Social Security is well-known as a supplemental retirement income program for Americans, but it also provides benefits to disabled workers, spouses and dependents. The numbers behind the Social Security program can be staggering, but they're also fascinating.
Whether you're planning for your Social Security benefits, already drawing payments or simply interested in the facts and figures surrounding the program, here's a look at some of the numbers behind the massive government program.
As the program is currently structured, 2034 won't be a happy year for Social Security recipients. In that year, it is estimated that the Social Security Trust Fund will be depleted. While that sounds ominous -- and it certainly isn't a good thing -- it doesn't mean that Social Security is going away. But it does mean that unless changes are made, benefits will have to be reduced. Since Social Security is such a political hot button, it's likely that some modifications will occur before then. However, when planning out your lifetime benefits, it's prudent to factor in the chance that your benefits won't be quite what you're expecting.
Unless Congress takes steps to shore up Social Security funding, 22% is the amount that benefits may be cut in 2034. For the many retirees who rely on Social Security to make up the bulk of their retirement funding, a 22% cut in benefits could be devastating. However, with the expected depletion of the Social Security Trust Fund, payouts will have to rely on payroll tax contributions from existing workers. With the number of retirees increasing relative to the number of workers, this 22% cut will be necessary without adjustments to the Social Security program.
Social Security is primarily known as a retirement income program, but it also pays important benefits to disabled workers. As of June 2021, the average disabled worker received a $1,280 monthly benefit from Social Security. This amounted to $10.3 billion in total payments to 8.1 million beneficiaries, with another $600 million going to 1.4 million dependents.
According to the Social Security Administration, the average retirement benefit paid to qualifying recipients in June 2021 was $1,555. This average amount was spread out among 46.7 million recipients, for a total payout of $72.7 billion. Along with that, 2.9 million dependents received an additional $2.34 billion in total benefits.
The size of your Social Security retirement benefit is based on a number of factors, including when you claim your benefits. Although you can begin receiving benefits as early as age 62, full retirement age for most Americans is age 67. But if you wait to start your benefits even longer, until age 70, the amount of your payout will rise by 8% per year from age 67 to 70. For top earners who maxed out their income while working, the highest available Social Security retirement benefit in 2022 is $4,194.
Every year, Social Security payouts are subject to an inflation adjustment known as the "cost-of-living adjustment," or COLA. As inflation has been generally tame over the past few decades, Social Security beneficiaries have only received COLAs of a few percentage points, or even less. With inflation spiking in 2021, however, 2022 recipients will see a 5.9% bump in their Social Security payouts. This is the highest COLA in 40 years.
The bulk of Social Security funding comes from payroll tax on existing workers. However, high earners don't have to pay tax on all of their earnings. Every year, the Social Security Administration releases its "wage base" figure, which is the amount of income that is taxable for Social Security purposes. For 2022, this amount is $147,000. Just like the COLA for Social Security payouts, the wage base figure is subject to annual revision based on the inflation rate. For 2022, the wage base bumped up significantly from 2021's $142,800.
In most states, Social Security isn't considered taxable income. However, 12 states do levy income tax on Social Security benefits. Here are the 12 states that levy some type of tax on Social Security:
Note that most states don't tax all Social Security income. For example, Kansas levies a 3.1% to 5.7% tax on all income, but it exempts Social Security income for residents with an AGI of up to $75,000. Most other states have similar types of exemptions.
According to the Social Security Administration, in 2021, an average of 65 million Americans received a monthly benefit. With a current population of about 332 million, this means that nearly 20% of all Americans are receiving monthly benefits from the Social Security program. This number is only anticipated to grow as Americans live longer, part of the reason that the Social Security program could face difficulties as soon as 2034.
While the sheer number of Americans receiving Social Security benefits is impressive, the amount of money being paid to these beneficiaries is hard to fathom. Social Security Administration figures show that over $1 trillion in benefits was paid in 2021 alone. This is another number set to increase as the number of retirees grows. According to the SSA, in 1940, a 65-year-old had a life expectancy of just 14 years; in 2021, that figure was 20 years. As longer lives equate to higher total payouts, Social Security will have to rectify its funding problem if it wants to avoid future cuts in benefits.
More From GOBankingRates