Did you realize that Social Security provides benefits other than the retirement variety? While benefits for retirees and their dependents constitute the majority of the program, another portion of the program is directed to assist disabled workers and their dependents.
The retirement component is known as the Old Age and Survivors Insurance (OASI), while the disability component is known as Social Security Disability Insurance (SSDI, or just DI). Each component has its own trust fund to supply payments to its respective recipients.
Based on Social Security Administration data from June 2015, 39.5 million retirees were paid a total of $53 billion in benefits for an average of $1,335 per month. The 3 million dependents of retirees consumed another $2 billion in benefits. Between the two groups, they account for 72% of Social Security benefits.
In that same month, approximately 9 million disabled workers were paid $10.5 billion (an average of $1,165 per month) and their 2 million dependents were paid another $700 million. Disabled workers and their dependents account for 18% of the June 2015 Social Security benefits. Survivor benefits of $6.7 billion (10% of the Social Security benefit total) were paid to another 6.1 million recipients.
Over the course of the entire year, these combined benefits approach a trillion dollars annually — 2015 benefits totaled almost $870 billion. Here are some other pertinent numbers to consider about the Social Security program:
- Coverage – Approximately 165 million workers are covered by Social Security — which is extremely important given that just over one-third of America's workforce have no savings in a separate retirement program.
- Worker-to-Retiree Ratio – The Social Security system will be strained in future years from simple logistics. Americans are living longer, with a life expectancy of 21 additional years for a 65-year-old compared to only fourteen years in 1940 when the system was in its early years.
Meanwhile, the large baby boomer generation is now retiring and shifting the worker-to-retiree ratio. It is 2.8 workers per retiree today, but by 2035, it will be 2.1 workers per retiree as the number of older Americans increases from 48 million to 79 million.
- Dependence – 90% of Americans aged 65 and above receive benefits from Social Security, and those benefits represent approximately 39% of their income. A majority of elderly Social Security beneficiaries get at least half of their income from Social Security (74% of single recipients and 53% of married couples). A significant number of these families (47% of singles and 22% of married couples) depend on Social Security to provide at least 90% of their income.
- Disability – SSDI is a critical safety net, since just over 25% of the 20-year-olds of today will become disabled before reaching their full retirement age of 67. As measured in 2013, approximately 90% of the workforce (ages 21 to 64) in jobs that are covered by Social Security and their dependents have protections in case of long-term disability.
- Taxation Limits and Solvency – You may not realize it, but Social Security taxes have an income limit — taxpayers pay 6.2% for OASI and SSDI on up to $118,500 in annual taxable earnings; income beyond that level is free of those taxes. Politicians have targeted eliminating or modifying the limit as a means of keeping Social Security fully funded. The 2015 trustees report projects that trust fund reserves will be depleted in 2034, and tax income can continue to pay 75% of the benefits from 2034 to 2089.
While Social Security will likely be waiting for you at retirement (despite the scary stories you may hear near every election cycle), do not count on it to cover all of your retirement needs. Treat Social Security as the backup safety net that it is, and be sure to invest in your retirement as early as possible and with as much money as you can reasonably afford to save.