FAQ about Social Security

Issues: Social Security

How many people are covered by Social Security? How much is the average benefit?
About 60 million people receive monthly benefits from Social Security, or 1 out of every 4 households. The current average social security benefit for a retired worker is $1,230.70 a month. In 2014, more than 96,000 workers receive Social Security retirement in my district. In addition to providing retirement benefits, Social Security is also a crucial life and disability insurance program. Additionally, in my district, approximately 55,000 children, widow(er)s, spouses and disabled workers received assistance.

How does Social Security work?
Workers and their employers pay into the Social Security Trust Fund through payroll taxes (FICA taxes) and earn guaranteed monthly benefits that are payable to them when they retire or become disabled. In the event that a covered worker dies, benefits are paid to their surviving spouse and children. Social Security benefits last as long as a retiree lives and are adjusted annually to keep up with inflation. This adjustment is called the cost-of-living adjustment (COLA).

What is the Social Security cost-of-living adjustment (COLA) and how is it calculated?
The Social Security COLA is the amount added to a beneficiary's check each year to make sure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation. The COLA is calculated by comparing the price of consumer goods from one year to the next, based on Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Why Social Security is Important

Retirement security is often described as a three-legged stool, supported by Social Security, employer-provided pension funds, and personal savings. For millions of Americans, however, the retirement stool has begun to wobble as personal savings and employer-sponsored 401(k) plans have been hit hard by the ups and downs of the stock market.

In stark contrast, Social Security is the one stable leg of the retirement stool. It provides guaranteed, lifelong, inflation-protected benefits for America's working families.

A benefit that can be counted on. Social Security is a "defined-benefit" pension system. That is, benefits are determined according to the level of a worker's earnings and years of work. Further, benefits are paid as long as the worker (and his or her spouse) lives. By contrast, a "defined contribution" system - such as a 401(k) or an individual savings account - can only pay out what is in the account. Under a 401(k)-type plan, if a worker does not contribute enough during their career, or has poor investment results, or is simply unlucky by retiring in a down market, he or she must get along on less. If the account is exhausted before a worker reaches the end of her life, she will have nothing left to live on. Defined contribution plans are an excellent supplement to Social Security, but they cannot replace it.

In recent years, fewer employers have offered defined-benefit pension plans, which guarantee a certain benefit level upon retirement, and more have offered defined-contribution plans, which pay a benefit based on a worker's contributions and the rate of return they earn. Thus, for some workers, Social Security will be their only source of guaranteed retirement income that is not subject to investment risk or financial market fluctuations. 

Family insurance. Social Security is based on the concept of insurance. It protects against the risk of having low income in old age. It protects against the economic risk of career-ending disability or premature death. It insures family members against the loss of a breadwinner's earnings.

More than just a retirement program. About 30 percent of Social Security beneficiaries receive disability or survivor benefits from Social Security. 

About 91 percent of people aged 21-64 who worked in covered employment are insured through Social Security in case of disability. 

About 96% of people aged 20-49 who worked in jobs covered by Social Security in 2011 have earned life insurance protection through Social Security. For young worker with average earnings, a spouse, and two children, that Social Security protection is equivalent to a life insurance plicy with a face value of $476,000. 

The most effective anti-poverty program there is. It's hard to believe today, but as recently as 1959, the poverty rate for older Americans was 35%. Today, without Social Security benefits, more than 40% of Americans aged 65 and older would have incomes below the federal poverty line. By comparison, the poverty rate of elderly persons today is 8.7%. 

According to the latest availble Census data, 21.4 million more Americans would be poor without Social Security, including 14 million elderly Americans. 

Social Security is the single largest source of retirement income in the United States. For 6 in 10 seniors, Social Security provides half or more of their total income. For more than one-third of seniors, it provides more than 90% of their income. And for one in four elderly beneficiaries, Social Security is their only source of income. 

(Updated July 27, 2016)