As of the end of May 2014, nearly 64 million Americans received some type of Social Security benefit, or 1 in 6 Americans. In 2012, the government paid out $775 billion in benefits, making it a significant driver of the economy. If you're not sure that you have an accurate idea as to how Social Security benefits work, read on.
The Vital Stats
The U.S. GDP totaled $16.2 trillion in 2012, which means that Social Security represented nearly 5% of the nation's GDP. In a report by the AARP, an organization devoted to serving retired individuals, Social Security supported approximately $1.4 trillion in goods and services, or economic output. It also directly generated $775 billion in GDP, which matches the payouts for that year. Its estimate of Social Security recipients stood at 57 million, which doesn’t include the nearly 6 million blind or disabled individuals who also receive supplemental security income (SSI). The vast majority of Social Security recipients are simply retired and 65 years of age, or older. There are also individuals who are under 65 but disabled, as well as certain people who qualify for benefits as early retirees.
According to the AARP study, the Social Security system provides more than 9 million jobs and close to $400 billion in annual benefits to these workers. Social Security is also taxable, which means that $222 billion went back to the federal, state, and local governments. And, though to be taken with a grain of political salt, the AARP estimates that cutting Social Security by 25% would result in the loss of 2.3 million jobs and a reduction of $349 billion in GDP.
The Downside Implications
Clearly, a cutback in Social Security would adversely affect the economy and millions of people who rely on it for their retirement spending. The Social Security Administration estimates that 64% of the beneficiaries rely on Social Security for at least half of their annual income. And since women live longer than men in general, any cuts would disproportionately affect them. Currently, 55% of beneficiaries are women and this percentage is expected to increase over time.
Estimates are that the Social Security system could run out of funds shortly after 2035, assuming estimated benefit payments continue to run above tax revenues to support Social Security payouts. However, small tweaks, such as increasing retirement ages or the tax revenues that go to supporting the system, as well as economic growth and further immigration/population growth, are expected to support Social Security for many more decades. Already, the retirement age for individuals born after 1960 is 67. Only those born in 1937 or before were able to retire at 65.
Fewer than half of households with individuals aged 55 to 64 have saved enough for retirement. This means that Social Security payouts will represent the vast majority of their income throughout retirement. There aren’t any anticipated cutbacks to Social Security, but its impact on older Americans is certainly significant.
At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.