CRS Reports on Social Security Facts and Statistics

This document provides brief facts and statistics about Social Security that are frequently requested by Members of Congress and their staffs. It includes information about Social Security taxes and benefits, the program's impact on recipients' incomes, federal tax receipts, federal spending and the economy, and administrative information.

                            Contents

This document is updated periodically.

Recipients By Trust Fund and Eligibility Status

Benefit payments are disbursed by the relevant trust fund. Retired workers and their eligible dependent family members, as well as the dependent family members of deceased workers, receive benefits from the Old-Age and Survivors Insurance trust fund. Disabled workers and their eligible dependent family members receive benefits from the Disability Insurance trust fund. Table 1 breaks down recipients by trust fund, by entitlement, and by age.

          Table 1. Recipients, By Selected Indicators

                 Table 2. Where Recipients Live

Workers Exempt From the Tax

• State and local government workers participating in alternative retirement systems (HI tax is mandatory for workers hired since April 1, 1986).

• Election workers earning $1,300 or less a year (in 2006).

• Career federal employees hired before 1984 who did not choose Social Security coverage (HI tax is mandatory for all federal workers); o College students working at their academic institutions.

• Ministers who choose not to be covered, and certain religious sects.

• Household workers earning less than $1,500 a year (in 2006), and those under age 18 for whom household work is not their principal occupation.

• Self-employed workers with annual net earnings below $400.

Covered workers contribute to Social Security by paying payroll taxes on their earnings. Wage and salaried workers often have their contributions deducted from each paycheck they receive, while self- employed must report earnings regularly with the Social Security Administration. Table 3 provides the number of covered workers that contribute to the Social Security system, as of December 2003. The total number of taxpayers is much lower than the sum of the two coverage groups because approximately six million individuals overlap coverage and engage separately in both wage and salaried work as well as in self-employed work.

               Table 3. Social Security Taxpayers

Covered wage and salaried workers contribute 7.65% of their earnings below the taxable maximum earnings threshold (explained below) to the Social Security system. Employers of covered workers contribute to the system an additional 7.65% of the earnings of each employee. The payroll taxes levied on workers and their employers are called FICA taxes, after the legislation that created them, the Federal Insurance Contribution Act.

Self-employed workers contribute roughly 15.30% of their net earnings to the system. The payroll tax levied on the self-employed are known as SECA taxes, for the Self-Employed Contribution Act. FICA and SECA tax rates are displayed in Table 4. On paper, it appears that the self-employed are subject to a tax rate that is double that of a wage and salaried worker, essentially equaling both the employee and employer FICA portions. However, the self-employed receive two breaks that are not offered to wage and salaried workers and their employers.

               Table 4. Social Security Tax Rates

How the Tax Rates Are Divided

Portions of both the FICA and SECA tax rates are dedicated to fund both Social Security and the Medicare Hospital Insurance (HI) program, also known as Medicare "Part A." Of the 7.65% FICA tax rate paid by both employers and employees, 6.2 percentage points go to OASDI, and the remaining 1.45% of the tax is used to fund HI. Similarly, of the 15.3% SECA rate, 12.4 percentage points is dedicated to OASDI, while 2.9% goes to HI. Table 5 provides a detail of the breakdown.

   Table 5. FICA and SECA Tax Rates Fund Both Social Security

Covered workers contribute the proper percentage of their earnings by either the FICA or SECA tax. However, not all earnings are subject to FICA and SECA taxes. There is a maximum taxable earnings threshold, which rises each year with overall wage growth. Earnings above the cap are not subject to the OASDI portion of the FICA and SECA taxes. The earnings above the cap, however, are subject to the HIdedicated portion of the FICA and SECA taxes. The wage cap is effective for both the employer and employee OASDI- dedicated portions of the FICA tax. Recent wage cap limits are shown in Table 6. The Social Security Administration's Office of Policy estimates that 94.6% of covered workers had earnings below the maximum taxable threshold in 2002, the latest year for which data is available.

       Table 6. Maximum Earnings Taxable by FICA and SECA

Self-employed workers are subject to the payroll tax rate, which amounts to the sum of both the employer and employee shares of the FICA tax rate. However, the self-employed benefit from two breaks that reduce their overall tax burden. First, self-employed workers are only required to make 92.35% of their net earnings subject to the SECA tax rate. Wage and salaried employees have the FICA tax rate applied to all (100%) of their earnings.

Second, self-employed workers can deduct one-half of their SECA tax payments from their income taxes. For example, if a hypothetical self-employed person had $35,057 in net earnings, an amount equivalent to the average wage earner in the economy, they would pay SECA taxes on $32,375 of those earnings (92.35% of $35,057). When the 15.3% SECA tax rate is applied to $32,375, the result is a SECA tax burden of $4,953. In computing the effect of the income tax deduction, one-half of the $4,953 tax burden ($2,477) is used for calculation purposes. Assuming that this hypothetical self-employed worker with $35,057 in net earnings is in the 15% marginal income tax bracket, a $2,477 income tax deduction is going to result in a tax savings of an additional $372 (15% of $2,477). The net real tax burden in this example would be $4,582 -- instead of $4,953 without the income tax deduction and $5,364 (15.3% of $35,057) without the income tax deduction and the exemption from net earnings.

These computations are included in Table 7 to illustrate the tax burdens of both wage and salary and self-employed workers with various earnings histories.

   Table 7. 2004 Social Security Tax Payments, Selected Work

The FICA and SECA tax rates have been increased several times since the beginning of the Social Security program. SECA taxes were not levied until after 1950, when coverage began for the first categories of self-employed workers. The evolution of FICA and SECA tax rates and tax payments are shown in Table 8 and Table 9.

       Table 8. Social Security Tax Rates, Selected Years

Much of the expected long-term financial strain on the Social Security system's ability to disburse benefits to future benefits lies in demographics. In the early years of the system, there were more than ten covered workers contributing with payroll taxes for every one person drawing benefits. Presently, there is barely more than three covered workers for every beneficiary, and the Social Security trustees project that this ratio will eventually fall to less than 2 to 1. Table 10 and Figure 1 illustrate how this ratio has changed drastically over time.

      Table 10. Ratio of Covered Workers to Beneficiaries

Figure 1. Ratio of Covered Workers to Beneficiaries

 

 

The Social Security benefit computation formula is progressive, as it uses "bend points" to return higher percentages of a lower-wage worker's lifetime indexed earnings, computed on a monthly basis. For 2006, the bend points used in the benefit formula are $656 and $3,955, respectively, and are increased annually based on average wage growth.

If all or most of a worker's indexed earnings fall under the first or second bend point, they will see a higher replacement rate of average monthly earnings as compared to monthly Social Security benefits. The more earnings a worker may have beyond the second bend point, the lower the net return that worker will see in augmenting their Social Security benefit.

For basic benefit (or primary insurance amount):*

• 90% of first $656 of AIME,** plus

• 32% of AIME over $656 through $3,955, plus

• 15% of AIME over $3,955

• 150% of first $838 of basic benefit, plus

• 272% of basic benefit over $838 through $1,210, plus

• 134% of basic benefit over $1,210 through $1,578, plus

• 175% of basic benefit over $1,578

** AIME = average indexed monthly earnings.

Quarters of Coverage (QCs) Required for Eligibility

To qualify for retired or disabled worker benefits, an individual must accumulate the required number of quarters of coverage. A worker must have covered earnings equal to or exceeding the prescribed amount ($970 in 2006) in a calendar quarter to earn a quarter of coverage. While a minimum of 40 covered quarters must be achieved to be "vested" in the system to receive retirement benefits in most cases, disabled worker benefits may be granted with as few as six quarters of coverage, if the onset of the disabling condition or event occurred while the worker was at young enough age. The number of quarters of coverage needed under different circumstances is illustrated in Table 11.

         Table 11. Quarters of Coverage, Selected Facts

In addition to covered earnings and length of coverage employment, receipt of many OASDI benefits is conditional with age. Table 12 shows the earliest eligibility ages (EEA) and maximum eligibility age that qualify or disqualify a worker or dependent for benefit payments. Retired worker, spousal, and widow(er) benefits all have a "full" or "normal" eligibility age (FRA or NRA), in which benefits are not penalized for early receipt. In cases where an eligible claimant files for benefits between the earliest eligibility age and the normal retirement age, the amount of the monthly benefit is subject to an actuarial reduction, with the reduction being lower the closer the claimant is to reaching the normal eligibility age.

         Table 12. Age Restrictions for OASDI Benefits

For purposes of qualifying for spousal or widow(er)'s benefits, the full or normal retirement age (known as both the FRA or NRA), has little to do with retirement, as claims to these benefits is not conditional on a covered work history, or more specifically, the ceasing of work. In fact, the FRA is misleading to workers, too, because leaving the workforce is not a condition for retirement benefit eligibility. Rather, the FRA is simply a qualifying age threshold.

For many years, the Social Security full or normal retirement age remained constant at 65 years. In 1983, however, a comprehensive Social Security reform package that included many programmatic changes altered the law to gradually phase in an increase of the normal retirement age. Starting with those born in 1938, the full retirement age will be higher than age 65, depending on your year of birth. The highest the full retirement age is scheduled to hit is age 67, affecting those born in 1960 and later. Table 13 provides the full schedule of current law increases scheduled to take effect.

             Table 13. Full Retirement Age Schedule

OASDI benefits are paid to retired and disabled workers, as well as to their eligible dependent family members. The benefit formula illustrated above is used to compute primary insurance amounts (PIAs) for eligible retired or disabled workers, but benefit amounts paid to dependents are determined by applying the relevant percentage amount of the worker they are dependent upon. Typically, eligible spouses and children of workers can receive a monthly amount up to 50% of the worker's primary insurance amount. Surviving spouses may be eligible for a monthly amount up to 100% of the worker's PIA. Factors that may reduce these maximum percentage amounts include early eligibility, a dependent's own work record and subsequent benefit eligibility based on that work record, remarriage, and other factors. Table 14 provides average monthly benefit amounts for selected beneficiary categories before and after the application of the 2006 annual cost-of-living (COLA) automatic benefit increase (more on COLAs below).

               Table 14. Average Monthly Benefits

Social Security benefits are inflation-protected by the application of an automatic annual cost-of-living adjustment (COLA). The percentage applied to all beneficiaries is compiled from economic indicators that track inflation of prices on goods and services over the previous year. The COLA is applied so beneficiaries do not lose their purchasing power over time as they would if benefits were held constant while prices of goods and services generally increased.

Prior to 1975, COLAs were applied sporadically to increase benefit levels to keep pace with inflation. Starting in 1975, COLAs have been applied annually, with the exception being when their effective date was switched from July to January, and there was no COLA applied in the months between July 1982 and January 1984. Table 15 and Figure 2 illustrate the full history of benefit level increases, while Figure 3, for a different perspective, focuses on recent COLAs.

        Table 15. Historical Cost-of-Living Adjustments

Figure 2. Cost-of-Living Adjustments Since 1975

 

 

 

Figure 3. Historical Cost-of-Living Adjustments

 

 

Initial Monthly Benefits for Workers Retiring in 2005

Table 16 shows what workers with different earnings histories would receive in monthly benefits when retiring in 2005. The disparity in benefit amounts in the two columns is affected by the fact that a worker born in 1940 and turning 65 during the 2005 must wait until six months past his/her month of birth before receiving unreduced benefits at the full retirement age. See Table 13 for the schedule of full retirement ages.

    Table 16. New Benefit Awards to Retired Workers in 2005

The progressive nature of the benefit computation formula, explained above, provides lower earning workers with a higher replacement rate of benefits as compared to earnings. The expected replacement rates of new retirees in 2005, with different earnings histories and benefit election at age 65, are shown in Table 17.

 Table 17. Initial Retirement Benefits as a Percent of Earnings

While election for retirement benefits is not conditional on leaving the work force, earnings from work can reduce monthly benefits that are received before the full retirement age. In years preceeding the year in which one will reach the full retirement age, benefits are reduced $1 for every $2 of earnings over the base earnings test annual exemption amount ($12,480 in 2006). In the calendar year in which one will reach the full retirement age, benefits are reduced $1 for every $3 of earnings over a much higher second earnings test exemption amount ($33,240 in 2006). After reaching the full retirement age, beneficiaries are not subject to any benefit reductions due to earnings. Table 18 provides the thresholds for the earnings test, as well as other basic benefit reductions or offsets.

      Table 18. Earnings Test and Other Benefit Reductions

The primary indicator in determining one's eligibility to receive Social Security disability benefits is one's ability to partake in gainful employment. There are two earnings thresholds that are applied to determine if a disability beneficiary or claimant is gainfully employed or has the ability to be gainfully employed. They are known as the monthly "substantial gainful activity" (SGA) levels.

In 2006, those beneficiaries who disabling condition is blindness, the level of SGA before loss of eligibility is $1,450 per month. For all other disabled beneficiaries, the monthly SGA amount is $860. These amounts are provided in Table 19.

         Table 19. Substantial Gainful Activity Levels

Similar to the fact that lower-wage workers receive a higher replacement rate of benefits to earnings that higher paid workers, it also takes less time for lower-wage workers to recoup the value of worker payroll tax contributions in monthly benefit payments. Table 20 provides expected payback times of workers with varying wage histories.

Since spouses with no earnings histories are eligible for monthly benefits when they meet certain factors such as age requirements, worker and spouse receiving benefits simultaneously significantly reduces the expected time of recoupment of the workers contributions.

     Table 20. Expected Payback Times (in years)*, Selected

Table 21 and Table 22 provide examples of how the combination of Social Security benefits and other income can subject different proportions of the Social Security benefits to income taxes.

Up to 50% of benefits are subject to federal income taxes if adjusted gross income plus tax-free interest plus one-half of Social Security benefits is:

• Over $25,000, but not more than $34,000 for a single person

• Over $32,000, but not more than $44,000 for a married couple filing jointly

• Over $34,000 for a single person

• Over $44,000 for a married couple filing jointly

Many Social Security beneficiaries rely on benefit payments to make up a significant portion of their income. The incomes of many lower income beneficiary families is largely dependent on Social Security payments, and for 40% of single beneficiaries over age 65, Social Security payments make up 90% or more of the individual's income.

Table 23 shows distributions of beneficiaries and aggregate Social Security benefit payments by income band. The lowest income band listed contains the highest number of beneficiary families, yet receives only the third highest proportion of benefit payments.

      Table 23. Distribution of Beneficiaries and Benefits, By

        Table 24. Aged Income Sources and Poverty Status

Figure 4. Proportion of Income of Single Beneficiaries

 

Aged 65 and Older

 

 

 

Figure 5. Reliance of the Age 65+ on Social Security

 

 

Social Security's and Medicare's Costs as Percent of Federal Budget, FY2004

Social Security and Medicare make up a significant portion of federal spending. Table 25 shows that the two programs combined make up over one-fourth of federal outlays.

   Table 25. The Role of Social Security and Medicare in the

As a proportion of the overall economy is as measured by gross domestic product (GDP), Social Security and Medicare combined spending will increase by 54% from 2004 to 2030. As Table 26 shows, in 2004 Social Security and Medicare spending make up 5.83% of GDP. In 2030, it is projected that the two programs will account for 8.95% of GDP.

        Table 26. Social Security and Medicare Spending as a

The Social Security trust funds currently bring in much more revenue than what is needed for benefit obligations and have accumulated large balances. However, in the near future payroll tax revenue will no longer be sufficient for expected spending, and the trust funds are projected to be no longer solvent by 2042. Table 27 and Figure 6 illustrate the magnitude of the projected revenue shortfall and how quickly trust fund balances will erode.

 

Figure 6. Balance of the Social Security Trust Funds

 

 

   Table 27. Various Performance Measures of the Trust Funds

The Social Security Administration has an extensive nationwide network of local field offices, regional offices, and headquarters for policy and research. SSA has a large customer service network, and of all federal agencies, its 800-telephone line and internet website are among the most heavily used.

    Table 28. Administrative Structure and Customer Service

800 Telephone Number for SSA: 800-772-1213.

SSA Internet website at [http://www.ssa.gov].

Commissioner of Social Security, Jo Anne B. Barnhart, Altmeyer Building, 6401 Security Blvd., Baltimore, MD 21235.

U.S. Social Security Administration. 2004 annual reports of the boards of trustees of the old age, survivors, and disability insurance, hospital insurance, and supplementary medical insurance trust funds. Washington, 2004.

Annual Statistical Supplement to the Social Security Bulletin, 2003.

Unpublished data from the Social Security Administration, Office of Research and Statistics.

Other References for Program Descriptions

Myers, Robert J. Social Security. 4th ed. Philadelphia, University of Pennsylvania Press, 1993.

U.S. Congress. House. Committee on Ways and Means. 2000 Green Book: Background Material and Data on Programs Within the Jurisdiction of the Committee on Ways and Means. Washington, GPO, 2000. 1,575 p. (106th Cong., 2nd session. WMCP 106-14)

Benefit Facts

CRS Report 94-803, Social Security: The Cost-of-Living Adjustment in January 2006, by Gary Sidor.

CRS Report 98-789, Social Security Earnings Test: Proposed Changes, by Debra Whitman.

CRS Report 94-622, Social Security: Raising the Retirement Age: Background and Issues, by Geoffrey Kollmann.

CRS Report RL32453, Social Security: The Government Pension Offset, by Laura Haltzel.

CRS Report 98-35, Social Security: The Windfall Elimination Provision, by Laura Haltzel.

Tax Facts

CRS Report 94-28, Social Security and Medicare Taxes and Premiums: A Fact Sheet, by Dawn Nuschler.

CRS Report RL32552, Social Security: Calculation and History of Taxing Benefits, by Christine Scott.

CRS Report RL33028, Social Security: The Trust Fund, by Christine Scott.

Economic Facts

CRS Report 95-543, The Financial Outlook for Social Security and Medicare, by Dawn Nuschler.

CRS Issue Brief IB98048, Social Security Reform, by Dawn Nuschler.

CRS Report 97-77, Social Security: Long-Range Projections, by Dawn Nuschler.

CRS Report 95-206, Social Security's Treatment Under the Federal Budget: A Summary, by Dawn Nuschler