Anyone who works in the United States pays into Social Security. And, many of the people that pay in expect to use Social Security retirement benefits when they retire. In fact, about 65 million Americans are currently receiving Social Security benefits. If this surprises you, then there might be more that you don’t yet know about Social Security. With this in mind, here are nine Social Security facts you probably didn’t know.
Social Security is more than just a retirement income program
In addition to being the nation’s most basic source of retirement income, Social Security offers other income programs. These programs include disability protection, life insurance, and survivor’s benefits. About a quarter of the total benefits paid by Social Security are services other than retirement benefits.
Survivor benefits help spouses of the deceased continue to pay for their lifestyle by providing the option for the surviving spouse to receive the deceased’s benefit after their passing. For example, let’s say that a husband receives a monthly benefit of $2,000, and a wife receives a benefit of $1,800. If the husband dies first, the wife can choose to continue to collect her $1,800 or decline her benefit and collect her husband’s $2,000 benefit instead.
Disability benefits are one of the other main benefits of Social Security. If a person can’t work due to a physical or mental condition that renders them unable to work, they may be able to receive disability benefits.
Social Security benefits increase with the cost of living
As the cost of living continues to rise, so does Social Security benefits. To calculate each American’s Social Security benefits, the Social Security Administration looks at their number of working years and yearly earnings. These earnings adjust for inflation and will continue to adjust each year to keep up with inflation. This helps to ensure that people do not fall into poverty as they age. It also ensures that retirees can maintain a quality standard of living.
Nearly all Americans use Social Security as a foundation for retirement
Every taxpaying American contributes to Social Security each year. Once people turn 62, they can choose to start receiving their retirement benefit or wait until age 67 to receive their full retirement benefit. While some Americans’ pensions and other assets cover their retirement lifestyles, nearly all eligible seniors receive or will receive Social Security retirement benefits.
The Social Security Administration estimates that 97% of eligible seniors collect or plan to collect Social Security retirement benefits according to recent data. This data is updated every five years.
It’s also important to note that Social Security benefits are not means-tested. This means that anyone who has contributed to Social Security can receive the benefits they have earned, regardless of how much they might earn from their pensions or other assets. People who receive retirement annuities and do not need Social Security income can choose not to apply for benefits, but most people choose to take the benefits they have contributed to during their working years.
Social Security benefits are humble
While Social Security helps people avoid poverty, the benefits are typically only substantial enough to cover necessities rather than an entire lifestyle. The average Social Security recipient receives less than $1,600 per month, and the maximum a person can receive is $3,011 per month for someone who retires in 2020 at full retirement age. Most people can expect their monthly benefit to be about 25-40% of what their monthly income was while working.
Social Security isn’t only important to the elderly
Social Security primarily benefits the elderly. However, many retirees have beneficiaries that rely on a senior’s income. This often includes children of Social Security recipients.
If a Social Security recipient dies and leaves a child under the age of 18 behind, the child is eligible to receive the deceased’s retirement benefit until they reach age 18 permitting that the child is a full-time student. If the child is over age 18 and has a disability that began before age 22, they may also receive survivor benefits.
Additionally, stepchildren, grandchildren, step-grandchildren, or adopted children of a deceased person may receive a survivor’s benefit in some circumstances.
These survivors’ benefits and payments to elderly individuals that financially support their children, grandchildren, or other individuals benefit significantly from Social Security as it has lifted individuals and families out of poverty since its conception in 1935.
Most retirees rely on Social Security for the majority of their income
Many people do not save money for retirement. This can be due to a variety of factors including a lack of an employer-sponsored retirement program, lack of motivation to save, or choosing to allocate investments elsewhere. Regardless of the reason, this leaves millions of retirement-aged people without money to live on.
This is where Social Security becomes particularly important. About half of American seniors rely on Social Security to provide at least 50% of their income, while about a quarter of seniors rely on Social Security to pay about 90% of their income. For most, a budget is incredibly difficult to manage with the modest Social Security benefit. Therefore, keep this in mind when planning for your retirement. This is especially true if you plan to make payments on a home, car, or other debts when in retirement.
Millions of American would live in poverty if it weren’t for Social Security
Although Social Security benefits are modest, retirement benefits help millions of people avoid poverty. When people are no longer well enough to continue working and do not have any other income, Social Security helps them to avoid poverty.
For example, let’s say that someone earned $50,000 in today’s dollars. Let’s also say they retire in 2020. Their paycheck while working was likely about $3,500 per month after taxes. Their monthly Social Security retirement benefit will likely be just over $1,000.
Social Security is especially important for women and those of color
It’s well known that women and people of color tend to earn less than white men. In turn, these groups experience higher poverty rates. This is true both during working years and in retirement. This makes it difficult for women and people of color to budget for additional retirement funding. This also can result in a retirement wealth gap.
Social Security helps to not only prevent poverty in retirement for women and people of color, but also provides disability income for those who need it. Black workers have higher rates of premature death than their white counterparts. And, Black and Latino workers have higher disability rates and lower lifetime earnings than white workers. These racial disparities mean lower access to quality health care and other job-related benefits.
Women tend to live longer than men and therefore spend more years in retirement. Due to their lower wages, they are then forced to live off fewer retirement savings for longer than men do. Social Security’s increasing annual benefit helps women avoid poverty in retirement.
Simple changes would put Social Security in a better financial standing
Another interesting Social Security fact involves its longevity. You may have heard through the grapevine that Social Security might not be available when you retire. You may have also heard that the benefit will be significantly smaller than it is now. As Baby Boomers approach retirement and the program is put under stress, the amount available continues to decrease. However, by increasing Social Security’s tax revenues, policymakers can help ensure that our nation’s resources are available for years to come.
The Bottom Line
Social Security has benefited retirees for nearly nine decades. This has helped millions of Americans avoid poverty. Social Security’s disability benefits, Medicare benefits, and retirement benefits help all Americans. It allows them to gain access to the funds and care they need, both during their working years and in retirement.
If you have more questions about Social Security, you may want to speak with a financial planner. Our team of retirement planners can help you make the best decision for you, your family, and your future.