Say the words "Social Security" and the blood pressure of the persons sitting to your left and right will likely go up. In a March 2018 survey from national pollster Gallup, it was shown that 72% of respondents either have a "great deal" (44%) or "fair amount" (28%) of personal worry about the Social Security system.
Comparatively, just 10% responded that they're "not at all" worried about Social Security's future, which is consistent with the percentage of current retirees who aren't in any way reliant on Social Security income. In other words, if you're expecting to lean on Social Security in even the slightest amount come retirement, you're probably at least a little worried about its future.
This fear stems from the 2017 release of the Social Security Board of Trustees report. Contained in this annual report is the prediction that Social Security will begin paying out more in benefits than it's generating in income by 2022, as well as the estimate that the program's $3 trillion in asset reserve, built up between 1983 and 2021, will be completely exhausted by 2034. Should Congress fail to find a way to raise additional revenue, the current payout schedule would become unsustainable, resulting in the need for an across-the-board cut in benefits of up to 23%. Such a cut is predicted to keep payouts sustainable, without the need for additional payout reductions, through the year 2091.
A snapshot of Social Security
But keep in mind that these projections are exactly that... projections. Though the Trustees have been relatively accurate with their prognostications over time, they're not perfect. Federal policy, mortality and birth rates, interest rates, and even economic growth can impact the Trustees' outlook for Social Security 10, 20, or even 75 years from now.
If you want concrete facts about Social Security, we have to stick with the present. Here's a roundup of what America's most important social program looks like today.
How many people are receiving a Social Security benefit?
According to the Social Security Administration's (SSA) April 2018 snapshot, which was released earlier this month, 62.36 million people were receiving a monthly benefit. This included 45.99 million people receiving retirement benefits, 42.92 million of which are retired workers, 6 million folks receiving survivor benefits, and 10.36 million people netting disability insurance payments. Take note that while this is a program most commonly associated with retirees, 26% of its monthly beneficiaries don't fall under the "retirement benefits" category.
What's the average benefit for a retired worker, a survivor, and disabled workers?
What can the average Social Security beneficiary expect from the program today? Data from the SSA in April 2018 shows that the average retired worker receives $1,411.07 per month ($16,933 a year), with survivors and disabled workers averaging monthly payouts of $1,153.04 ($13,836 a year) and $1,197.95 ($14,375), respectively. With the federal poverty level sitting at $12,140 in 2018 for the 48 contiguous U.S. states, it shows how Social Security has played a pivotal role in keeping an estimated 22 million people out of poverty, per the Center on Budget and Policy Priorities.
How reliant are retired workers on Social Security?
Though the recommendation from the SSA is that retired workers expect Social Security to replace an average of 40% of their wage income, data suggests they're far more reliant. At the moment, 62% of retired workers rely on their monthly check for at least half of their income, with 34% of retirees essentially depend on the program for all (90% to 100%) of their income.
How is Social Security currently funded?
Every year, when the Trustees release their annual report, we're able to take a closer look at how the program derives its funding. In 2016 (which is the newest data we have, based on the 2017 Trustees report), $836.2 billion of the $957.5 billion collected came from Social Security's 12.4% payroll tax on wage income. Today, this payroll tax is applicable on earned income between $0.01 and $128,400. It's this tax that ensures Social Security can never go bankrupt. As long as people keep working, payroll tax revenue keeps getting collected and funneled into the Social Security program for disbursement.
The lesser two funding mechanisms were the interest earned on the Trust's asset reserves ($88.4 billion), and the taxation of Social Security benefits ($32.8 billion). Yes, Social Security may indeed be taxable at the federal level, and in 13 states, to some varying degree. Over time, interest income is expected to wane as the program's asset reserves decline. Meanwhile, the aggregate amount collected by the taxation of benefits and the payroll tax should continue to increase, more years than not.
How much extra cash does Social Security have saved up right now?
According to Trust Fund data available on the SSA's website, which is accurate as of the end of March 2018, the Old-Age, Survivors, and Disability Insurance Trust (OASDI) had nearly $2.89 trillion in excess cash that was invested primarily in special issue bonds and, to a lesser extent, in certificates of indebtedness. The average interest rate on all of these invested assets is approximately 2.9% per year.
How much extra cash is the Social Security program bringing in?
Once again, since the Trustees report was published last summer, the most up-to-date information we have is from 2016, which saw $35.2 billion in extra cash added to asset reserves. Based on the intermediate-cost model, $58.6 billion was estimated to have been added in 2017. In a few months, when the 2018 Trustees report is released, we'll know the precise amount.
Is Social Security really in trouble?
On the surface, and based on current data, the Social Security program appears fine. However, the inability of lawmakers in Congress to find a middle ground on anything when it pertains to Social Security is what may ultimately doom current and future retirees to a cut in benefits. With the worker-to-beneficiary ratio falling, boomer retirements continuing to climb, and longevity having increased by nine years since 1960, the program is most definitely in need of help from Congress.
Will it get that help? That's what remains to be seen.