Social security is the most successful social program in our country, at least in the words of President Bernie Sanders (I-Vt.) – and the data certainly supports that statement. After all, each month more than 63 million people, 70% of whom are retired, receive a monthly performance review.
But as you may know, it is also a program that most workers generally misunderstand. Just look at a social security survey for confirmation. If you are currently in the workforce and expect to receive social security benefits in retirement, you should know the following 10 numbers.
. 1 Revenue of $ 1 trillion a year
First, understand how extensive the social security program has become. For the first time in its history, Social Security earned $ 1 trillion in revenue last year. Most of this income (885 billion US dollars) came from the income tax of 12.4 percent on earned income. The remainder came from the taxation of social security benefits (which I will discuss later) and interest earned on the nearly $ 2.9 trillion in asset reserves of the program. These asset reserves are invested in interest-bearing government bonds with special issues.
. 2 Keeping 22.1 million people out of poverty
Social security has proven to be an incredibly effective tool for keeping the elderly and long-term disabled out of poverty. An analysis by the Center for Budgetary and Policy Priorities found that 22.1 million people were kept out of poverty each year solely because of their social security benefits, including more than 15 million retirees. Without monthly social security payments, the poverty rate of older people would more than quadruple to more than 40%.
. 3 Your full retirement age (probably 67)
It is also essential for workers to know their full retirement age (FRA). Your full retirement age is the age at which the Social Insurance Authority claims your entitlement to 100% of your monthly benefit, commensurate with your year of birth. Claiming benefits from your FRA means accepting a permanent reduction in your monthly payout. If you use services provided by your FRA, you can even increase your monthly benefits by more than 100%. Most prospective retirees will have a FRA of 67, although you can find your unique full retirement age with this handy social security administration table.
. 4 $ 1,471 monthly average salary
You should understand that Social Security will not let you roll in the dough. The average retiree brought home $ 1,470.83 per month from June 2019. Although this makes up more than federal poverty on an annual basis, the total for a full year is "only" $ 17,650 if rounded. As you will see in the next paragraph, it is not intended as a primary source of revenue.
. 5 40% is Expected Wages
According to the Social Security Board, your payout to retired workers is expected to replace about 40% of your wages or salary. Although this percentage could be slightly higher for lower-income workers and lower for higher-income workers, the point is that social security benefits should not be more than a secondary source of income. In other words, social security income does not replace your need to save and invest for the future.
. 6 62% of pensioners are in receipt of at least half of their income
. As you probably suspected, few seniors actually follow the replacement wages directive. The Social Security Agency found that 62% of retirees rely on the program to earn at least half their monthly income, with 34% relying on almost all their social security income (90% more). As you will see in a future illustration, over-reliance on social security can be dangerous for your monthly income.
. 7 4% of pensioners apply for social security benefits at age 70
Pensioner benefits can be claimed at the age of 62 or later, with benefits for each year in which a person withholds their payout increased by approximately 8% per annum Year increase, up to the 70th year of life. Despite this incentive carrot, a majority of retirees apply for benefits early (over the age of 64), permanently reducing their monthly pay to less than 100%. In the meantime, only 4% of pensioners wait as long as possible (at the age of 70) to maximize their monthly payout. Interestingly, a recent study found that the age of 70 is the best age for receiving social security benefits, although there is still no single age for all.
. 8 About half of all senior households pay a federal tax on their benefits.
Whether you're ready or not, there's a fair chance you'll pay a federal tax on some of your social security benefits. If your Modified Gross Adjusted Income (MAGI) plus half of your social security benefits exceed $ 25,000, or $ 32,000 if you file as a couple, you can be taxed up to half of your ordinary federal income. If you use the same MAGI plus half a benefit formula as above, up to 85% of your benefits may be subject to federal taxation if you're a single sign-on for more than $ 34,000 or a couple for more than $ 44,000. According to the senior league, about half of all senior households today owe a tax on their services.
. 9 13 states taxes social security benefits
Here is the moment "But wait, there is more". In addition to federal taxation, 13 states also tax social insurance benefits to varying degrees. Quite a few offer very generous income release levels, for example in Missouri, where a single claimant and a single couple can earn up to $ 85,000 and $ 100,000, respectively, before a state tax is levied on their social security benefits. Even states that reflect the federal tax plan are becoming a bit more tax-friendly. However, if you live in one of these 13 states, your social security premium could be taxed twice.
10. In 2035, the program could exhaust its asset reserves.
As promised, an over-reliance on social security could return to persecute you. The latest annual report from the Social Security Board of Trustees estimates that the nearly $ 2.9 trillion in asset reserves of the program will be fully used by 2035, with a series of demographic changes leading to larger net cash outflows each year. Although Social Security will not go bankrupt – its recurring sources of income prevent it from becoming insolvent – the Trustees report assumes that pensioner benefits could be cut by up to 23% in 2035 without the participation of Congress to enforce disbursements in 2093. This is all the more the reason why social security should be considered as an additional, non-primary source of income in retirement.