Why Social Security is critical to our future

studio shot of social security cards

(MoneyWatch) With the well-publicized funding issues regarding Social Security, and the bipartisan paralysis over fiscal policy, it's easy to lose sight of one thing: The federal retirement program provides a lifeline to the senior population.

This comes across loud and clear in "Fast Facts & Figures About Social Security," which contains 43 pages of statistics on Social Security retirement and disability benefits, as well as stats on the Supplemental Security Income program. I'll summarize the key points here.

For example, it's noteworthy that:

  • Social Security has contributed significantly to reducing poverty among the aged. For instance, the median total income for married couples and nonmarried persons age 65 and older has increased significantly since 1962, when Social Security started tracking this data. Even after adjusting for inflation, the median income has risen 122 percent for married couples and 114 percent for non-married persons.
  • Social Security provides extensive coverage for much of our society. In 2011, 87 percent of married couples and 85 percent of non-married persons aged 65 and older received Social Security benefits.
  • Social Security benefits are a lifeline for older Americans, providing the largest amount of retirement income for most retirees. For almost two-thirds -- 64 percent -- of retired households, Social Security income provides at least half of all retirement income. And it provides 90 percent or more of total retirement income for more than one-third of retirees -- 35 percent.
  • More than 56 million beneficiaries are currently receiving Social Security benefits. Sixty-five percent of these beneficiaries are retired workers, 15 percent are disabled workers, and the remaining 20 percent are survivors or spouses and children of retired or disabled workers.
  • The average monthly Social Security benefit in 2012 for all retirees was $1,262; add in $626 for the average monthly benefit for spouses.
  • The average monthly Social Security benefit for workers retiring in 2012 was $1,292; add in $485 for the average monthly benefit for spouses.
  • The maximum monthly benefit for workers retiring at full retirement age (age 66) in 2013 is $2,533.
  • Women are increasingly earning their own Social Security benefits based on their employment. The proportion of women aged 62 or older who are receiving benefits just on the basis of their husband's earnings record has consistently been declining, from 57 percent in 1960 to 24 percent in 2012. This means that more than three-fourths of current female beneficiaries are entitled to benefits based on their own earnings record.
  • Social Security is largely a pay-as-you-go program. Most of the payroll taxes collected from today's workers are used to pay benefits to today's beneficiaries. In 2012, Social Security collected $840.2 billion in revenues from workers; 92.2 percent of those funds were devoted to benefit payments, 6.5 percent was devoted to increase in the trust funds, and only 0.8 percent was devoted to administrative expenses.
  • Total payments for Social Security account for 4.13 percent of our total gross domestic product. The total increases to 4.99 percent when the Hospital Insurance portion of Medicare is included. This amount is projected by the Congressional Budget Office to grow to about 6 percent of GDP by 2030.
  • The "Fast Facts & Figures" report also includes statistics on Social Security's well-publicized funding issues. In 2010, the program, with an annual shortfall under 3 percent of payroll, paid more in benefits and expenses than it collected in taxes and other income, and the 2013 Trustees Report projects this pattern to continue for the next 75 years. The Social Security trust fund is projected to be exhausted by 2033; at that point, payroll taxes and other income will be sufficient to pay only about 75 percent of the annual outlay for benefits and expenses. The projected shortfall over the next 75 years is about 2.72 percent of covered payroll. Overall, Social Security's cost amount to 5 to 6 percent of GDP.

The upshot: While Social Security benefits may be modest, they're critical to the financial security of our elderly population.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.