Fact #3: Social Security provides a foundation of retirement protection for nearly every American, and its benefits are not means-tested.
97% of the elderly either receive Social Security or will receive it.
Almost all workers participate in Social Security by making payroll tax contributions, and almost all elderly Americans receive Social Security benefits. In fact, 97 percent of the elderly (aged 60 to 89) either receive Social Security or will receive it, according to
Social Security Administration estimates. The near-universality of Social Security brings many important advantages.
Social Security provides a foundation of retirement protection for people at all earnings levels. It encourages private pensions and personal saving because it isn’t means-tested — in other words, it doesn’t reduce or deny benefits to people whose income or assets exceed a certain level. Social Security provides a higher annual payout than private retirement annuities per dollar contributed
because its risk pool is not limited to those who expect to live a long time, no funds leak out in lump-sum payments or bequests, and its administrative costs are much lower.
Indeed, universal participation and the absence of means-testing make Social Security very efficient to administer.
Administrative costs amount to only 0.6 percent of annual benefits, far below the percentages for private retirement annuities. Means-testing Social Security would impose significant reporting and processing burdens on both recipients and administrators,
undercutting many of those advantages while yielding
little savings.
Finally, Social Security’s universal nature ensures its continued popular and political support. Large majorities of Americans
say that they don’t mind paying for Social Security because they value it for themselves, their families, and millions of others who rely on it.
Fact #4: Social Security benefits are modest.
Social Security benefits are much more modest than many people realize; the
average Social Security retirement benefit in June 2020 was about $1,514 a month, or about $18,170 a year. (The average disabled worker and aged widow received slightly less.)
For someone who worked all of their adult life at average earnings and retires at age 65 in 2020, Social Security benefits
replace about 40 percent of past earnings. This “replacement rate” will slip to about 35 percent for a medium earner retiring at 65 in the future, chiefly because the full retirement age, which has already risen to 66, and is gradually climbing to 67 over the 2017-2022 period.
The average Social Security retirement benefit in June 2020 was $1,514 a month, or about $18,170 a year.
Moreover, most retirees enroll in Medicare’s Supplementary Medical Insurance (also known as Medicare Part B) and have Part B premiums deducted from their Social Security checks. As health care costs continue to outpace general inflation, those premiums will take a bigger bite out of their checks.
Social Security benefits are
modest by international standards, too. The United States ranks just outside the bottom third of developed countries in the percentage of an average worker’s earnings replaced by the public pension system.