For better or worse, there's no program quite like Social Security. Crafted and signed into law in the mid-1930s and responsible for making payments to eligible retired workers for nearly 80 years, Social Security plays a key role in keeping tens of millions of people out of poverty.
According to an analysis from the Center on Budget and Policy Priorities, an estimated 22.1 million people, including 15.3 million retired workers, are kept out of poverty each month as a direct result of the Social Security benefit they receive. Without this guaranteed monthly payout, it's estimated that the elderly poverty rate would skyrocket from around 9% today to north of 40%. In other words, Social Security is doing precisely what it was intended to do when it was signed into law.
The average Social Security benefit isn't too far above the federal poverty level
Then again, seniors who find themselves reliant on Social Security as a primary income source during retirement could be in for a rude awakening.
Though the program was never designed to make a person rich, the average Social Security benefit is probably lower than you realize. Following the most robust cost-of-living adjustment in seven years in 2019, a 2.8% increase, the average retired worker was bringing home $1,461.31 a month as of the beginning of 2019, according to data from the Social Security Administration (SSA). Extrapolated out over a 12-month period, this works out to $17,535.72 annually.
By comparison, the federal poverty level for a single individual in 2019 is $12,490. This means that the average retired worker is netting themselves only 40% more than what the federal government considers a poverty-rate income level. That's worrisome given that more than 3 out of 5 of today's seniors lean on Social Security to account for at least half of their income, and 84% of nonretirees (30% major, 54% minor) in an October Gallup poll expect to be reliant in some capacity on the program when they eventually retire.
The data is even more worrisome for the long-term disabled and survivors of deceased workers, who, combined, make up close to 1 out of 4 beneficiaries. Nondisabled widows and widowers were bringing home $1,388 a month as of the beginning of the year, or $16,656 annually. That's 33% above the federal poverty guideline in 2019. Meanwhile, disabled workers were earning even less per month: an average of $1,233.70. Over a full year, this works out to $14,804.40, or merely 19% above federal poverty status.
Add up every monthly benefit check issued, and the average Social Security payout of $1,342 ($16,104 a year) is only 29% higher than the federal poverty level.
Stick to the guidelines
Although the average working American probably doesn't know all that much about Social Security, one of the most important guidelines you should be aware of is the SSA's estimation of what the program can do for you during retirement.
According to the SSA, Social Security is designed to replace, on average, 40% of a worker's wages during retirement. This suggests that lower-earning workers could have a somewhat higher percentage of wage replacement, while well-to-do workers are liable to see a lower percentage of replacement during their golden years. The point being that the SSA doesn't view Social Security as a primary income source during retirement, and neither should you.
Unfortunately, Americans are really poor savers relative to other industrialized countries. With the exception of about 13 months over a 25-year span dating back to 1993, the seasonally adjusted personal saving rate has consistently been lower than 8%, per St. Louis Federal Reserve data. That compares to most industrialized countries, where personal saving rates are north of 10%. This lack of saving, compounded with a distrust for what's arguably the greatest wealth creator in the country, the stock market, has led to an inordinately high reliance on Social Security income during retirement.
You can't count on Congress to fix this
Making matters worse, you simply can't count on Congress to save your retirement.
Back in 1983, lawmakers came to the rescue of what had been a struggling Social Security program. Facing the projected depletion of its asset reserves by the end of the year, the Reagan administration passed bipartisan measures designed to bring in additional revenue (gradual payroll tax increases and the introduction of the taxation of benefits) and reduce lifetime benefits (the gradual increase in the full retirement age). Retirees today, however, can't count on lawmakers to come to the rescue and expand Social Security benefits.
Make no mistake about it, some lawmakers have proposed an expansion of existing and future benefits. The recently reintroduced Social Security 2100 Act has called for a switch to the Consumer Price Index for the Elderly (CPI-E) as the program's inflationary measure. Such a move should lead to larger annual cost-of-living adjustments.
The also recently reintroduced Social Security Expansion Act is even more aggressive, calling for use of the CPI-E, an increase in benefits for low-lifetime earners above the federal poverty level, and an increased payout for all beneficiaries. But neither this bill nor the Social Security 2100 Act is feasible right now.
Democrats and Republicans in Congress are arguably more divided than they've ever been, which bodes poorly for making any changes to America's most important social program. The 60 votes needed in the Senate to pass Social Security amendments would require bipartisan support, which simply doesn't exist at the moment.
If anything, benefits may weaken over time. With the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) remaining the program's inflationary tether, costs important to seniors, such as medical care and housing, are continually underweighted, while less-important expenses, such as education, entertainment, and apparel, are given more credence. In short, the purchasing power of Social Security dollars continues to decline.
To reiterate, the American worker can't count on Congress to fix their retirement problems. While there's always an outside chance that benefits could expand years down the road, your financial future is in your hands. Even though Social Security will be there for you when you retire, you shouldn't count on the program as being any more than a minor income source.