According to a report just released by the National Academy of Social Insurance, the average monthly benefit for retirees is $1,045 in 2007. A 65-year old who wanted to buy a guaranteed income of that size — with payments that go up with the cost of living and continue for a widowed spouse — would need to pay an insurance company about $225,000. The report also found that with social security, 10 out of every 100 retirees are living in poverty. Take social security away, and the number would jump to 50 out of 100. DR NOTE: If you are not saving for retirement, start today!
The report is worth reading if you’d like a primer on social security. Social Security: An Essential Asset and Insurance Protection for All (48 page pdf document) includes a section describing social security benefits and how they are calculated. For example, the percentage of income replaced is higher for lower income families (as you’d expect). Here’s a chart from the report depicting this aspect of social security:
The report also notes that while most associate retirement with social security, the program covers a lot more. A full 31% of social security benefits are paid out as disability payments or life insurance.
The future financial health of social security is sobering. The report notes that by 2041, “dedicated Social Security taxes coming into the program will cover only 75 percent of the benefits promised under current law.” Social Security benefits now represent 4.3 percent of the nation’s gross domestic product, but this percentage is expected to rise to 6.2 percent by 2030. This rise is the result of the aging of the baby boomers combined with the simple fact that people are living longer.