Currently paying out benefits to more than 60 million people a month, 40 million of whom are retired workers, Social Security is arguably the most important social program in the United States. But as we've seen from many previous polls, Americans' understanding of Social Security isn't up to par -- and if Americans don't understand the ins and outs of Social Security, they'll have a hard time getting the most out of the program.
With that being said, today we're going to briefly look at seven Social Security charts that'll tell you everything you need to know about the program.
1. Seniors are quite reliant on Social Security income in retirement
The first thing you should know about Social Security is that current retirees are very reliant on the program. According to data from Gallup in 2015, 59% of seniors rely on Social Security to provide a majority of their income in retirement. Another 31% count Social Security as a minor source of income. Added together, this implies that 9 in 10 seniors would be in financial trouble if they weren't receiving a Social Security payment each month.
2. Americans are very worried about Social Security's survival
Given the reliance of retirees on Social Security income, it shouldn't come as a huge surprise that most Americans are genuinely worried about its long-term survival. Based on a similarly conducted Gallup poll, three-quarters of all people polled are either worried a "great deal" or a "fair amount" about the survival of the Social Security program. We'll get to the "why" component associated with this worry in a moment.
3. Social Security myths are still prevalent
Despite its importance for seniors, understanding of Social Security is still spotty at best. We only need to look at the most pervasive Social Security myth, which refuses to go away, to get confirmation of this.
Based on polling from Gallup over a 26-year period, at least 4 in 10 Americans wrongly believe that Social Security benefits won't be available when they retire. As you can see from the above chart, this trend has been worsening over the past decade, with more than half of all respondents currently believing Social Security is essentially headed toward bankruptcy.
4. The program is on a slippery slope
As you can see above, seniors' worries about the program appear to be well-founded. According to the Social Security and Medicare Board of Trustees' 2015 report, the Old-Age, Survivors and Disability Insurance Trust is estimated to burn through its cash reserves by 2034. In plainer terms, the cash inflow into Social Security will soon turn into a net cash outflow due to a growing number of baby boomers retiring and pushing the worker-to-beneficiary ratio down. Additionally, lengthening life expectancies have weighed on the program, requiring payments to seniors that can last for decades.
All told, the Board of Trustees has said that Social Security benefits could be cut by as much as 21% in 2034 to ensure the survival of the program through 2089. Although a 21% cut to your benefits isn't optimal, it also demonstrates that the aforementioned expectation of the program going bankrupt is entirely false.
5. Most seniors claim benefits early
Retirees have the option of claiming benefits as early as age 62, and this seems to be the most popular option based on data aggregated by the Centers for Retirement Research at Boston College.
Using data from the Social Security Administration in 2013, we can see that nearly half of all retirees choose to file for benefits as soon as possible, with around 60% of all retirees claiming benefits before they hit their full retirement age (FRA). The FRA is a dynamic number that's based on your birth year which determines when you're entitled to receive 100% of your Social Security benefits. If approximately 60% of seniors are claiming benefits before their FRA, it means many are receiving a reduction of up to 25% in monthly benefits from their FRA.
6. But you'll be paid more if you wait
Being patient can mean a substantial amount of extra monthly income when it comes to Social Security, although waiting isn't going to be the best choice for everyone.
Based on data provided by the Social Security Administration, we can see that the average monthly benefit for retired workers shoots substantially higher once they reach their FRA. Seniors can watch their benefit grow all the way until age 70, which is where it caps out. Based on a birth year of 1943 through 1954, seniors waiting until age 70 can claim a monthly benefit payment equal to 132% of their FRA.
The typical inflection point for Social Security is about 78 years. What this means is that an early filer (age 62) and a late filer (age 70) would have amassed the same amount of lifetime Social Security benefits by age 78, assuming comparable lifetime income. If you think you'll live past age 78, holding off on signing up for benefits could be a smart move.
7. Social Security still shouldn't be your sole source of income
Finally, as you can see from the income distribution above, the vast majority of Social Security recipients don't receive a whole lot of income each month.
The big data cluster tends to aggregate in between $500-$599 a month and $2,300-$2,399 a month, meaning the average American is probably earning somewhere between $6,000 and $28,800 per year during retirement from Social Security. If you had no expenses to concern yourself with, this might be more than enough income to live off of. However, most retirees have their Medicare Part B and/or Part D premiums taken directly from their Social Security benefits. We're also seeing more seniors entering retirement with mortgage and/or credit card debt. In short, relying entirely on Social Security to fund your retirement, especially with a possible 21% benefit cut less than two decades away, probably isn't a wise move.