En español | Social Security was created more than 75 years ago to ensure that seniors would have a steady stream of income when they retired. In all those years, Social Security has never missed paying Americans the benefits they've earned.
While Social Security is not in crisis, modest changes — made sooner rather than later — can preserve and protect the program so current and future generations will receive the full benefits they've earned.
Social Security: The facts
Social Security is primarily funded by a payroll tax that is paid by workers and their employers. In 2011, nearly 55 million Americans —– including retirees and their families, disabled workers and their families, and the spouses and dependents of deceased workers —– received Social Security benefits.
A person's Social Security retirement benefit is calculated based on the worker's top 35 years of pay. The average annual retirement benefit is roughly $14,700 a year, which is a modest amount, especially for the millions of people who depend on Social Security as their only source of income. About half of America's seniors have an income that is under $20,000 a year.
Social Security benefits:
- Provide a basic foundation of income security for Americans.
- Do not decline in an economic downturn.
- Are portable, which means workers carry their Social Security benefits from job to job.
- Provide protection against inflation with a cost-of-living adjustment.
- Provide a guaranteed benefit over the course of a lifetime, so workers do not have to worry that they'll outlive their Social Security benefit.
Consider this: A person would need to have saved $386,000 as of January 2012 to buy an annuity (an investment product that guarantees to pay a steady stream of income) that would pay out about $1,228 a month, an amount equal to the average Social Security retirement check.
Social Security: The challenges
- Funding shortfalls: Social Security can pay full benefits for approximately 20 years, provided the U.S. Treasury repays the money it has borrowed from Social Security. After that, Social Security will still be able to pay about 75 percent of promised benefits for the next 75 years or more even if no changes are made.
- Longer life expectancy: In 1940, a 65-year-old could expect to live an additional 12 or 13 years. A 65-year-old today can expect to live another 20 years. As a result, many individuals will collect Social Security benefits longer than previously anticipated. In fact, the number of Social Security beneficiaries is expected to rise from 57 million in 2012 to nearly 90 million in 2033.
- A lower worker-to-beneficiary ratio: The drop in birthrates and the increase in life expectancies have reduced the number of workers per beneficiary and the trend is expected to continue. Today there are 2.8 workers for each person who receives Social Security benefits. By 2033, the ratio will be 2.1 workers for each beneficiary.
With so much at stake, the debate and decisions about Social Security's future deserve close attention and active participation from the people who are receiving Social Security today, as well as by those who will count on it in the future.