There are few issues that are more polarizing for Americans than Social Security.
Social Security is designed to be a program that protects lower-income retirees, as well as family members of deceased workers and the disabled, from financial hardship. However, Social Security itself was never intended to supply all of a beneficiary's income. Per the Social Security Administration, the average benefit check is only going to replace 40% of a workers' previous income.
Why Social Security is such a hot-button issue
However, the elderly have become quite reliant on Social Security income. The latest data from the SSA notes that 74% of unmarried elderly people count on Social Security for 50% or more of their monthly income, while 47% rely on Social Security benefits for 90% or more of their monthly income. It's for this reason that Americans -- both retirees and pre-retirees -- are so passionate about the future of the Social Security program.
At the moment, the future of Social Security is very much in flux. The Social Security Trust Fund is burning through its reserves each year due to the retirement of baby boomers in increasing numbers and the fact that we're living longer. Ultimately, it's expected to be out of extra cash by 2033. This drawdown is essentially going to push Congress into action to enact changes to the Social Security program, otherwise benefit cuts are almost certain in order to ensure that some level of payments continue to be made.
How your Social Security tax dollars are spent
But, before you can understand what Congress wants to do with Social Security, you have to first understand where your Social Security tax dollars go. Based on data from the SSA, here's an approximate breakdown on how each dollar of Social Security tax revenue is spent.
- Retired worker benefits (74%): The bulk of Social Security payments goes toward taking care of retired workers. The SSA's 2013 figures show that $0.74 of every Social Security tax dollar spent will go toward retiree benefit disbursements. In order to qualify for retiree benefits you simply have to earn 40 "credits." One credit is currently equal to $1,200 in earnings, and you can earn four credits per year. Therefore, if you've earned at least $4,800 per year for at least 10 years, then you qualify. The SSA will then average your highest-earning 35 years to calculate your benefit payment.
- Survivor benefits (10%): An additional $0.10 of every tax dollar is divvied out monthly to survivors of deceased workers. These benefits help supplement income for spouses and children of deceased workers, which is critical, as the SSA predicts that one in eight adults in their 20s today will die before reaching their full retirement age.
- Disability benefits (16%): The remaining benefit payout goes to those who are disabled and are unable to do the same type of work they had been doing or entering a new field of work. Because disabilities can occur before reaching normal working credit eligibility the SSA has developed a "duration of work" test to allow eligible Americans younger than age 62 to qualify.
- Administrative expenses (less than 1%): Lastly, the Social Security Trust Funds need to pay SSA employees as well as cover the cost of the infrastructure that allows Social Security to operate. Based on SSA literature it's among the most cost-efficient government programs, costing less than one penny for each Social Security tax dollar collected.
Putting these percentages into context means retired workers received about $639 billion this year, survivors around $84 billion, disability beneficiaries $125 billion, and SSA expenses totaled less than $8 billion. Change may need to be made to keep the program solvent over the extreme long run, but workers can at least take solace in knowing that 99% or more of their tax dollars are going directly toward eligible beneficiaries.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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