Congressman Sander Levin

FAQ about Social Security

• How many people are covered by Social Security? How much is the average benefit?

  About 55 million people receive monthly benefits from Social Security, or 1 out of every 4 households. Over 90 percent of seniors receive Social Security benefits. As of June 2008, the average benefit for a retired worker was $1084 a month. In addition to providing retirement benefits, Social Security is also a crucial life and disability insurance program.

• 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 annually adjusted to keep up with inflation.

• 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 account for inflation. The 2008 COLA was 2.3 percent, and went into effect in January 2008. The 2008 COLA raised the average Social Security retirement check by $24 a month. Many seniors wonder why this year's COLA was so small even though the price of many goods and services had clearly gone up over the last twelve months. The basis for the Social Security Administration's annual COLA adjustment is something called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The small COLA reflects the fact that the economy has barely grown over the past year. Wage growth had also been small during this period, and that is the basis for the COLA adjustment to Social Security benefits. Although the 2008 COLA raised the average Social Security retirement check by a modest amount, most retirees are generally better off with low inflation, even if it means a smaller increase in the Social Security benefits.

• What is the Social Security Trust Fund?

  The Social Security Trust Fund is a financial account in the U.S. Treasury. Social Security taxes are deposited into this account, and Social Security benefits are paid from it. Also, the Trust Fund holds any funds not needed in the current year to pay benefits and invests them in interest-bearing Treasury bonds that are guaranteed by the U.S. Government.

• Is Social Security really going bankrupt as some have claimed?

  No. As has been the case for many years, the amount of revenue received by the Social Security Trust Fund from taxes and interest is larger than the cost of paying benefits. According to the most recent projection of the Social Security Trustees, Social Security is projected to run annual surpluses until 2027. Starting in about 2027, Social Security will begin redeeming the Treasury bonds held in its reserves. It will continue doing so until about 2040; even after that, the payroll taxes coming into Social Security will still be sufficient to pay 75 percent of currently expected benefits. Congress will be able to take action well before 2040 to close the remaining gap.

• Will President Bush's plan for private accounts extend the life of the Social Security Trust Fund?

  No. The White House acknowledges that their private account proposals will not improve Social Security's financial situation at all. Indeed, they would make it worse. The privatization proposal suggested by President Bush's commission actually moves up by several decades the date when Social Security might not be able to pay full benefits.

• Are Members of Congress paying Social Security taxes?

  Every Member of Congress is required to participate in Social Security, without exception.