More than 65 million people depend on Social Security for some or all of their income, but Social Security's financial shape is expected to deteriorate over the coming decades. Here are some eye-opening statistics about the current state of Social Security, its beneficiaries, its financial state, and how we could fix it for future generations of retirees.
1. About 65.1 million people received benefits from Social Security in 2015. This figure is already up to about 66 million in Nov. 2016. So, not only is Social Security the nation's largest retirement plan, but it is growing rapidly and projected to continue to swell in size.
2. Social Security benefits made up 5% of the U.S. gross domestic product in 2015. This translates to more than $886 billion paid to beneficiaries.
3. Sixty-one percent of Social Security retirement benefit recipients received at least half of their income from Social Security, which is designed to replace 40% of the average retiree's pre-retirement income. Since a popular rule of thumb states that retirees should expect to need 80% of their pre-retirement income to live comfortably, this implies that six in 10 people may be too reliant on Social Security.
4. Thirty-three percent of beneficiaries rely on Social Security for 90% or more of their income. This one is really scary. One-third of aged Americans rely on Social Security for substantially all their income in retirement. The average benefit for a retired worker is $1,355, which translates to an annual income of $16,260. Could you live on that?
5. Median annual income for married couples rose significantly over the past 40-plus years. Even when adjusting for inflation, median income rose 143% for couples and 122% for singles, as compared with 1962. In other words, even with the negative statistics that I just presented, today's retirees have substantially more income than the average retiree did in the 1960s.
6. Despite many common misconceptions about Social Security being "broke," the program ran a surplus in 2015. In fact, 2.5% of Social Security's revenue was added to the trust fund to build up reserves.
7. Speaking of reserves, the Social Security Trust Fund is expected to have more than $2.8 trillion in reserves at the end of 2016. In addition, the program is projected to run a surplus through 2019. After that, however, deficits are expected for the foreseeable future, and these reserves are projected to be exhausted by 2034, at which point only about three-fourths of promised benefits will be able to be paid. There are two main ways to fix the problem -- benefit cuts or tax increases.
8. Seventy-seven percent of Americans say it is critical to preserve Social Security benefits for future generations, even if it means increasing Social Security taxes on working Americans, including a majority of all age groups, income levels, and political affiliations.
9. The projected financing shortfall over the next 75 years is 2.66% of taxable payroll. Therefore, the easy fix would be to immediately increase Social Security taxes by this amount, with a 1.33% tax hike for both employers and employees. However, this isn't terribly practical -- studies show that most people would prefer a gradually phased-in Social Security tax increase, with a 1% increase phased in over 20 years.
10. Gradually increasing Social Security taxes by 1% over a 20-year period would fix 52% of the funding gap. Because of the gradual phasing-in of the increase, and the fact that it's less than the projected shortfall, this would only solve about half of the problem, so it would need to be used in conjunction with another solution. Another popular idea to boost Social Security's revenue is to increase taxes on highly paid workers.
11. Six percent of workers had earnings equal to or greater than the Social Security maximum taxable earnings of $118,500 in 2015. Social Security is projected to face a funding shortfall in the coming decades, and one potential way to fix this would be to tax these high-earners on all of their income.
12. On that note, about 83% of all employment earnings were taxable for Social Security in 2015, compared with 92% in 1937. In other words, when Social Security was started, a greater percentage of U.S. wage income was subject to Social Security tax.
13. Raising the taxable maximum earnings to cover 90% of earnings would fix 29% of the funding gap all by itself. Making all earnings subject to Social Security taxes would fix 74% of the problem. Both solutions are supported by the majority of Americans. On the other hand, any type of benefit cut (raising the retirement age, means-testing benefits, etc.) is strongly opposed.
14. A combination of eliminating the taxable wage cap and gradually increasing Social Security taxes would not only take care of Social Security's funding shortfall for the next 75 years, but would allow the cost-of-living adjustment (COLA) to be increased to reflect costs that affect seniors, such as rising healthcare expenses, and would also allow the minimum benefit to be raised so that everybody who pays into the system for 30 years or more can retire at 62 or later and not live in poverty.
Even better, with this package of Social Security reforms, there would still be money left over to build up Social Security's reserves going forward. Seventy-one percent of Americans are in favor of such a package, so there is a realistic way to fix Social Security before it's too late.
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