Retirees Increasingly Depending on Social Security

Social Security is the largest source of retirement income for a growing share of Americans.

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Social Security is the most significant source of income for Americans age 65 and older, and its importance has continued to grow over time, according to a recent Social Security Administration report.

[See 10 Ways to Boost Your Social Security Checks.]

Social Security made up 38 percent of the total income of people age 65 and older in 2009—up from 30 percent in 1962—and is the largest of any type of retirement income. The second-largest share of retirement income is earnings from work (29 percent), a proportion that has remained consistent since 1962. Asset income has shrunk from 15 percent of retirement income in 1962 to 11 percent in 2009. Over the same time period, income from private pensions has grown from 3 percent to 9 percent, and government employee pensions have increased from 6 percent to 9 percent of all retirement income.

Only a fortunate minority of Americans have significant sources of retirement income other than Social Security. Social Security made up 50 percent or more of the retirement income of 66 percent of Americans age 65 and older in 2009, up from 64 percent in 2008. And more than a third of retirees (35 percent) receive 90 percent or more of their income as a monthly payment from the Social Security Administration.

Social Security also covers more people than any other type of retirement benefit. The great majority of retired Americans age 65 and older (87 percent) received Social Security income in 2009, up from 69 percent in 1962. In contrast, only about half (53 percent) of older Americans have asset income in retirement, a proportion that is unchanged since 1962. The proportion of retirees receiving private-sector pension income has grown from 9 to 28 percent. And 14 percent of seniors have government pension income, up from 9 percent in 1962. The proportion of older Americans with income from work has fallen from just over a third in 1962 to about a quarter in 2009.

[See How to Predict Your Social Security Payout.]

While Social Security makes up a large share of the typical retiree's income, the amount they are paid is actually fairly small. The average monthly payout to retired workers was $1,176 in 2010. More than 54 million Americans were paid a Social Security benefit last year. Retired workers make up the bulk of people receiving Social Security payments (64 percent), but the program also makes payments to disabled workers (15 percent), spouses of deceased workers (12 percent), and the spouses and children of retired or disabled workers (9 percent).

The proportion of women receiving retired worker benefits has quadrupled since the program was founded, from 12 percent in 1940 to 49 percent in 2010. About a quarter (26 percent) of women age 62 or older received benefits on the basis of only their husband's earning record in 2010, down from 57 percent in 1960. A growing share of women (28 percent) now have a dual entitlement to Social Security on the basis of both their own earnings and those of their husband's, up from 5 percent in 1960. Married individuals can claim Social Security on the basis of their own work record or up to half of the higher earner's benefit, whichever is higher.

Despite the program's growing importance, people are now paying a smaller proportion of their income into the program than they did when it was founded. Only about 84 percent of earnings from employment were taxable in 2010, compared with 92 percent in 1937. That's because workers pay into the Social Security trust fund on earnings up to the taxable maximum, which was $106,800 in 2010. Some 6 percent of Americans had earnings from employment that exceeded the maximum amount subject to Social Security taxes in 2010, compared with 3 percent when the program began.

[See 12 Ways to Fix Social Security.]

The federal program also has a long-term deficit. The Social Security trust fund is projected to be exhausted in 2036. At that time, payroll taxes and other income will only generate enough income to pay out 77 percent of program costs, unless tax increases, benefit cuts, or other changes to the program are implemented.