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| Social Security: A Primer September 2001 |
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Over the years, lawmakers have tried to make Social Security serve various purposes and categories of people. In the process, they have created a complicated set of rules that determine the eligibility and benefit amounts of different types of beneficiaries. And they have crafted a special financial structure for the program. This chapter describes the key elements of the history, benefit structure, and financing of Social Security that are most relevant to the current debate over the program's future.
Social Security's Objectives
From the beginning of Social Security, its developers sought to achieve multiple, sometimes conflicting, goals. Later expansions of the program added other goals, and amendments designed to curb the program's rapidly growing costs did not limit its objectives.
Today's Social Security program is a hybrid--part redistribution program (which transfers resources within and among generations) and part insurance program (which provides insurance to workers and their families for losses resulting from a worker's death or disability). Unlike the case with private insurance, however, participation in Social Security is mandatory. And unlike private insurers, the federal government has the power to tax and thus does not need to charge current participants for the full amount of the expected payouts. Moreover, as with other federal programs, new laws can be enacted to change the terms of the insurance, making it more or less generous for its participants.
The Original Program
As its 1935 report to President Roosevelt indicates, the committee charged with developing Social Security legislation wanted to help all workers prepare for retirement, but it was particularly concerned about helping retired workers who had low incomes:
[I]t should not be overlooked that old-age annuities are designed to prevent destitution and dependency. Destitution and dependency are enormously expensive, not only in the initial cost of necessary assistance but in the disastrous psychological effect of relief upon the recipients, which, in turn, breeds more dependency.(1)
The design of the Social Security system involves a trade-off between ensuring a sufficient level of benefits to even the poorest recipients (the "adequacy" objective) and distributing benefits so that workers who have paid more taxes for Social Security receive more benefits (the "equity" objective). The progressive benefit structure of the program, described below, reflects the attempt to balance those two objectives. Although the specific formulas for calculating benefits have changed since Social Security began, retired workers with a history of low wages have always received a higher percentage of their preretirement earnings in monthly benefits than other retired workers do. Nonetheless, workers who earned higher wages receive a higher level of monthly benefits.(2)
Social Security's main revenue source has always been a payroll tax imposed on workers and their employers. Benefits are calculated according to the earnings on which the tax was paid, even though the revenues from taxing a particular worker's earnings are not set aside to pay for that worker's future benefits.
One purpose of using payroll taxes rather than income taxes or other sources of revenue was so that elderly beneficiaries would feel they had earned their benefits, whether or not they had really done so. The program's developers were eager that Social Security not be seen as a welfare program but rather as "a self-respecting method through which workers make their own provision for old age."(3) Moreover, President Roosevelt believed that such an approach would help ensure that future policymakers would not be able to repeal the program.(4) Undoubtedly, the perception that beneficiaries were simply getting back what they had paid in--even though most retired workers have received much more in benefits than they have paid in Social Security taxes--has been a deterrent to changing the program.
Later Developments
Later legislation greatly expanded the scope and complexity of Social Security, as new purposes were added to the original ones.
Not all amendments to the Social Security Act have expanded the program. Many of the changes made since the mid-1970s were designed to slow the growth of benefits, as policymakers responded to perceived short-term and long-term financial problems with Social Security.
Related Federal Programs
Three separate government programs are closely related to Social Security in their objectives and in the populations they serve. Each one was established by amending the Social Security Act.
Supplemental Security Income. Under the Supplemental Security Income (SSI) program, enacted in 1972, the federal government provides monthly cash payments to low-income people who are 65 or older or disabled. SSI replaced previous state-administered programs that had been jointly funded by the federal government and the states with a single program that uses uniform, nationwide rules for eligibility. Because SSI is a means-tested program, people must have income and assets below specified amounts to be eligible for benefits. (The eligibility criteria based on disability are similar to those used to determine eligibility for DI benefits.) The maximum SSI benefit in 2001 for an individual with no other income is $531 a month; for a couple, it is $796 a month.(8) This year, the federal government will spend nearly $30 billion on SSI, the Congressional Budget Office estimates.
People who receive Social Security benefits and who have assets below the specified level ($2,000 for an individual or $3,000 for a couple) can also receive SSI benefits. However, any unearned income of more than $20 a month that they receive (including Social Security) reduces their SSI benefit by an equal amount.
In effect, SSI serves as a backstop to Social Security to ensure that elderly and disabled people have a minimum level of income if they do not qualify for Social Security or if their Social Security benefits are very low. At the end of 2000, about 60 percent of the 1.3 million elderly recipients of SSI and 30 percent of the 5.3 million disabled recipients were also receiving Social Security benefits.(9)
The links between SSI and Social Security are important to consider when examining the potential effects of changing the Social Security program. If Social Security benefits were reduced, some of the government's savings would be offset by increased spending for SSI. Likewise, if Social Security's minimum benefit was increased, some of the additional cost would be offset by lower spending for SSI.
Medicare. The second-largest entitlement program after Social Security, Medicare provides health insurance coverage to elderly or disabled people. Most Medicare beneficiaries also receive Social Security. Medicare, which was enacted in 1965, comprises two programs--Hospital Insurance (HI) and Supplementary Medical Insurance (SMI). The HI program pays for inpatient care in hospitals, some stays in skilled nursing facilities, some home health care, and hospice services. The SMI program pays for services from physicians, medical suppliers, and outpatient care facilities as well as for some home health care.
This year, Medicare will spend about $240 billion on health care for 40 million beneficiaries, CBO estimates. The HI part of the program is financed largely by a payroll tax levied on workers and their employers. The SMI part of the program is financed in two ways: roughly one-quarter of its funding comes from monthly premiums paid by enrollees, and the rest comes from the government's general revenues. In all, beneficiaries pay for less than 15 percent of current Medicare outlays.
Medicaid. The Medicaid program, also enacted in 1965, is a joint
federal/state program that provides medical assistance to many of the nation's
poor people. Payments for long-term care (mainly for the elderly and disabled)
account for about one-third of total Medicaid spending. The federal government
and the states pay for the program jointly, with the federal government's
share ranging from 50 percent to 83 percent (depending on a state's per
capita income). Federal spending for Medicaid will total about $130 billion
this year, CBO estimates.
How Social Security Works
The Social Security program will pay monthly benefits to about 45 million people this year--more than 28 million retired workers, 5 million disabled workers, and 12 million family members of retired, disabled, or deceased workers. In general, workers are eligible for retirement benefits if they are at least age 62 and have had sufficient earnings on which they paid Social Security taxes in at least 10 years.(10) Workers whose employment has been limited because of a physical or mental disability can become eligible at an earlier age with a shorter employment history. Various rules apply to family members of retired, disabled, or deceased workers.(11)
Although Social Security is often characterized as a retirement program,
only about 63 percent of its beneficiaries receive their payments as retired
workers (see Figure 3). As of last year, 15 percent
of beneficiaries were survivors of deceased workers. Most of those survivors
were widows--either widows age 60 or older (who composed about 10 percent
of all beneficiaries) or younger widows who were caring for a minor child
or who were disabled.
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Figure 3. Distribution of Social Security Beneficiaries, by Type of Benefit Received, December 2000 |
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| SOURCE: Social Security Administration, Annual Statistical Supplement, 2001 (draft), Table 5.A1 (available at www.ssa.gov/statistics/Supplement/2001/index.html). |
The Disability Insurance program is an important but often overlooked part of Social Security. Workers under age 65 who had qualified for DI accounted for 11 percent of the people receiving Social Security benefits at the end of 2000; members of their families accounted for another 4 percent. Those percentages actually understate the role of Disability Insurance because DI recipients move into the retired-worker category when they reach the normal retirement age. (Although many of them would have qualified for retirement benefits at age 62 anyway, the amount they received by having their benefits calculated as disabled workers is typically much higher than it would have been if they had received benefits as retired workers.) More than 10 percent of the people who began receiving Social Security retirement benefits in 1999 had been getting DI benefits. Likewise, survivors of deceased DI beneficiaries are not counted in the DI category.
Rules for Determining Retirement and Disability Benefits
Benefits for retired or disabled workers are based on those workers' past taxable earnings, expressed as an average level of earnings over their working lifetime (their average indexed monthly earnings, or AIME). For retired workers, the AIME is now based on the highest 35 years of earnings on which they paid Social Security taxes (up to the taxable maximum), with some adjustments. Earnings before age 60 are indexed to compensate both for past inflation and for real (after-inflation) growth in wages. (When benefits are calculated for disabled workers and for the survivors of deceased workers, the AIME can be based on a shorter period. Moreover, DI benefits are not subject to any reduction for beginning to receive them before the age at which a retired worker is eligible for full benefits.)
Benefit Formula. The Social Security Administration (SSA) applies a progressive formula to a worker's average indexed monthly earnings to calculate his or her primary insurance amount (PIA). The PIA is the monthly amount payable to a worker who begins receiving Social Security retirement benefits at the age at which he or she is eligible for full benefits or payable to a disabled worker who has never received a retirement benefit reduced for age. (The age of eligibility is discussed in the next section.)
The formula is designed to ensure that initial Social Security benefits replace a larger proportion of preretirement earnings for people with low average earnings than for those with higher earnings. For workers who turn 62 this year, the formula is:
PIA = (90 percent of the first $561 of the AIME) + (32 percent of the AIME between $561 and $3,381) + (15 percent of the AIME over $3,381)
Those thresholds at which the percentage of the AIME replaced by the PIA
changes are known as "bend points" (see the top panel of Figure 4). They change along with changes in the average annual earnings for the labor force as a whole. Consequently, as wages rise over time, initial benefits increase at a similar pace.
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Figure 4. The Extent to Which Social Security Replaces Workers' Preretirement Earnings |
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| SOURCE: Congressional Budget Office. |
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Workers who are 62 now, who had average earnings throughout their career, and who wait to retire until they reach the age at which they will be eligible for full benefits (65 and four months for this group) will receive a monthly benefit of about $1,150. That payment will replace about 41 percent of their earnings in the year before they retired. If, instead, they retire this year soon after their 62nd birthday, they will be eligible for a permanently reduced benefit of almost $900 a month. That amount will replace about 35 percent of their pretax earnings last year.(12) (Most beneficiaries' after-tax replacement rates are higher than their pretax replacement rates.)
The replacement rate is inversely related to past earnings (see the bottom panel of Figure 4). For example, workers who earned half of the average wage each year are eligible for a monthly benefit at age 62 of $575, replacing about 45 percent of their past earnings (compared with 35 percent for workers with average earnings). By working longer and waiting to claim benefits, those workers would receive higher annual benefits (replacing a higher percentage of their earnings), but the progressive pattern shown in Figure 4 would not change.
The Social Security Administration makes various adjustments to the PIA, such as reductions for early retirement and credits for later retirement. In addition, at the end of each year, SSA adjusts benefits by the amount of any increase in the consumer price index (CPI). For example, the 3.5 percent cost-of-living adjustment that took effect in December 2000 reflected the increase in the CPI for urban wage earners and clerical workers that occurred between the third quarter of 1999 and the third quarter of 2000.
Because of Social Security's indexing rules, the payments received by newly eligible beneficiaries reflect both increases in prices and real growth in earnings throughout the economy during the years that those beneficiaries worked.(13) Later increases in their payments--through annual COLAs--reflect only increases in prices after the beneficiaries became eligible for benefits. Thus, as long as real wages continue to rise, new beneficiaries will receive more than older beneficiaries, on average.
Another method for calculating benefits, known as the "special minimum PIA," is used to help people who worked for many years but had low earnings. Essentially, that alternative calculation is based on the number of years worked rather than on the amount earned. The few people who receive benefits based on that calculation--150,000 beneficiaries at the end of 1999--are chiefly retired female workers. Their average benefit was less than $600 per month in 1999, or about $100 more than the maximum SSI benefit for eligible individuals at that time. Initial benefits based on the special minimum method are indexed to prices rather than to wages, so even fewer new Social Security recipients will gain from having their benefits calculated that way in the future.(14)
Early Retirement. Under current law, the age at which a worker becomes eligible for full Social Security retirement benefits--the normal retirement age (NRA)--depends on the worker's year of birth. For people born before 1938, the NRA is 65. For slightly younger workers, it increases by two months per birth year, reaching 66 for people born in 1943. The NRA remains at 66 for workers born between 1944 and 1954 and then begins to increase in two-month increments again, reaching 67 for workers born in 1960 or later. For workers whose 62nd birthday falls this year, the NRA is 65 years and four months.
Workers can begin receiving permanently reduced monthly retirement benefits as early as age 62.(15) People who start collecting retirement benefits at age 62 this year will incur a permanent 22 percent reduction in their monthly benefits. As the normal retirement age rises to 67 for future groups of workers, that maximum reduction will also increase. (Once the NRA is 67, the permanent reduction will be 30 percent.) Similarly, workers who delay collecting benefits beyond their normal retirement age receive a delayed-retirement credit to compensate them for the reduction in the length of time they will receive benefits.(16)
The size of the early-retirement reduction for workers is intended to be "actuarially fair"--in the sense that the total value of the reduced monthly benefits that an average worker could expect to receive between age 62 and death is similar to the total value of the full monthly benefits that the worker could expect to receive over that time by waiting until he or she was eligible for full benefits. For example, a single male worker who retired this year at age 62 and expected to live about 18 more years (to age 80) would be almost equally well off receiving reduced benefits of $780 per month for 18 years or unreduced benefits of $1,000 per month for 14 years and eight months (starting at his full-benefit age of 65 years and four months).(17)
Because a typical 62-year-old woman could expect to live longer than 18 years, she would theoretically accrue greater total benefits by waiting until normal retirement age to begin collecting them. But many women might not incur the full reduction for early-retirement benefits because they can switch from receiving reduced retired-worker benefits to full survivor benefits upon the death of their husband. If a widow is at least the normal retirement age when her husband dies, she becomes eligible for a full survivor benefit (equal to his benefit) if that benefit is higher than the one she had been receiving on the basis of her own earnings record.
The size of the early-retirement reduction may encourage some workers to collect early benefits and may discourage others. For example, workers who believe that their life span will be well short of the average might see the reduction as a good deal and apply for benefits at age 62. Conversely, workers who expect to live into their 80s might regard the reduction as unacceptably high and wait until later to receive benefits.
More than two-thirds of the workers who began receiving Social Security retirement benefits in the past decade implicitly decided that the reduction in their monthly check was a price worth paying to start collecting benefits before age 65. The majority of those early recipients began collecting benefits at age 62.(18)
Earnings Test. A complicated set of rules requires that Social Security benefits be reduced if recipients earn more than a certain exempt amount. Those rules, known as the retirement earnings test, apply to wages but not to income from dividends, pensions, or interest. This year, the benefits of Social Security recipients who have not yet reached normal retirement age will be reduced by $1 for each $2 they earn above $10,680. That earnings threshold automatically rises each year to match the increase in a national index of average wages.
Workers whose benefits are reduced because of the retirement earnings test will receive higher monthly benefits later--about 7 percent or 8 percent higher for each year in which their benefits are entirely withheld because of the earnings test. In many cases, the increase in benefits will be even more than 8 percent because the additional earnings can raise the earnings base from which benefits are calculated. In short, although the retirement earnings test is often portrayed as a tax on work, it is more accurately described as a means of deferring benefits until workers no longer have substantial earnings.
Until last year, a separate earnings test applied to workers ages 65 through 69. The Senior Citizens Freedom to Work Act of 2000 repealed that earnings test for beneficiaries at or above the NRA, but it left in place the test for younger beneficiaries. As the NRA rises to 67 over the next two decades, the size of the group subject to the remaining earnings test will expand greatly.
Rules for Determining Family Benefits
More than one-quarter of Social Security beneficiaries receive payments as the spouse, child, or survivor of a worker. The rules for determining their benefits are important in the context of reforming Social Security, both because so many people receive those benefits and because several reform proposals address specific concerns raised about those benefits, such as the treatment of one-earner versus two-earner couples.
The benefits that a spouse, child, or survivor of a worker receives are based on the worker's PIA. The rules determining eligibility and benefit amounts are complicated, particularly in situations in which the family members are also eligible for benefits on the basis of their own work history or in which benefits are reduced because of the age of the beneficiary. The key concepts are outlined below.(19)
An eligible wife or husband of a retired or disabled worker can receive a spousal benefit equal to 50 percent of the spouse's PIA. To be eligible, the wife or husband of the worker must be at least age 62 or caring for an eligible child. A widow or widower can receive 100 percent of the amount to which the deceased worker would have been entitled. Minor children can also receive benefits. However, the total amount of benefits that a family can receive on the basis of a worker's earnings record is limited by a family cap (which is generally between 150 percent and 188 percent of the worker's PIA).
Special eligibility rules apply to former spouses. In general, if their marriage lasted at least 10 years, ex-husbands and ex-wives are entitled to the same benefits based on their former spouse's earnings as they would be if they had remained married. Otherwise, they are ineligible for family-based benefits.(20)
The rules governing cases in which a person is eligible for benefits as a retired or disabled worker and as the spouse or widow of a worker are especially important because an increasing percentage of wives have worked long enough to qualify for benefits based on their own careers. The general rule is that someone eligible for two benefits receives the higher one, not both.
For example, suppose a husband and wife are the same age, both work
until they become eligible for full retirement benefits, the husband is
eligible for a monthly benefit of $1,000, and the wife is eligible for
a retirement benefit of only $300. In that situation, because the wife's
benefit as a spouse ($500 a month) is higher than her benefit as a retired
worker, she will receive the spousal benefit. Likewise, if she outlives
her husband, she will receive a survivor benefit of $1,000 per month (adjusted
for inflation).(21) If,
instead, the wife's earnings history is the same as her husband's, she
will receive her benefit as a retired worker.
Financing and the Trust Funds
The Social Security program has two sources of dedicated tax revenues. The main one is a 12.4 percent tax on earnings, split evenly between workers and their employers. The second, much smaller source is income taxes on some people's Social Security benefits.
Only earnings up to a maximum annual amount are subject to the Social Security payroll tax. That amount, the taxable earnings base, is adjusted each year for changes in average earnings in the U.S. economy. This year, the taxable base is $80,400. Thus, workers earning at least that amount and their employers will each pay a tax of almost $5,000.
Since 1984, some Social Security recipients have also been required to pay income taxes on part of their benefits. Beneficiaries pay those taxes only if the sum of their adjusted gross income, their nontaxable interest income, and one-half of their Social Security benefits exceeds a fixed threshold. If that total is more than $25,000 for taxpayers filing individually, or $32,000 for taxpayers filing joint returns, up to half of the benefits are subject to taxation.(22) Last year, about one-third of Social Security recipients paid an estimated total of $12 billion in income taxes on their benefits. That amount represents about 3 percent of total Social Security spending. The income thresholds for determining whether benefits are subject to taxation are not indexed for inflation, so a larger share of recipients and benefits will be affected each year.
All of the revenues from the Social Security payroll tax and part of the revenues from taxing some Social Security benefits are credited to the trust funds for the Old-Age and Survivors Insurance and Disability Insurance programs. Social Security benefits, the program's administrative costs, and other authorized expenditures are paid from those funds.
The trust funds serve mainly as accounting mechanisms to track revenues
and spending for Social Security. They also help government officials monitor
whether taxes are producing enough revenues to pay for expected benefits.
The two trust funds are running a combined surplus of more than $150 billion
a year. They are projected to show accumulated balances of more than $1
trillion at the end of 2001 (see the bottom panel of Figure
5). However (as discussed in the next chapter), the size of those trust
fund balances does not necessarily bear any relationship to Social Security's
obligations to its beneficiaries or the country's ability to pay for benefits.
Although the Social Security Administration keeps track of the amount of
payroll taxes paid by each worker, those amounts do not signify ownership
by the worker in the way that the balance statement for a bank account
denotes ownership. Ultimately, the worker's eligibility for benefits and
the amount that he or she will receive are determined by Social Security
rules set in law.
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Figure 5. Income, Outlays, and Balances of the Social Security Trust Funds, 2001-2037 |
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| SOURCE: Social Security Administration, The 2001 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (March 19, 2001), Table VI.E8 (intermediate assumptions). |
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In 2016, projected outlays for Social Security will begin to exceed the tax revenues earmarked for the program (see the top panel of Figure 5). Once that happens, the federal government will need to draw on other resources to fund Social Security, even though the trust funds will continue to be credited with interest on the balances in the funds. The economic and budgetary effects of having outlays exceed tax revenues are the same with or without trust funds.
The financial structure of the Social Security program has resulted in a redistribution of resources between generations: each generation of workers pays taxes that are largely used to make payments to the people already eligible for benefits. From Social Security's earliest days, a contentious issue was whether the benefits that workers and their families received should be prefunded using the taxes that those workers paid, rather than the taxes paid by current workers. As the program was enacted in 1935, revenues dedicated to Social Security would have exceeded outlays by enough to build up very large surpluses. In effect, those excess revenues would have helped fund, in advance, the benefits that the same workers would receive later. Opponents of prefunding argued that such an arrangement would result either in pressure to increase spending or in federal government ownership of private assets. Later expansions to the program, along with postponement of increases in the payroll tax rate that were originally scheduled to occur during the 1940s, essentially moved Social Security to a pay-as-you-go basis.(23)
That pay-as-you-go structure has worked, although with many changes
in taxes and benefits along the way. But it has worked largely because
the labor force has grown rapidly during much of the program's history.
That situation is about to change, as the number of Social Security beneficiaries begins to increase much faster than the number of workers.
1. Project on the Federal Social Role, The Report of the Committee on Economic Security of 1935, 50th Anniversary Edition (Washington, D.C.: National Conference on Social Welfare, 1985), p. 53.
2. Even though the formula for calculating monthly benefits is progressive (in that it favors retired workers with low lifetime earnings), some people have questioned whether the overall benefit structure of Social Security is progressive. They point out that men with low lifetime earnings have shorter life spans, on average, than other men. Other people, however, observe that Social Security also provides benefits to the survivors of deceased workers and to disabled workers; both of those features contribute to the program's progressivity.
3. Project on the Federal Social Role, The Report of the Committee on Economic Security, p. 53.
4. "We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions. . . . With those taxes in there, no damn politician can ever scrap my social security program." President Roosevelt, quoted on the Social Security Administration's "History Page," at www.ssa.gov/history/quotes.html.
5. Other changes included eliminating a provision in the 1935 law for lump-sum payments (of 3.5 percent of workers' accumulated wages) for workers who were ineligible for benefits at age 65 or who died before then, establishing a minimum benefit, and providing a lump-sum death benefit of six times the deceased worker's monthly benefit if the worker left no survivors eligible for monthly survivor benefits.
6. For more details of the 1977 amendments, as well as each of the other major changes in the Social Security program, see Geoffrey Kollmann, Social Security: Summary of Major Changes in the Cash Benefits Program, CRS Report for Congress RL30565 (Congressional Research Service, May 18, 2000).
7. For more-detailed information about the 1983 legislation, see John A. Svahn and Mary Ross, "Social Security Amendments of 1983: Legislative History and Summary of Provisions," Social Security Bulletin, vol. 46, no. 7 (July 1983), pp. 3-48.
8. In addition, most states provide supplemental payments. The history of the SSI program and its current operations are described in Social Security Administration, The Supplemental Security Income Program at the Millennium (November 2000), available at www.ssa.gov/policy/programs/SSI/millennium/index.html.
9. Social Security Administration, SSI Annual Report, 2000 (May 2001), Table 7, available at www.ssa.gov/statistics/ssi_annual_stat/2000/table7.html.
10. Most workers need to earn 40 credits (known as quarters) to be eligible for retirement benefits. Workers can earn up to four credits each year on the basis of the amount they earned in employment covered by Social Security. In 2001, one credit is earned for each $830 in wages. Thus, a worker earning at least $3,320 this year will receive four credits. The amount of earnings required for a credit is indexed to average earnings for the labor force as a whole.
11. For more detailed information about determining eligibility and benefit amounts, see the Social Security Administration's Web site (www.ssa.gov). Users can estimate their own future benefits at that site as well.
12. Their average indexed monthly earnings would be about $2,540, or about $30,500 per year. Applying the formula for workers turning 62 this year, their PIA would be $1,150, or about $13,800 per year. If they stopped working and began receiving benefits shortly after their 62nd birthday, that amount would be permanently reduced by about 22 percent. (All of those amounts are in 2001 dollars.)
13. Specifically, earnings before the year that the worker turned 60 are indexed to reflect the growth in average earnings between the years in which the wages were earned and the year that the worker turned 60. Later earnings are not indexed. Benefits are indexed to the CPI for years after the worker turned 62 (regardless of when the worker begins receiving benefits).
14. Craig A. Feinstein, Projected Demise of the Special Minimum PIA, Actuarial Note No. 143 (Social Security Administration, Office of the Chief Actuary, October 2000), available at www.ssa.gov/OACT/NOTES/note143.html.
15. The characteristics, circumstances, and financial resources of men and women who received reduced benefits in the early 1990s are examined in Congressional Budget Office, Raising the Earliest Eligibility Age for Social Security Benefits, CBO Paper (January 1999).
16. Starting with beneficiaries born in 1943, each year delayed beyond the normal retirement age (which will be 66 for that group) will add 8 percent to their retired-worker benefits. The delayed-retirement credit for workers reaching the normal retirement age this year is 6 percent.
17. If he began collecting retirement benefits as soon as he was eligible and lived to age 80, the worker would receive 216 monthly payments of $780 (adjusted for inflation), for a total of about $168,500. By waiting until his normal retirement age, he would receive 176 monthly payments of $1,000, for a total of $176,000. Although he would receive more money in total by waiting, he would not have access to that money until later. What economists call the present value of the two streams of future monthly payments would be equivalent if the worker considered $1 received now to be worth about the same as $1.03 (adjusted for inflation) received one year later.
18. Social Security Administration, Annual Statistical Supplement, 2000, p. 240. In 1999, 1.1 million of the 1.5 million people who SSA determined were entitled to new retirement benefits were ages 62 through 64. About 850,000 of those people were 62-year-olds. (Those estimates exclude the 200,000 Disability Insurance beneficiaries who automatically became retired-worker beneficiaries when they reached 65.)
19. The Social Security Administration's Web site (www.ssa.gov) contains several publications that provide more-detailed information about each type of benefit. A particularly useful one is Understanding the Benefits (February 2001).
20. Benefits received by a divorced spouse do not reduce the amount payable to a current spouse or other family members.
21. Strictly speaking, as the Social Security Administration records the benefits, she will receive her own benefit as a retired worker plus the difference between that amount and the benefit to which she would be entitled as a spouse or widow.
22. Above a second set of thresholds--$34,000 for single returns and $44,000 for joint returns--up to 85 percent of Social Security benefits are subject to taxation as a result of legislation enacted later. However, the revenues from that additional tax are credited to Medicare's Hospital Insurance Trust Fund rather than to the Social Security trust funds.
23. The debate over the extent to which workers should pay for their own benefits is discussed in Project on the Federal Social Role, The Report of the Committee on Economic Security; and in Herman B. Leonard, Checks Unbalanced: The Quiet Side of Public Spending (New York: Basic Books, 1986), Chapter 2.
