Social Security – Top Ten Social Security Facts
Workers can use Social Security as a base of income to create their retirement plans.
Additionally, it offers crucial social insurance protection to both families whose primary breadwinner passes away and workers who become disabled.
The Social Security Act was enacted by President Franklin D. Roosevelt on August 14, 1935, and it has been one of the country’s most well-known, successful, and well-liked programs for eighty-six years.
Fact 1: Social Security isn’t just for retirement. Additionally, it offers crucial protection from life insurance and disability insurance.
In January 2022, more than 65 million Americans, or more than 1 in every 6 citizens, received Social Security benefits.
About four out of five beneficiaries are older persons, but another fifth either got Social Security Disability Insurance (SSDI) or were young survivors of employees who had died.
Employees who pay Social Security payroll taxes acquire life insurance and SSDI protection in addition to retirement benefits.
In 2020, almost 96 percent of adults between the ages of 20 and 49 who had Social Security-eligible occupations had obtained life insurance protection.
According to Social Security’s actuaries, that amounts to a life insurance policy with a face value of close to $800,000 in 2020 for a young worker with average earnings, a spouse, and two children.
In case of a serious disability, approximately 89 percent of those aged 21 to 64 who had covered employment in 2020 are covered by Social Security.
Many people don’t realize how much more likely it is to become disabled or die before their time. A little under 7% of those who have just entered the workforce will pass away before reaching full retirement age, and many more will become incapacitated.
Fact 2: Social Security offers a progressive payout that is guaranteed and keeps pace with cost-of-living increases.
The earnings on which persons pay Social Security payroll taxes serve as the basis for Social Security payments. The greater their benefit, the higher their earnings must be (up to a maximum taxable amount of $147,000 in 2022).
Social Security benefits are progressive; for workers at lower income levels, they represent a bigger percentage of prior earnings.
Social Security benefits are progressive; for workers at lower income levels, they represent a bigger percentage of prior earnings. For instance, benefits for a low earner retiring at age 65 in 2021 who earns 45 percent of the average wage replace nearly half of their past earnings.
However, despite being higher in absolute terms than those for low-paid workers, benefits for high earners (with 160 percent of the average pay) only replace roughly 30 percent of former earnings.
Many firms now offer defined-contribution plans (like 401(k)s), which pay benefits depending on an employee’s contributions and the rate of return they earn, rather than classic defined-benefit pension plans, which guarantee a particular benefit amount upon retirement.
Therefore, Social Security will be the majority of workers’ only source of guaranteed retirement income that is immune to investment risk and changes in the stock market.
Once someone begins receiving Social Security, their benefits rise in line with inflation, assisting in preventing poverty as individuals age. Contrarily, the majority of private pensions and annuities do not (or do so only partially) account for inflation.
Fact 3: For almost everyone in the United States, Social Security serves as a basis for retirement protection.
By paying payroll taxes into Social Security, almost all workers take part in the program, and almost all retirees receive benefits. According to projections from the Social Security Administration, 97 percent of older persons (aged 60 to 89) currently receive or will eventually receive Social Security.
Numerous significant benefits result from Social Security’s nearly universal availability. All income levels are covered as a foundation for retirement safety. It doesn’t diminish or deny benefits to those whose income or assets reach a specified level, which supports private pensions and individual saving.
Because Social Security’s risk pool is not restricted to those who anticipate living a long time, no money is lost through lump sum payments or bequests, and its administrative costs are much lower than those of private retirement annuities, Social Security offers a higher annual payout per dollar invested.
The administration of Social Security is particularly effective due to universal participation and the absence of means testing. Only 0.6 percent of yearly payouts are used for administrative costs, which is a much lower percentage than what is used for private retirement annuities.
Means-testing Social Security would undermine many of these benefits while producing no savings because it would place heavy reporting and processing requirements on both recipients and administrators.
Finally, the fact that Social Security is universal ensures that it will maintain public and political support. Most Americans believe they don’t mind paying for most things.
They appreciate Social Security for themselves, their families, and the millions of other people who depend on it.
Fact 4: Social Security payouts are not substantial.
Many individuals are unaware of how little Social Security benefits are; in January 2022, the average Social Security retirement payout was $1,614 per month, or $19,370 year. (On average, elderly widows and disabled workers received significantly less.)
When someone retires at age 65 in 2022 with typical earnings throughout the course of their working career, social security benefits will replace around 37% of their prior earnings. As the program’s full retirement age gradually increased from 65 in 2000 to 67 in 2022, Social Security’s “replacement rate” decreased.
In January 2022, the average Social Security retirement payout was $1,614 per month, or around $19,370 annually.
The majority of seniors join in Medicare’s Supplemental Medical Insurance, generally known as Part B of Medicare, and have their Social Security benefits deducted for the Part B premiums. These premiums will deplete their paychecks more quickly as long as health care expenses continue to exceed general inflation.
Additionally small by worldwide standards are Social Security payouts. When it comes to developed nations, the United States comes in slightly outside the bottom third in terms of the share of typical worker wages that are replaced by the public pension system.
Fact 5: Social Security affects children significantly.
Both older persons and their families as well as youngsters and their families depend on Social Security.
In addition to others who lived with parents or other family members who got Social Security benefits, this figure included roughly 2.8 million children who received their benefits as dependents of retired, disabled, or deceased workers.
According to the figure, Social Security brought 1.1 million kids out of poverty in 2020. (The data in the chart illustrates the entire impact of non-cash subsidies using the thorough Supplemental Poverty Measure.
These numbers are not adjusted for underreporting. Nearly 1 million children were pulled out of poverty in 2020 by Social Security, according to the more traditional, cash-only official poverty indicator.)
Fact 6: Social Security helps millions of elderly people escape poverty.
Official estimates based on the 2021 Current Population Survey show that, all other things being equal, about 4 in 10 persons aged 65 and older would have incomes below the poverty level. More than 16 million elderly people receive Social Security benefits to help them escape poverty.
The official estimates of how dependent older individuals are on Social Security may be overstated, according to a significant study on retirement income from the U.S. Census Bureau that compares Census figures to administrative data.
According to the report, without Social Security, 3 out of 10 older persons would have been living in poverty in 2012, and the program helped more than 10 million older adults escape poverty.
No matter how it is evaluated, it’s evident that Social Security lifts millions of older persons over the poverty line and drastically reduces their poverty rate.
Fact 7: The majority of senior pensioners receive the majority of their income from Social Security.
According to several studies including the Census Bureau study, it provides at least 50% of the income for nearly half of this population and at least 90% of the income for around one in four older persons.
Except for a few at the top of the income scale, most retirees make small salaries. According to a research by the U.S. Census Bureau, the majority of older low-income Americans receive very little, if any, pension income.
The majority of households with retirees in the bottom third of the income distribution had no pension income. In 2015, nearly 1 in 4 of these households had incomes of under $20,000, and about half had incomes of under $50,000.
Fact 8: People of color need Social Security more than anyone else.
For those with low incomes and fewer opportunities to save and accumulate pensions, such as Black and Latino employees and their families, who experience greater rates of poverty both throughout their working lifetimes and in old age, Social Security is a crucial source of income. About 2.5 times as many older Black and Latino people live in poverty as older White people do. Older adults of color have greater retirement insecurity than older adults of the white race due to the large racial wealth difference in retirement. Employees of color are less likely to receive workplace retirement plans and are more likely to hold low-wage positions with small savings potential.
Age-related economic differences between older white adults and older people of color are lessened in part by social security.
Beyond retirement, Social Security is crucial to families of color. Because they have greater rates of disability and lower lifetime earnings than white workers, on average, and because Black workers have higher rates of early mortality, Black and Latino workers get significant Social Security benefits.
Black employees are more likely to become disabled or pass away before retirement due to persistent racial gaps in health care availability and quality, as well as in access to food, affordable housing, high-quality schools, and economic opportunity.
Fact 9: Women especially benefit from Social Security.
Women need Social Security more than males do because they often make less money, spend more time outside of the paid job, live longer, have fewer savings, and receive smaller pensions.
Moreover, half of Social Security recipients in their 60s and 7 out of 10 recipients in their 90s are women. In addition, 96% of Social Security survivors’ beneficiaries are women.
Because ladies often live longer than men do, benefiting from the program’s inflation protection, progressive benefit formula, and benefits for spouses and survivors is disproportionately beneficial to women.
Fact 10: Only minor adjustments would put Social Security’s finances in good shape.
Since the middle of the 1980s, Social Security has accrued total trust funds of roughly $2.9 trillion, with the surplus revenue being invested in interest-bearing Treasury securities. As a result, it has been able to collect more in taxes and other income each year than it pays out in benefits. However, as baby boomers retire in the upcoming years, Social Security’s costs will rise.
Even if policymakers took no more action after the trust fund reserves are exhausted, Social Security could still pay three-fourths of the scheduled payouts by depending on Social Security revenues as they are collected.
Alarmists who assert that Social Security won’t exist when today’s youthful employees retire either don’t grasp or are inaccurate in their representation of the estimates.
Over the course of the next 75 years, the difference between Social Security’s predicted income and its promised payments is expected to amount to 1.2 percent of the country’s gross domestic product.
Politicians should focus on raising Social Security’s tax revenues in order to primarily solve the program’s long-term funding gap. As the population ages, Social Security will take a larger portion of our country’s resources; polls indicate that most people are willing to sustain it by raising their tax contributions.
Recent developments also support increasing Social Security payroll tax receipts: Since policymakers last discussed Social Security’s sustainability in 1983, the tax base has decreased, partly as a result of rising inequality and the expense of non-taxable income.