SOCIAL SECURITY: $1.336 trillion; 22% of Federal Outlays in FY 2023
RECENT NEWS:
- 6/29: CBO released 2023 Long-Term Projections for Social Security: “In CBO’s projections, spending for Social Security increases relative to GDP over the next 75 years, and the gap between outlays and revenues widens. If combined, the program’s trust funds would be exhausted in fiscal year 2033.”
- 6/14: House Republican Study Comm. proposal to raise Soc. Sec. retirement age
- CBO answers to questions from Congress on Social Security Finances (May 2023)
Social Security in a Nutshell:
- Social Security consists of two separate parts: Old Age and Survivors Insurance (OASI) and Disability Insurance (DI).
- Under OASI, monthly benefits are paid to retired workers, their spouses and dependent children, and survivors of deceased workers (spouses, dependent children and dependent parents). Average monthly benefits for retired workers are available here. Social Security is the major source of income for most of the elderly. Generally, a worker must have 10 years (40 quarters) of covered employment to be eligible for retirement benefits.
- Retirement Age: The Social Security Amendments of 1983 established a very gradual schedule for increasing the full retirement eligibility age from 65 to 67. People can still elect to take early retirement at age 62 with lower benefits.
- Initial OASI benefits are based on a worker’s past average monthly earnings, indexed to reflect changes in national wage levels (and adjusted upward for low earners). Each subsequent year, benefits are adjusted upward to compensate for consumer price inflation. These annual adjustments are called “cost of living adjustments,” or COLAs. The Social Security benefit formula is progressive, returning a higher percentage of a lower-wage worker’s average monthly earnings. In 1983, Congress made up to 50% of Social Security benefits taxable for higher income beneficiaries; and in 1993, up to 85% was made taxable.
- Social Security Survivors Insurance (SI) is similar to life insurance. When a worker dies, his or her spouse, dependent children, disabled children over 16, dependent parents, and former spouse caring for children may qualify for Social Security survivors benefits.
- Social Security Disability Insurance (SSDI) Disability Insurance provides monthly cash benefits for disabled workers (and their dependents) who have paid into the system, met minimum work requirements, and qualify as unable to engage in “substantial gainful activity” due to a physical or mental impairment. Monthly benefits are paid to disabled workers (who have not yet reached retirement age) and their families. Average monthly benefits for disabled workers are available here.
- Initial disability benefits are based on a worker’s past average monthly earnings, indexed to reflect changes in national wage levels and adjusted upward for low earners. SSDI benefits, once approved, continue as long as the individual remains disabled or until he or she reaches the normal retirement age, at which time the benefits automatically convert to retirement benefits. Periodically, SSA conducts “continuing disability reviews” (CDRs) to determine whether the individual is still disabled. Twenty-four months after SSDI coverage begins, the disabled worker is also entitled to Medicare coverage.
- Payroll Taxes: The Social Security system is sustained by payroll taxes of 12.4%—half paid by employers and half by employees (with self-employed individuals paying roughly the full amount). However, payroll taxes are assessed on income only up to a maximum cap available here.
Additional Background and Resources:
- Annual Trustees Report
- Key Up-to-Date Facts about Social Security are available here
- Congressional Research Service Overview of Social Security is available here
- Social Security Retirement Benefits Webpage
- Social Security Disability Benefits Webpage
- Social Security Primer
- Social Security Benefit Taxation Highlights
- Social Security: Major Decisions in the House and Senate Since 1935
- CBO: Long-Term Projections for Social Security Updated annually
- SSA Fact Sheet: Social Security – number of people covered and average benefits