Frequently Asked Questions
How is the system financed?
Social Security is financed primarily through a payroll deduction tax. Employers and employees each pay 6.2 percent (for a total of 12.4 percent) of wages up to $90,000 (for 2005). The self-employed pay the full 12.4 percent.
What is the "Social Security Trust Fund?"
The trust fund is actually financial accounts in the U.S. Treasury. Technically, there are two separate funds, the Old-Age and Survivors Insurance fund, which pays retirement and survivor benefits, and the Disability Insurance fund, which pays disability benefits.
Social Security taxes and other income are put into these Treasury accounts and are then used to pay Social Security benefits. Funds not needed to pay current beneficiaries are invested in special Treasury bonds guaranteed by the U.S. government. This allows the government to use the trust fund money for other government programs such as paying for discretionary spending or paying down the debt.
What is the significance of 2018?
That is the year when the money coming in from payroll taxes will be less than the amount Social Security pays out to beneficiaries, according to Social Security trustees. At this time, the federal government will have to provide cash from general revenues to pay Social Security benefits versus using surplus cash from the Social Security trust fund to pay for other government spending.
What is the significance of 2042?
According to the Social Security Trustees, this year marks when the trust fund will be exhausted and, under current law, Social Security will pay out approximately 70 percent of estimated benefits.
What about all these different years? On Jan. 31, the non-partisan Congressional Budget Office released revised projections for Social Security. It concluded that the payments to beneficiaries will exceed revenue from payroll taxes in 2020 (not 2018) and that the trust fund will be exhausted in 2052 (not 2042). The director of the CBO told The Washington Post that the revisions are economically insignificant.
Facts and Figures
In 2005, more than 48 million Americans will receive approximately $509 billion in Social Security benefits.
|December 2004 Monthly Payments|
|Retired Workers||30 million||$28.6 billion||$955 avg. monthly benefit|
|-- Dependents||3.1 million||$1.5 billion|
|Disabled Workers||6.2 million||$5.5 billion||$894 avg. monthly benefit|
|-- Dependents||1.8 million||$0.5 billion|
|Survivors||6.7 million||$5.5 billion||$920 avg. monthly benefit|
Viewed as percentages:
- 69 percent of total benefits paid go to retired workers and their dependents
- 17 percent of total benefits paid go to disabled workers and their dependents
- 14 percent of total benefits paid go to survivors of deceased workers
- Social Security pays benefits to nearly 90 percent of people over 65.
- Of those, it is the major source of income (50 percent or more) for 66 percent of them.
- Social Security is the only source of income for nearly 22 percent of the elderly.
Nearly 159 million workers, or 96 percent of all workers, are covered under Social Security.
- 53 percent of the work force has no private pension coverage.
- 32 percent of the work force has no savings set aside specifically for retirement.
Life expectancy of a 65-year-old:
- in 1935, it was 12.5 years.
- in 2005, it is 17.5 years.
- there will be twice as many older Americans as today, from 31 million to 71 million.
- there will be 2.1 workers for each beneficiary compared to 3.3 workers today.
Source: Social Security Administration