It is important to understand the way that Social Security was designed to function. By commercial standards, this is the ultimate lifetime annuity. The definition of an annuity is basically exchanging one’s money with some entity in return for a reliable income stream over a period of time based on a predetermined agreement. The strength of the annuity in this case is the full backing of the US government which is considered to be the safest financial haven of the entire world. With this, Social Security’s ultimate annuity aspects are:
- Full Backing of the US Government
- Tax advantaged – 0 to 85 percent is taxed based on income
- Inflation Protection – cost of living increases (COLAS)
- Income for life – eliminating longevity risk
- Spousal, Family and Survivor benefits
- Priced less than commercially available annuities
**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.
What did retirees do before 1935 when Social Security was not available? What about those less fortunate who had no supplement for their retirement income to survive? There was more family and church involvement on behalf of the poor and more hardship for certain. Here are some recent statistics from www.SSA.gov that demonstrate why Social Security, like it or not, is likely to be continued to a large degree as part of what it means to be a Social Security entitled US citizen.
- In 2011, nearly 55 million Americans will receive $727 billion in Social Security benefits.
- Social Security is the major source of income for most of the elderly.
- Nine out of ten individuals age 65 and older receive Social Security benefits.
- Social Security benefits represent about 41% of the income of the elderly.
- Among elderly Social Security beneficiaries, 54% of married couples and 73% of unmarried persons receive 50% or more of their income from Social Security.
- Among elderly Social Security beneficiaries, 22% of married couples and about 43% of unmarried persons rely on Social Security for 90% or more of their income.
- Social Security provides more than just retirement benefits.
- Retired workers and their dependents account for 69% of total benefits paid.
- Disabled workers and their dependents account for 19% of total benefits paid.
- About 91 percent of workers age 21-64 in covered employment in 2010 and their families have protection in the event of a long-term disability.
- Just over 1 in 4 of today’s 20 year olds will become disabled before reaching age 67.
- 67% of the private sector workforce has no long-term disability insurance.
- Survivors of deceased workers account for about 12% of total benefits paid.
- About one in eight of today’s 20 year olds will die before reaching age 67.
- About 97% of persons aged 20-49 who worked in covered employment in 2010 have survivors insurance protection for their young children and the surviving spouse caring for the children.
- An estimated 158 million workers, 94% of all workers, are covered under Social Security.
- 50% of the workforce has no private pension coverage.
- 31% of the workforce has no savings set aside specifically for retirement.
- In 1940, the life expectancy of a 65-year-old was almost 14 years; today it’s almost 20 years.
- By 2036, there will be almost twice as many older Americans as today — from 41.9 million today to 78.1 million.
- There are currently 2.9 workers for each Social Security beneficiary. By 2036, there will be 2.1 workers for each beneficiary.