the United States should lose his Social Security benefits, Nestor’s $55.60 per month Social Security checks were stopped.
Nestor sued, claiming that he had a right to Social Security benefits regardless because he paid Social Security taxes.
This case made its way to the Supreme Court in Flemming v. Nestor. In the Social Security Administration’s summary of the court’s findings, they state the following:
“There has been a temptation throughout the program’s history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. That is to say, if a person makes FICA contributions over a number of years, Congress cannot, according to this reasoning, change the rules in such a way that deprives a contributor of a promised future benefit. Under this reasoning, benefits under Social Security could probably only be increased, never decreased, if the Act could be amended at all. Congress clearly had no such limitation in mind when crafting the law.”
If there was any doubt left about an individual’s “right” to a Social Security benefit, this case should’ve banished it. But just in case people forget that benefits can be changed or stopped altogether at any time, the Social Security Administration puts this reminder on every statement they create:
“Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time.”
Paying FICA Taxes Does Not Make Your Social Security Payments Guaranteed
The big takeaway is that your payment of FICA taxes is not necessarily paying for your future access to Social Security benefits. The criteria for eligibility could change with the whims of politics.
Ultimately, you should heed the advice that’s also printed on each and every Social Security statement:
“Social Security benefits are not intended to be your only source of income when you retire. On average, Social Security will replace about 40 percent of your annual pre-retirement earnings. You will need other savings, investments, pensions, or retirement accounts to live comfortably when you retire.”
The Social Security Administration today makes it clear that you have no legal right to Social Security benefits, and there are multiple court cases that set precedent to back this up. Whether or not you agree does not change the reality that paying FICA taxes does not provide you a guarantee to any future benefit from the program.
This fact, combined with the stalemate in meaningful Social Security reform, means that it may be time to start planning a retirement that can withstand changes in your Social Security benefit amount. If I can help, let me know here.