You might not appreciate it yet, but Social Security is vital to most Americans. And it looks like it may be undergoing some big changes, as Republican lawmakers have proposed cutting benefits and increasing the retirement age to 69. Given all that, it's more valuable than ever for you to know more about Social Security. Here are some key stats about it.
According to the Social Security Administration, most elderly beneficiaries get 50% or more of their income from Social Security, while 22% of married ones and 47% of unmarried beneficiaries get fully 90% or more of their income from it.
Social Security pays close to 61 million Americans more than $918 billion in benefits annually. If that sounds like a heck of a lot, it is. But it's only about $15,000, on average, per person.
According to a recent report from the Center on Budget and Policy Priorities, Social Security income lifted 22 million Americans -- including more than a million children -- out of poverty in 2015: "Without Social Security benefits, 41% of elderly Americans would have incomes below the official poverty line, all else being equal. With Social Security, only 9% do." That's a particularly big deal given that you have to be quite poor indeed to qualify as below the poverty line: "The poverty thresholds in 2015 were $11,367 for an elderly individual, $14,342 for an elderly couple, and $24,257 for an average family of four."
The average monthly retirement benefit was recently $1,355. That amounts to $16,260 per year. If your earnings have been above average, though, you'll collect more than that. Still, the overall maximum monthly Social Security benefit for those retiring at their full retirement age in 2016 is $2,639 -- or about $32,000 for the whole year.
Fortunately, we can control how much we receive, to some degree. For every year beyond your normal ("full") retirement age that you delay starting to receive benefits, you'll increase their value by about 8% -- until age 70. So delaying from age 67 to 70 can leave you with checks about 24% fatter.
Retire early, and your benefits may be 30% smaller. Those of us born in 1960 or later have a full retirement age of 67. If we start collecting our benefits as early as possible, at age 62, they will be 30% smaller than they would have been had we started at age 67. (Note, though, that the system is designed so that total benefits received are about the same no matter when you start collecting, if you have an average life span. Checks that start arriving at age 62 will be considerably smaller, but you'll receive many more of them.)
Employee income is taxed at 6.2% for Social Security. You may not realize it, but employers cough up a corresponding 6.2%. That's not news to self-employed people, though, as they pay both the employer and employee portions, forking over a whopping 12.4%.
Someone earning $127,200 in 2017 and someone earning $3 million will pay the same Social Security tax. That's because the amount of our earnings taxed for Social Security is capped -- at $127,200 for 2017. Any earnings above that do not get taxed for Social Security. (Many view this as unfair, and one proposed way to bolster the Social Security funds is to eliminate this cap, or at least increase it.)
The contributing-workers-to-beneficiaries ratio has been plunging over time. Back in 1950, the ratio was 16.5, with about 48 million workers supporting close to 3 million beneficiaries. As of 2013, it was just 2.8 -- and it's expected to hit 2.1 by 2035. This is stressing the system, and making eventual changes to it probable.
You'll often hear that the Social Security program will run out of money soon. That's far from the case. Between taxes taken in and interest earned on them, less benefit checks written, the Social Security trust funds have been running a surplus in every year since 1984. Surpluses are likely to stop around 2020, at which point the Social Security system can rely on incoming interest payments to make up the deficit -- for a while. According to several government estimates, Social Security funds are likely to become insolvent between 2033 and 2037 -- if no changes are made. If that happens, payment checks won't disappear, but they'll likely shrink by about 25%, according to the Social Security Administration. Fortunately, though, changes can be made to shore up the program -- some more pleasant than others.
For example, fully 76% of the trust funds' shortfall could be eliminated by increasing the Social Security tax rate for employers and employees to 7.2% in 2022 and 8.2% in 2052.
Taxing all of each worker's income, instead of just the first $127,200 of it, would also wipe out much of the shortfall. It's been estimated that 74% could be wiped out by eliminating the earnings cap over a 10-year period.
Given that Social Security is so crucial to our retirement, it's important to understand it well and to keep up with proposed changes to it.