Column: Five things you should know about Social Security
(The writer is a Reuters columnist. The opinions expressed are his own.)
By Mark Miller
CHICAGO (Reuters) - Social Security is the country's most universal social insurance program - it covers 86 percent of the population over age 65, as well as some younger people. But the program's complexities are not so widely known.
To address that, the Social Security Administration helpfully publishes an annual "Fast Facts & Figures" guide, which highlights key features and trends. The new 2013 edition yields the following five factoids you might not know about Social Security, but should.
SOCIAL SECURITY ISN'T JUST FOR OLD FOLKS
Social Security runs three main programs - retirement (Old Age and Survivors Insurance); Disability Insurance; and Supplemental Security Income, which provides support to low-income people.
All three pay out some benefits to people who are below traditional retirement age; only 80 percent of benefits go to people over 62. The remaining 20 percent go to survivors or the spouses and children of retired or disabled workers.
The disability insurance program, in particular, is distributing benefits to a younger population than it used to. The average age of a disabled-worker beneficiary last year was 53.2, down substantially from 57.2 in 1960.
The biggest driver is aging baby boomers, now 48 to 67 years old, who are moving into the ages when disability is more likely, explains Lisa Ekman, director of federal policy for Health & Disability Advocates, a non-profit advocacy group.
"The most important factor is simple demographics," she says.
Indeed, this year, the program is paying benefits to 9 million disabled workers, up from 5.9 million in 2003.
Those disability payouts play a key role in Social Security's long-range financial challenge. When people talk about Social Security running out of reserve funds in 2033, that's actually a combined projection for the retirement and disability programs.
The disability fund is projected to run out of reserves in 2016; absent any action by Congress, Social Security would only have enough funds to pay 80 percent of promised disability benefits then.
Social Security's chief actuary, Stephen Goss, is confident Congress will act before that happens. "We'll have 11.5 million people getting disability benefits in 2016, and they will be facing a benefit cut in an election year," he told Reuters in an interview. "Can you imagine any Congress facing the music on that?"
The likely fix, he thinks, would be a decision by Congress to make a reallocation of the split of payroll taxes devoted to each program. Currently, workers and employers pay a combined 12.4 percent employees' payroll, with 10.6 percent going to the retirement fund and 1.8 percent to disability. A shift of just 1/10th of 1 percent would equalize the long-range outlook of the two trust funds, Goss says.
"That wouldn't solve the long-term problem, but it would give Congress more time to consider solutions," he says.
TAXES AREN'T THE ONLY REVENUE SOURCE
The two biggest Social Security programs - retirement and disability - took in $840.2 billion in revenue last year, but only 84 percent came from the payroll taxes paid by workers and employers. Another 13 percent came from interest earned on Social Security's trust fund's stash of special issue Treasury bonds, and 3 percent came from income taxes paid on benefits.
Despite all the talk of doom and gloom about Social Security's finances, the program's trust fund assets actually rose 6.5 percent in 2012 because income exceeded the cost of benefits and administration. Tax revenue for the program has fallen short of costs since 2010, but Social Security earned more than $100 billion in interest on its trust fund bonds last year at interest rates around 4 percent.
IT'S NO HAMMOCK
Those who want to cut Social Security benefits sometimes talk about the program as though the benefits are cushy. Congressman Paul Ryan, a Republican of Wisconsin, has famously warned that if we let government grow at an unchecked pace, "We will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency."
Yet the average Social Security benefit last year was $1,262 a month, which translates to $15,144 per year. That's not enough to swing many hammocks.
MORE WOMEN GET BENEFITS
Fewer women qualify for Social Security retirement insurance coverage due to lower labor force participation rates across all age groups - it takes 40 quarters of work before you get covered. Ninety percent of men were covered last year, but women are coming up the fast lane as their participation in the labor force has surged: 84 percent were fully covered last year, up from 63 percent in 1970.
At the same time, 55 percent of all adults receiving Social Security benefits last year were women. The reason is simple: women outlive men, so they're around longer to collect benefits.
FOR MOST, IT'S THE BALLGAME
Social Security provides the bulk of retirement income for most Americans. Social Security provided at least 50 percent of total income for 52 percent of couples and 74 percent of single seniors in 2012. It provided 90 percent or more of income for 22 percent of couples and 45 percent of single seniors.
"The lower dependence on retirement benefits for married couples simply reflects the lower average age of people who are still married, and the fact that individuals in intact marriages are more likely to have other income sources," Goss says.
Keep that in mind the next time you hear politicians talk about swinging hammocks.
(Follow us @ReutersMoney or here. Editing by Linda Stern and Leslie Adler)