What is Social Security?

Many people know what social security is, but there are people today who still aren’t sure exactly what social security does for people. There are also many people who don’t know the details of the program either. Below is a high-level summary of the program.

Social security is a pay-as-you-go program, meaning today’s workforce pays social security taxes into the program and money flows back out as monthly income to beneficiaries. About 169 million Americans pay social security taxes, and there are 61 million who collect monthly benefits.

Any worker in the US and their employer pay for social security through social security taxes. Workers pay 6.2% of their earnings, subject to a salary cap of $127,000 in 2017. Employers match that amount for a combined total of 12.4% of the total earnings. Once you are at retirement age, you are eligible to receive social security monthly income. Right now, you can begin to receive benefits at age 62, but at a discount to the full amount you are owed. Once we reach 65 (will gradually rise to 67 for those born in 1960 or later), you are eligible for full benefits. You can also delay your benefits a few more years until 70 and you receive a bonus. Today, the maximum retirement benefits in 2017 for someone who is 70, is $3,538 a month.

The social security benefits are designated to replace your income during retirement. The formula to determine your benefits takes into account lifetime earnings over 35 years. While you will receive more if you earn more, there is a cap to your benefits as described above.

Social security was created as a source of income for older Americans who did not save for retirement. Approximately 1 in 5 Americans use social security benefits for their sole source of income. This has helped many people stay out of poverty.

Social security taxes actually do go to a trust fund that is set aside money and earmarked for Social Security. In 2016, the social security program received $958 billion in income and spent $922 billion for benefits and administrative costs. However the federal government is spending cash it borrowers from social security, and this has created a huge deficit for the federal government.

Many citizens are concerned with the future finances of social security. By rough estimates, in 2022 spending in benefits would exceed revenues plus interest on the securities. By 2034, the trust fund assets would be fully depleted. By 2091, incoming taxes would be paying about 73% of the scheduled benefits so this creates a huge problem on the sustainability of the program.

So while many Americans agree the social security is a great program, many are concerned how the U.S. government will be able to pay for the future benefits. In fact there have been proposals for privatizing the programs. But many view this insufficient as supporters of traditional social security point to its long record of success in providing basic income security for older Americans, disabled workers, and families of deceased workers.

Overall, I think people should know more about the social security program so they can be more informed over the next years as something will likely change within the social security program.