Although there are many social programs that Americans might struggle to do without, few if any are as important as Social Security. Signed into law in 1935, Social Security has been providing a financial foundation for retired workers since payout began in January 1940. Without this program, and taking into account the generally poor saving habits of Americans, our country would probably be facing a serious elderly poverty crisis.
But for as important as Social Security is, it's also facing some serious challenges. The following 10 figures will help you understand the true promise and peril that America's most important social program provides.
1. 62.9 million beneficiaries
According to the latest snapshot in December 2018 from the Social Security Administration, just over 62.9 million people were receiving a benefit check each month. As you might have expected, nearly 7 out of 10 of these recipients are retired workers, who were, on average, receiving $1,461.31 per month. But keep in mind that Social Security is also designed to protect the long-term disabled and survivors of deceased workers. More than 5.9 million survivor benefits were paid out last month, with close to 10.2 million disability benefit-related payouts made.
2. 22.1 million kept out of poverty
We often hear about Social Security being important, but it's tough to quantify what "important" actually means. Based on an analysis conducted by the Center for Budget and Policy Priorities, some 22.1 million Social Security beneficiaries are kept out of poverty as a result of their guaranteed monthly payout. This includes more than 15 million retired workers, whom the program was originally designed to protect.
3. 62% reliant on Social Security for half their income
Social Security is only designed to replace about 40% of the average retired worker's wages, but seniors tend to lean more heavily than they should on the program. Data from the Social Security Administration finds that 62% of retired workers generate at least half of their income from the program, with 34% leaning on their monthly payout to provide between 90% and 100% of what they earn. Seniors who are heavily reliant on Social Security could be in for an unpleasant surprise, as you'll find out if you keep reading.
4. Around 60% claim benefits prior to their full retirement age
Not only are retired workers far too reliant on Social Security income to make ends meet, but most are also willing to accept a permanent reduction in their monthly payout by claiming benefits before reaching their full retirement age -- i.e., the age at which you're eligible to receive your full payout, as determined by your birth year. The data shows that approximately 3 out of 5 retired workers are filing for benefits prior to reaching their full retirement age, thereby accepting a permanent reduction in benefits that could be as high as 25% to 30%, depending on their birth year.
5. 66 years, six months, and climbing
Speaking of the full retirement age, it's on the rise. In 2019, folks who become eligible to claim Social Security benefits -- i.e., those turning 62 in 2019, who were thus born in 1957 -- will see their full retirement age increase by two months to 66 years and six months. The full retirement age will actually continue climbing by two months per year until 2022, when it reaches 67 years for everyone born in 1960 or later. In simple-to-understand terms, future generations of retirees are going to have to wait even longer to collect their full payout.
6. $1 trillion collected annually
If you were ever curious just how much revenue the Social Security program collects each year, wonder no more: It's about $1 trillion, and it'll likely rise with each passing year. The 12.4% payroll tax on earned income of up to $132,900 is responsible for more than 87% of total annual revenue, with the interest income earned on the program's asset reserves and the taxation of benefits making up the rest. And yes, you did read that correctly -- Social Security benefits do become taxable at the federal and/or state level if you earn over certain income thresholds.
7. $6.5 billion in administrative costs
Something you may not be aware of but certainly should know is that, based on the most recent annual data we have access to, administrative costs for the program totaled "only" $6.5 billion in 2017. Put in another context, it means that more than 99% of the revenue collected by Social Security winds up in the hands of eligible beneficiaries. It's one of the most cost-efficient social programs in the federal government.
8. $2.9 trillion in asset reserves
Since 1982, the Social Security program has run a net surplus each and every year (albeit we won't have data on whether this was the case for 2018 until possibly June or July of this year). By law, these net cash surpluses, known as Social Security's asset reserves, are required to be invested in special-issue bonds and, to a lesser extent, certificates of indebtedness. As of December 2018, $2.9 trillion was accounted for in Social Security's investment portfolio, with these assets earning an average of 2.85% per year. And yes, the federal government is borrowing this money; but no, the program wouldn't be better off if it were paid back and this borrowing ceased.
9. $13.2 trillion long-term cash shortfall
Social Security has been a financial rock for decades, but it's also in trouble. Due to ongoing demographic changes that include the retirement of baby boomers, increased longevity, and growing income inequality, to name a few, the program's $2.9 trillion in asset reserves is expected to be completely gone by the year 2034. While this doesn't mean Social Security is bankrupt, it does leave the program an estimated $13.2 trillion short if it's to sustain payouts at today's levels over the long term, which the Social Security Board of Trustees defines as the next 75 years. Should additional funding not be raised by Congress, benefit cuts of up to 21% could await.
10. 60 Senate votes needed to pass amendments
Lastly, blame Congressional inaction for many of Social Security's issues. Although there are numerous proposals on the table from both Democrats and Republicans that could resolve the estimated $13.2 trillion shortfall, lawmakers haven't come close to reaching the 60 votes needed in the Senate to pass an amendment to America's most important social program. Given that it's been four decades since either party had a supermajority, bipartisan cooperation will be needed to resolve the Social Security crisis.