October 16, 2013

5 facts about Social Security

SocialSecurity1As negotiations continue between Congress and the White House on resolving the fiscal impasse that has shut down large swaths of the federal government and threatens a default on U.S. government debt, some are hoping for an eventual “grand bargain” that would also overhaul the tax code and reform so-called “entitlement” programs such as Social Security and Medicare.

As far as Social Security is concerned, convincing the public to accept — or even consider — significant cuts could be difficult. Social Security remains one of the most popular federal programs: In a Pew Research Center survey from February, in fact, 41% of Americans said spending on Social Security should be increased, with just 10% saying it should be cut. While Republicans are more likely than Democrats to support cutting Social Security, that’s still a decidedly minority position: 35% of Republicans said Social Security funding should be increased, compared with 17% saying it should be decreased.

Despite its popularity, there’s often considerable confusion on just how Social Security works. After our recent Fact Tank post “5 facts about the national debt,” several readers asked for a similar primer on Social Security. Who are we to say no?

1 Social Security touches more people than just about any other federal program. As of the end of 2012, some 57 million Americans were receiving retirement, disability or survivors’ benefits from the system, at a cost of about $786 billion; 161 million people paid payroll taxes into the system.

2 At its root Social Security is, and always has been, an inter-generational transfer of wealth. The taxes paid by today’s workers and their employers don’t  go into a dedicated individual account, nor do Social Security checks represent a return on invested capital. (Although you might be forgiven for thinking so, since the “personalized Social Security statements” that used to be mailed out once a year and now are available online detail your payment history and projected monthly benefits.) Rather, the benefits received by today’s retirees are funded by the taxes paid by today’s workers; when those workers retire, their benefits will be paid for by the next generation of workers’ taxes (caveat: see Point 3). Your benefit amount is based on your earnings history and age at retirement, not on how much you and your employer paid in Social Security taxes (although taxes paid are, for most people, closely tied to their earnings.)

3 For much of its history, Social Security was a strictly pay-as-you-go system, with current tax receipts funding current benefits. That changed in 1983, when Congress (as part of a comprehensive overhaul of the program) raised the payroll taxes that provide the bulk of Social Security’s revenue, to build up a cushion for the coming onslaught of Baby-Boomer retirees. For nearly three decades, the system took in far more revenue than it paid out in benefits; the surplus was invested in special non-tradable Treasury bonds, with interest credited to the system’s two trust funds (one for old-age and survivors’ benefits, the other for disability payments). As of Sept. 30, the trust funds together held more than $2.8 trillion in Treasuries. (Some people characterize that as the government “borrowing from” or “raiding” Social Security, but the system is in essentially the same position as any other investor who buys Treasuries.)

4 However, since 2010 Social Security’s cash expenses have exceeded its cash receipts; negative cash flow last year was about $55 billion, according to the latest report from the system’s trustees. While credited interest is still more than enough to cover the deficit, that will only be true until 2020. After that, Social Security will begin redeeming its hoard of Treasuries for cash to continue paying benefits — as was the plan all along.

Social Security5 Social Security’s reserves will be fully depleted by 2033, according to the trustees’ report. (The Congressional Budget Office, in a separate report that uses somewhat different demographic assumptions, puts the date at 2031.) After that, while the system will still be receiving tax revenue, it will only be enough to pay about three-quarters of scheduled benefits — unless Congress changes the benefit formulas, raises the payroll tax, or makes other changes such as raising the cap on taxable wage income (currently $113,700).

Category: 5 Facts

Topics: Government Spending and the Deficit

  1. Photo of Drew DeSilver

    is a Senior Writer at the Pew Research Center.

Leave a Comment

Or

All comments must follow the Pew Research comment policy and will be moderated before posting.

60 Comments

  1. zotquix4 weeks ago

    Came here looking for facts about Social Security. Got fear mongering hatchet job.

    Reply
  2. Kevin3 months ago

    Just take the cap off and tax all income.

    Reply
    1. David2 months ago

      That’s a pretty crooked idea, because if your earnings are high when you retire, you don’t even get to collect, in spite of all the years you paid in. What you wants amounts to increasing the theft and doubling down on the only ponzi scheme that will put you in jail for not paying in.

      Reply
  3. Sherry Mckay5 months ago

    I would certainly like to know why social security is always referenced by the government as something they are giving away, I know countless people who paid in to there SS retirement fund that only lived 4 to 5 years after retirement, so with that said where did all of there money go, Our own government has robbed the SS coffers and has depleted them down to a little bit of nothing, , Our government is worried about keeping a triple A credit score with the world but it can’t afford to pay back all the IOU’S TO THE AMERICAN PEOPLE that they have stolen right out of the elders mouth, I have seen old people at the store buying cat food bread n milk, makes me wonder if that’s what they are eating.

    Reply
    1. corey doughty2 months ago

      because some people who get ss is because they dont get enough income and cant do much on there on

      Reply
  4. Almost9 months ago

    I’m sorry but your transfer of wealth idea is incorrect. Social Security was never intended to be a transfer of wealth. The only reason tax dollars are currently refilling the Social Security fund is because the government decided they could borrow funds from it to pay for other things. They’ve been taking money out and leaving IOU’s, which when forced to, they repay using the income they generate from taxes. It’s no different than those taxes repaying any other loans our government has. When we pay China or Japan what we owe them, we are not supporting their governments with our taxes, and neither are we supporting Social Security recipients. They paid their entire lives into a government sponsored pension plan and receiving their own money back as they were promised is not an entitlement program or a transfer of wealth.

    Reply
    1. Dick Rasmussen7 months ago

      Very difficult to get the cattle back in the corral after they’ve been turned loose.
      Doesn’t matter how you explain it. There’s gonna be less as the population ages. Going from 5 or 6 workers per retiree to 3 and less per retiree is pretty straight forward arithmetic !

      Reply
    2. David2 months ago

      Social security began paying out benefits to people who hadn’t paid in the year it was enacted. That’s money from one generation to the previous. It has never given back money that was paid in to the same generation.

      Reply
  5. Greg M9 months ago

    Take the cap off and increase the payroll tax by .25% and the problem is solved for the foreseeable future. Your benefits are figured on your work history and money contributed so benefits would increase accordingly. As far as raising the retirement age, having been a keg ,(168lbs.), driver for Budweiser, you do not do that physical of a job until age 67! There are many physical jobs that wear your body out before retirement age. Dismantle the culture in WA. DC so congress receives the same pay and benefits as the congressional districts they represent.

    Reply
  6. James allen9 months ago

    SS benefits is a very wrong name for SS disbursements. I paid (involuntarily) into the SS fund for ~60 years.

    If I withdraw fund from my bank savings account…is that a benefit ??? DUH

    Reply
  7. Phil Bogdonoff9 months ago

    Privatization of SS certainly may not guarantee successful returns.

    The debacle of Wall Street in 2008 is an indication of what could happen.

    They are NOT to be trusted. The US government with its regulatory powers is the best

    guarantor. Enforcement of those powers must be the key.

    Reply
  8. Dan9 months ago

    The most contentious point on SS is whether you have “earned” it through past contributions. In our area, AARP has begun running ads about the way to fix America is by making sure we don’t “gut” SS. They then say retirees have “earned” the benefits. Talk about convoluted thinking.

    It is my contention that the average contributions, compounded, do not equal the benefits derived. As best as I can tell, that is true in my case.

    The idea that we “pay forward” is really nice if it weren’t for once inconvenient truth. Demographics don’t support it. At the macro level, the U.S. is barely at replacement birth rates. Most OEDC members are not. So there is no pyramid of workers ready and able to stand up and make the contributions needed to keep SS solvent.

    The SS plan is the least of our worries. Adjustments in COLA, starting age and removing caps will address many of the problems for now.

    As far as projecting mortality rates goes, using todays estimates for future mortality is actually looking in the rear view mirror. We are on the verge of incredible advances in healthspan, not just life span.

    Finally, if you look around, baby boomers are already taking their own steps to work beyond SS retirement ages. It is one of the reasons young people are struggling to find jobs.

    Reply
    1. Bill H4 months ago

      There are some people who have put in plenty & have earned social security. Personally I’ve been paying into the system for 36 years & I should not expect anything back? No I should be taking care of with money I’ve been paying all my life into Social Security. I was told this was retirement funds for when i could no longer work. Fact of the matter is its running out of money because of crooked politicians & the millions of illegals & people who live here that never worked that are collecting the money. Millions of hard working americans paid into the system thier whole lives & they deserve to be token care of instead of lazy people who don’t want to work & illegal people that politicians are letting into the country just to get votes!

      Reply
  9. dAn9 months ago

    There is NO money in the trust funds. It is just an accounting gimmick. Congress can at any time change the benefit formula and collection structure to anything they want. The 1983 increase in the SS tax percentage didn’t change the pay-as-you-go system. This said there is a MORAL obligation here which any politician can only avoid at their peril, as the system is so popular. Minor adjustments will be needed unless general tax revenue will be used (as recently became the case) in the future too. Biggest saving will come out of Defense spending going forward and unless something unforeseen happens both sides will have to acknowledge that.

    Reply
  10. Rose9 months ago

    I would like to know the results of the remedies that have been proposed. For instance, what would happen if there were no cap to the tax on earnings? What would be the likely result of privatizing? How much would the tax have to be raised to cover the projected costs. Until the facts and/or probabilities are laid out, it is impossible to make a sound decision.

    Reply
  11. melody stewart9 months ago

    It is interesting to me, that since I became a teacher in later life, that my social security benefit amount was dollar for dollar diminished by the amount of my teacher’s pension. This certainly does not make me want to spread the news about how rewarding teaching can be.

    Reply
  12. Ann Garton9 months ago

    Why do the press and the government keep referring to Medicare and Social Security as entitlement programs. They have been and are still being paid for by the individuals who are working and or have worked for the benefits. Also all seniors receiving Medicare benefits are paying a monthly premium of a $100.00 per month. That premium rate has been going up steadily since I became eligible for benefits in 2005. Entitlement programs are AFDC, SSI,HUD housing, Medicaid, free school breakfast and lunch and anything else the tax payers have to pay for those who do not pay taxes because they do not make enough income. Since you are a research org. You need to correct this information as the general public DOES NOT know the difference.

    Reply
    1. Rando9 months ago

      It is not an entitlement until you draw out more than you pay in.

      For instance; My neighbor probably paid into Medicare $40,000 dollars over the course of his career since he retired early and his employer contributed the same.

      My neighbor has had since he retired, more operations than Seal Team Six. He told me one operation totaled $60,000 dollars and another one amounted to $70,000.

      God only knows how much extra has been thrown into the mix since he’s on more medication than Michael Jackson in his afterlife. Maybe I should make that AFTERLIFE.

      God bless Social Security and Medicare. I can’t imagine where we would be without them.

      Reply
  13. Fran9 months ago

    This was a very clarifying and concise summary of the SS situation. Probably More senior citizens need to be educated so that AARP doesn’t ramp up the anxieties of the elderly. Reform is necessary. Possibly a small reduction in benefits (2-3%) and a small raise in in the taxable wage cap (2-3%) might be helpful. Should the programs now offered be reassessed? Absolutely! Privatization would be a nightmare. Please take a poll on your summary points when this topic “heats up” and maybe the politicians will “hear” it.

    Reply
  14. Linwood9 months ago

    I wholeheartedly agree with Roy!

    Reply
  15. David9 months ago

    I would support increasing the cap. I do not want to see any reductions in benefits. One of the problems is that many of our citizens, still jobless and who have run out of unemployment are turning to Disability Insurance, guided by the lawyers and medical hacks. SSI is another drain as well. I’m not certain how many, who have not paid into the system, are drawing checks. I’ve never quite understood why the death of a parent sends the children to college, while the rest of America struggles. I don’t see how the cap can remain where it is. Privatization is definitely not the answer.

    Reply
  16. Roy9 months ago

    I say get rid of the cap. If I have to pay the tax on 100% of my income then those making more should too. This is just another case of something being built on the backs the poor.

    Reply
    1. Steve4 months ago

      Yes Roy but your tax bracket isn’t already at 35% roughly. Add an extra 6% that’s 41%. Let’s see you pay 41% of your income every month to State and Federal taxes and see how much you want to raise taxes.

      Reply
  17. rod9 months ago

    The greatest Ponzi scheme in history. Only the government could pull off this scam and get away with it.

    Reply
    1. Leslie9 months ago

      Old age income security and disability income security for my grandparents, my parents, and now me, is no “Ponzi scheme.”

      A “Ponzi scheme” entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Social Security does none of those things.

      Each generation in my family paid into a system that ensured (and insured) we would not spend our final years in poverty, die of starvation, or work until the moment of death. And it helped my brother who became disabled and died in middle age – after drawing only a tiny fraction of what he contributed. All tolled, none of my grandparents or parents received anything near the contributions they made to Social Security.

      Yes. I might collect more than I contributed, after just 7 years. Social Security says I may live (the average) of 15 years longer. There’s the problem. And the solution. Longer life – longer work life for many. More contributions.

      Taking the income cap off would do much to help, too.

      Reply
  18. Sara9 months ago

    If the cap on F.I.C.A. salary deductions is eliminated, Social Security would never have a funding problem.

    Reply
  19. Bob Cox9 months ago

    Just fix it!! Cap this. Means test that. Admit that the system is just plain screed up and not sustainable. We’ll maybe not because then you need to deal with reason and equity.

    As long as the goobers in Congress equate fixing anything with a tax increase, nothing is going to get fixed regardless of what the majority of us think about the issue. The extreme right wing is running the zoo because the rest of the (fill in the blank) are more worried about a Tea Party primary challenge than doing a credible job. Liberals are afraid to be Liberals and moderates are afraid of their own shadows, Sarah Palin, Ted Cruz, primary challenges, Glenn Beck, Rush and you name it. Democracy isn’t democracy when the operable premise is minority rule.

    I really wish the “media” and pew would stop throwing out gross research numbers about the percentage in favor or against something without the additional information about the particulars of the groups for and against. If the 17% against is Romney’s group, then the info seems to be somewhat spurious at best and at the very least casts the survey results in a different light.

    Can’t wait to see the new bipartisan budget negotiation committee crash and burn because fixing anything is a tax increase.

    Reply
    1. Bob3 months ago

      “Just fix it!” Totally agree. Why that doesn’t happen? Legislators are more worried about getting re-elected than serving the citizens. Term-limits is the solution to many if not most of our political impasses. As John Connally (late Texas governor) said almost 30 years ago. “Legislators should go to Washington, serve their country, then come back and live with the laws they made.”

      Reply
  20. Joe Adams9 months ago

    Cap on income should be TOTALLY removed.

    Reply
  21. Joe9 months ago

    The real “Entitlement” programs are those given to past and present members of congress. Social Security retirement benefits are the result of years of worker contributions. The problem with Social Security funding is due to congressional meddling. They should be included on the Social Security like the rest of us ordinary citizens.

    Reply
  22. Maria A. Sweet9 months ago

    The existing cap in contributions of Social Security System needs to be eliminated. It does not make sense.

    Reply
  23. @euonymous9 months ago

    “Unless”… one other option is to bring jobs back to the US. It seems to me we are long overdue for a Legislature and Administration who will make it less desirable economically to have US companies move and retain jobs overseas. We need to re-invigorate our manufacturing sector which provides employment and a certain degree of independence to our economy.

    Of course there’s always “Eat the Rich.” Just kidding. It’s getting close to dinnertime.

    Reply
  24. Daniel9 months ago

    It seems that raising the cap is the answer. I never did understand the reason for the cap. But this will watch out for accountants and tax lawyers to start developing ways around it. Like deferring income until they reach retirement or instead of income they will get some in stock options. The machinery to detect fraud must be diligent and funded in order to prevent, as much as possible, back door methods of avoidance. No one has mentioned the way that cola adjustments are figured to increase or stay stagnant. We need real figures not some arbitrary cherry picked numbers to.

    Reply
  25. frank9 months ago

    Social Security retirement benefits are tied to the contributions and contributions are a function of covered pay. The covered pay cap was removed for Medicare because there is no correlation between contributions and benefits. If the covered pay cap is removed for Social Security either of two things need to happen: i) The benefits for very highly paid people will increase significantly due to the increase of their contributions; ii) If the benefit no longer correlates to the contributions we all admit that the program is not a retirement program but in fact an intergenerational welfare program. There’s not enough courage in our political class to stand up and admit that Social Security is and has always been an intergenerational welfare program. If removing the pay cap was so easy the Social Security covered pay cap would have been removed when the cap was removed for Medicare.

    Reply
  26. PaulaK9 months ago

    Why do choose to use the term entitlement, even in parentheses? I’ve paid for both social security & medicare throughout my working life. This is an insurance policy not a gift.

    Reply
  27. Don9 months ago

    I have been representing disability claimants for 33 years. Nearly every claimant who is disabled by depression or back pain will have to appear before an administrative law judge, where the national average approval rate (for all illnesses and conditions) is 46%. And to be approved one must have qualifying medical records of diagnosis and treatment. Very difficult to commit fraud, certainly not to the tune of 50% of all claims.

    I did not see the 60 Minutes report. It sounds like they cherry-picked some statistics to make an alarmist TV show.

    Reply
  28. Timothy9 months ago

    There is a simple fix – (1) set up a separate fund – (2) call in all the IOU’s (3) have Social Security and Medicare contributions attached to all earned income – and (4) verify that all receiving distributions from the fund are eligible to receive the distribution.

    There is no accountability anywhere in our Federal government – $1 trillion has been distributed by the Treasury for three years (all funds were printed) but there is isn’t a clear record as where the money in excess of the faux budget went to.

    Reply
  29. Brenda Sue9 months ago

    The income limit on Social Security income distributions should be increased
    to double the present income limit to income of $226,000. This would help
    the Social Security fund to remain solvent for a longer period.

    Reply
  30. Benji9 months ago

    Why doesn’t congress raise the taxable wage income cap? Why are they delaying action now that will help millions in later years? Is it because the “rich” people are really the ones running this country and not ordinary middle income people, as they want us to believe.

    Reply
  31. Garry Herron9 months ago

    Is it possible that Social Security revenues could also be raised by extending its tax to cover other types of incomes, such as dividends, distributions and private equity earnings?

    Reply
  32. B. Beech9 months ago

    Until there is an agreement on how to fund Social Security programs I think the benefits should be frozen at current rate. Increasing benefits will only add to the debt problem on this entitlement program.
    Taxes should be collected on much higher level of income, up to $350,000 which be more rational. That would bring in much needed refinancing.

    Reply
  33. TJ9 months ago

    Eliminate the cap on salaries, yes, and do a means test for recipients – Social Security was meant to be insurance, not a pension plan. Retired folks getting income of $75,000 or more a year (from whatever/all sources) don’t need – and shouldn’t get – Social Security benefits. Make those two changes, there is no funding problem.

    Reply
  34. Micki9 months ago

    If some retired people opted out of receiving monthly Social Security payments in exchange for not having to pay income tax on pension income, does anyone out there know what effect this would have on the SS program? Right now my income taxes pretty much match my income from SS, nearly a wash and it puts me in a higher tax bracket.

    Reply
  35. Howard9 months ago

    Simply eliminate the cap on salaries altogether. It is time for the superrich to pay their fair share.

    Reply
    1. Elaine9 months ago

      Howard, if you had left off the last sentence, I would have thought you were being reasonable. Now, I suspect that you are part of the problem. I am in no way super rich, but I do not begrudge anyone who works hard enough to become super rich. I guess I was just brought up different.

      Reply
      1. Bald Eagle9 months ago

        It’s not about working hard. If it were, there would be a ton of men and women who really worked hard and a lot less among the very wealthy whose hardest work was managing their investments.

        Reply
        1. Dan9 months ago

          There would also be a ton of people who don’t deserve what they get. Plus I guess you never met an entrepreneur who built his fortune by taking a second mortgage on their home. Or who failed repeatedly only to persevere. Who created jobs for others.

          Another example of envy.

          Reply
    2. Rick9 months ago

      I agree with doing away with the salary cap but we also need to let high earners get higher SS payments. This is not a rich vs poor solution but will go a long way towards making SS solvent.

      Reply
  36. Brad Patterson9 months ago

    A simple fix would be to raise the payroll cap on Social Security.

    Reply
    1. Rick9 months ago

      Totally agree

      Reply
  37. Donald9 months ago

    Must change retirement age to reflect health of older retires,average age of death is now 85-90

    Reply
    1. Kris9 months ago

      Which companies are hiring 65 year old computer programers, 67 year old roofers and 66 year old nurses?

      Reply
      1. Barbara9 months ago

        Amen!

        Reply
      2. Deethorn9 months ago

        Actually, many – my over 65 years old boss, president of a non-profit – my over 74 years old Mother, a senior tax preparer at H&R Block – my 78 year old uncle, a property manager. All are working full-time, or as much as they want. In fields they love and are experts at. And they all intend to continue working for the forseeable future. My father-in-law worked as a minister until he was over 80. Yes, the retirement age must be raised. And not 6 months over 6 years. That will have virtually no impact.

        Reply
    2. Leslie9 months ago

      Donald, you make a big mistake in unstated assumptions.

      The average age of death in the United States in 2012 is 78.7 years of age – for someone BORN IN 2010.

      That’s the last year finalized data and calculations are available from the US Census Bureau. It uses all people, of all ages, across the US, all causes of death – including accidental at early ages.

      The older you get, the less likely the average age of death, in a given year, but only up to a certain age range, then it falls off sharply.

      It’s about 81 for women and 76 for men (all ages ranges counted, all population used, crude death rates of 2012 population estimates).

      Living longer or into an older age does NOT mean the population is healthier, or more able to work. It just means people live longer. That says nothing about HOW they live, work or die.

      A 93 year old with Alzheimer’s disease for the past 10 years would not make a good President, would he? That’s why Ronald Reagan left office at 78 years of age – our current average age of death.

      P.S. Most people who draw Social Security benefits still pay income taxes on some of that income.

      Reply
      1. Kathy h9 months ago

        Leslie: I think history will show that the reason why Ronald Reagan left office at 78 years of age was because he was term limited to two four-year terms.

        Reply
  38. denny powers9 months ago

    what happens to the benefits from people that pass away shortly after they start to draw from ssi

    Reply
    1. Leslie9 months ago

      frank’s link answers the question for a single monthly payment.

      You draw a monthly Social Security check in any month for the prior month’s benefit due you. The month anyone dies, their check is their’s or their heirs. Then Social Security stops. No check is issued the following month after the month when someone dies.

      All benefits for people who die, stop when they die. If they are married their spouse, or divorced, their qualified former spouse, or children who are of a certain age or disabled – THOSE benefits can continue, or start later in the survivor’s life.

      A spouse who has never worked – will never qualify for Social Security benefits of their own, can still draw Social Security as a widow/widower, or former spouse (divorced). The benefit is smaller and the group of individuals these benefits go to is quite small among all Social Security beneficiaries.

      Reply
      1. Cindy4 months ago

        I think that our government is not good at handling money or social security contributions. So much money contributions for so many years will be just gone in 2033? Any company’s insurance policies or annuity policies are much better than that. Baby boomers contributed a lot more money in the past. Now when that’s time for them to get benefits, the money just gone!!! That’s really unfair. In my opinion, better let people handle their own retirement plan. That will be much, much better. Our government is not competent in investing the contributed money entrusted to them, especially in this matter. If just increases tax or remove the cap, the money may meet the quota for a very short time, and will soon diminish in not too long futures. Why just remove the social security tax and let workers to use the money to do their own investing for retirement??

        Reply