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Social Security Primer

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Social Security Primer

May 24November 3, 2017 (R42035)
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Contents

Summary

Social Security provides monthly cash benefits to retired or disabled workers and their family members, and to the family members of deceased workers. Among the beneficiary population, approximately 82almost 83% are retired or disabled workers, and 18% are the; family members of retired, disabled, or deceased workers make up the remainder. In August 2017. In October 2016, nearly 6162 million beneficiaries received a total of $7577 billion in benefit payments for the month; the average monthly benefit was $1,241258.

Workers become eligible for Social Security benefits for themselves and their family members by working in Social Security-covered employment. An estimated 94% of workers in paid employment or self-employment are covered, and their earnings are subject to the Social Security payroll tax. In 2017, employersEmployers and employees each pay 6.2% of covered earnings, up to thean annual limit on taxable earnings ($127,200 in 2017 and $128,700 in 2018).

Among other requirements, a worker generally needs 40 earnings credits (10 years of covered employment) to be eligible for a Social Security retired-worker benefit. Fewer earnings credits are needed to qualify for a disabled-worker benefit; the number needed varies depending on the age of the worker when he or she became disabled. A worker's initial monthly benefit is based on his or her career-average earnings in covered employment. Social Security retired-worker benefits are first payable at the age of 62, subject to a permanent reduction for early retirement. Full (or unreduced) retirement benefits are first payable at the full retirement age (FRA), which is increasing gradually from 65 to 67 under a law enacted by Congress in 1983. The FRA will reach 67 for persons born in 1960 or later (i.e., persons who become eligible for retirement benefits at the age of 62 in 2022 or later).

In addition to payroll taxes, Social Security is financed by federal income taxes that some beneficiaries pay on a portion of their benefits and by interest income that is earned on the Treasury securities held by the Social Security trust funds. In 20152016, the Social Security trust funds had receipts totaling $920957 billion, expenditures totaling $897922 billion, and accumulated assets (in the form ofU.S. Treasury securities) totaling nearly $3 trillion. The Social Security Board of Trustees (the trustees) notes, "Over the program's 8082-year history, it has collected roughly $19.09 trillion and paid out $1617.1 trillion, leaving asset reserves of more than $2.8 trillion at the end of 20152016 in its two trust funds." Projections by the trustees show that, based on the program's current financing and benefit structure, benefits scheduled under current law can be paid in full and on time until 2034 (under the intermediate set of assumptions). Projections also show that Social Security expenditures will exceed income by about 1920% on average over the next 75 years. Restoring long-range trust fund solvency and other policy objectives (such as increasing benefits for certain beneficiaries) have made Social Security reform an issue of ongoing congressional interest.

This report provides an overview of Social Security financing and benefits under current law. Specifically, the report covers the origins and a brief history of the program; Social Security financing and the status of the trust funds; how Social Security benefits are computed; the types of Social Security benefits available to workers and their family members; the basic eligibility requirements for each type of benefit; the scheduled increase in the Social Security retirement age; and the federal income taxation of Social Security benefits.


Social Security Primer

Introduction

Social Security is a primarily self-financedself-financing program that provides monthly cash benefits to retired or disabled workers and their family members and to the family members of deceased workers.1 As of October 2016August 2017, there were nearly 6162 million Social Security beneficiaries. Of those, 4445.2 million (73%) were retired workers and family members, 1110.5 million (1817%) were disabled workers and family members, and 6.0 million (10%) were survivors of deceased workers.2

Social Security is financed primarily by payroll taxes paid by covered workers and their employers. An estimated 168173 million workers are covered by Social Security.3 Employers and employees each pay 6.2% of covered earnings, up to the annual limit on taxable earnings ($127,200 in 2017);4an annual limit; self-employed individuals pay 12.4% of net self-employment income, up to the annual limit ($127,200 in 2017).an annual limit. The annual limit on taxable earnings is $127,200 in 2017 and $128,700 in 2018.4 Social Security is also credited with tax revenues from the federal income taxes paid by some beneficiaries on a portion of their benefits. In addition, Social Security receives interest income from Social Security trust fund investments. Social Security income and outgo are accounted for in two separateseparate trust funds authorized under Title II of the Social Security Act: the Federal Old-Age and Survivors Insurance (OASI) Trust Fund and the Federal Disability Insurance (DI) Trust Fund.5 In this report, the separate OASI and DI trust funds are referred to on a combined basis as the Social Security trust funds.6 In 20152016, the combined Social Security trust funds (OASDI) had total receipts of $920957 billion, total expenditures of $897922 billion, and accumulated holdings (assets) of more than $2.8 trillion.7

Origins and Brief History of Social Security

Title II of the original Social Security Act of 19358 established a national plan designed to provide economic security for the nation's workers. The system of Old-Age Insurance it created provided benefits to individuals who were aged 65 or older and who had "earned" retirement benefits through work in jobs covered by the system. Benefits were to be financed by a payroll tax paid by employees and their employers on wages up to a base amount ($3,000 per year at the time). Monthly benefits were to be based on cumulative wages in covered jobs. The law related the amount of the benefit to the amount of a worker's wages covered by the program, but the formula was progressive. That is, the formula was weighted to replace a larger share of the earnings of low-wage workers compared with those of higher-wage workers. Before the Old-Age Insurance program was in full operation, the Social Security Amendments of 1939 shifted the emphasis of Social Security from protection of the individual worker to protection of the family by extending monthly cash benefits to the dependents and survivors of workers.9 The program now provided OASI.

During the decades that followed, changes to the Social Security program were mainly ones of expansion. Coverage of workers became nearly universal (the largest groups remaining outside the system are state and local government employees who have not chosen to join the system and federal employees who were hired before 1984). In 1956, Congress established the Disability Insurance (DI) program.10 Over the years, there were increases in the payroll tax rate, which increased from 2.0% of pay (1.0% each for employees and employers) in the 1937-1949 period to its current level of 12.4%.11 In addition, there were increases in the amount of wages subject to the payroll tax (the taxable wage base), which increased from $3,000 in the 1937-1950 period to its current level of $127,200$127,200 in 2017 and $128,700 in 2018.12 The types of individuals eligible for benefits were expanded over the years,13 and benefit levels were increased periodically. In 1972, legislation provided for automatic cost-of-living adjustments, starting in 1975, indexed to the change in consumer prices as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) published by the Department of Labor's Bureau of Labor Statistics.14

Beginning in the late 1970s, legislative action regarding Social Security became more concentrated on solving persistent financing problems. Legislation enacted in 1977 raised taxes and curtailed future benefit growth in an effort to shore up the system's finances.15 Still, in 1982, the OASI trust fund needed to borrow assets from the DI trust fund and the Medicare Hospital Insurance (HI) trust fund (borrowed amounts were fully repaid by 1986). In 1983, Congress passed additional major legislation that was projected to restore solvency to the Social Security system on average over the 75-year projection period at that time.16

Current projections by the Social Security Board of Trustees show that the Social Security system has a long-range funding shortfall, and that the system will operate with annual cash-flow deficits each year through the end of the 75-year projection period (20902091). These projections, and other factors, have focused attention on potential Social Security program changes.

Social Security Financing

The Social Security program is financed primarily by revenues from Federal Insurance Contributions Act (FICA) taxes and Self Employment Contributions Act (SECA) taxes. FICA taxes are paid by both employers and employees, however, it is employers who remit the taxes to the U.S. Treasury. Employers remit FICA taxes on a regular basis throughout the year (e.g., weekly, monthly, quarterly, or annually), depending on the employer's level of total employment taxes (Social Security, Medicare, and federal individual income tax withholding).

The FICA tax rate of 7.65% each for employers and employees has two components: 6.2% for Social Security and 1.45% for Medicare HI.17 Under current law, employers and employees each pay 6.2% of covered wages, up to the taxable wage base, in Social Security payroll taxes. The SECA tax rate is 15.3% for self-employed individuals, with 12.4% for Social Security and 2.9% for Medicare HI. Self-employed individuals pay 12.4% of net self-employment income, up to the taxable wage base, in Social Security payroll taxes.18 One-half of the SECA taxes are allowed as a deduction for federal income tax purposes. SECA taxes are normally paid once a year as part of filing an annual individual income tax return.19

In addition to Social Security payroll taxes, the Social Security program has two other sources of income. First, certain Social Security beneficiaries must include a portion of Social Security benefits in taxable income for the federal income tax, and the Social Security program receives part of those federal tax revenues.20 Second, the Social Security program receives interest from the U.S. Treasury on its investments in special U.S. government obligations.

As the Managing Trustee of the Social Security trust funds, the Secretary of the Treasury is required by law to invest Social Security revenues in interest-bearing federal government securities held by the trust funds.21 The revenues exchanged for the federal government securities are deposited into the general fund of the U.S. Treasury and are indistinguishable from revenues in the general fund that come from other sources. Because the assets held by the trust funds are federal government securities, the trust fund balance represents the amount of money owed to the Social Security trust funds by the general fund of the U.S. Treasury. Funds needed to pay Social Security benefits and administrative expenses come from the redemption of federal government securities held by the trust funds.22

Taxation of Social Security Benefits

Since 1984, Social Security benefits have been subject to the federal income tax. First, asAs part of the Social Security Amendments of 1983 (P.L. 98-21), Congress made up to 50% of a person's Social Security benefits subject to the federal income tax if he/ or she has provisional income above a specified threshold ($25,000 for an individual tax filer and; $32,000 for a married couple filing jointly). Provisional income is defined as the total income from all sources recognized for tax purposes plus certain otherwise tax-exempt income, including half of Social Security benefits. Tax revenuesRevenues from this "first tier" of taxation are credited to the Social Security trust funds. In 20152016, the trust funds received $31.632.8 billion (3.4% of total trust fund income) from this provision.23

SecondNext, as part of the Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66), Congress made up to 85% of a person's Social Security benefits subject to the federal income tax if he or she has provisional income above a second higher threshold ($34,000 for an individual tax filer and; $44,000 for a married couple filing jointly). Tax revenuesRevenues from this "second tier" of taxation are credited to the Medicare HI trust fund. In 20152016, the HI trust fund received $20.223.0 billion (7.39% of total trust fund income) from this provision.24

Under current law, the income thresholds are fixed (i.e., they are not adjusted for inflation or wage growth). Over time an increasing number of beneficiaries will be subject to the federal income tax on benefits. The Congressional Budget Office (CBO) estimates that about half of current Social Security beneficiaries are affected by the taxation of benefits.25

Status of the Social Security Trust Funds

Projections by the Social Security Board of Trustees (the trustees) show that Social Security expenditures will exceed tax revenues each year through the end of the 75-year valuation period (20902091).26 That is, Social Security will operate with annual cash-flow deficits. When interest income to the trust funds is taken into account, however, Social Security is projected to have a total surplus (tax revenues plus interest income will exceed expenditures) each year through 20192021. The trustees also project that the trust funds will have a positive balance (asset reserves) until 2034, allowing Social Security benefits scheduled under current law to be paid in full and on time until then.27

Over the long run, the trustees project that the 75-year actuarial deficit for the trust funds is equal to 2.66% of taxable payroll.28 This means that an increase in the Social Security payroll tax rate of roughly 2.6 percentage points would be needed for the trust funds to remain solvent throughout the 75-year period, absent other changes.29 Stated a different way, the trustees project that Social Security expenditures will exceed income by about 19% on average over the next 75 years83% of taxable payroll.28 Stated a different way, the trustees project that Social Security expenditures will exceed income by about 20% on average over the next 75 years. For illustration purposes, the trustees point out that the following changes would be needed for the trust funds to remain solvent throughout the 75-year projection period: (1) an immediate 2.76 percentage point increase in the payroll tax rate (from 12.40% to 15.16%);29 (2) an immediate 17% reduction in benefits for all current and future beneficiaries; or (3) some combination of these approaches. Social Security's projected long-range funding shortfall is attributed primarily to demographic factors (such as lower fertility rates and increasing life expectancy) as well as program design features (such as a wage-indexed benefit formula and annual COLAs).30

At the end of 20152016, the trust funds were credited with asset reserves of more than $2.8 trillion. The trustees project that the trust fund balance will continue to grow over the next few years due to interest income, peaking at $2.93.0 trillion31 ($2.7 trillion in constant 20162017 dollars)32 at the end of 20192021. Beginning in 20202022, the trustees project that Social Security expenditures will exceed total income (tax revenues plus interest income) and the trust fund balance will begin to decline, until the asset reserves are depleted in 2034. To put the size of the trust fund balance into perspective, one can look at the trust fund ratio, which. This ratio represents trust fund assets at the beginning of a year as a percentage of costscost for the year. In 20172018, for example, the projected trust fund ratio is 293287%. (Assets held by the trust funds at the beginning of 20172018 are projected to be 2.9387 times greater than the cost of the program in 20172018.) The trustees project that the trust fund ratio will decline to 165182% in 2025 and reach zero at the point of trust fund reserve depletion in 2034.33

After depletion of trust fund reserves, the program would continue to operate with incoming Social Security receipts; those receipts are projected to be sufficient to pay 7977% of benefits scheduled under current law in 2034, declining to 7473% of scheduled benefits in 2090.34 2091.34 Under current law, Social Security does not have authority to borrow from the general fund of the Treasury. Therefore, the program cannot simply draw upon general revenues to make up the difference between incoming receipts and benefit payments when the program no longer has asset reserves to draw upon. The Social Security Act does not specify what would happen to the payment of benefits scheduled under current law in the event of Social Security trust fund depletion. Two possible scenarios are (1) the payment of full monthly benefits on a delayed schedulebasis or (2) the payment of partial (reduced) monthly benefits on time.35

Social Security Cash-Flow Surpluses and Deficits

From 1984 to 2009, Social Security generated surplus tax revenues (i.e., the program operated with annual cash-flow surpluses). Surplus tax revenues and interest income credited to the trust funds in the form of federal government securities contributed to a growing trust fund balance. Beginning in 2010, however, the program began operating with annual cash-flow deficits, and the trustees project that Social Security tax revenues will remain below program expenditures each year throughout the 75-year projection period (2016-20902017-2091).

When Social Security operates with a cash-flow deficit, the trust funds redeem more federal securities than the amount of current Social Security tax revenues, relying in part on trust fund asset reserves to pay benefits and administrative expenses. Because the federal securities held by the trust funds are redeemed with general revenues, this results in increased spending for Social Security from the general fund. When there are no surplus governmental receipts, the federal government must raise the necessary funds by increasing taxes or other income; reducing other spending; borrowing from the public; or some combination of these measures.

With respect to the program's reliance on general revenues, it is important to note that Social Security does not have authority to borrow from the general fund of the Treasury under current law. Rather, the program relies on revenues collected for Social Security purposes in previous years that were used by the federal government at the time for other (non-Social Security) spending needs and interest income earned on trust fund investments. The program draws on those previously collected Social Security tax revenues and interest income (trust fund asset reserves) when current Social Security tax revenues fall below current program expenditures.

Social Security Reform Debate

Social Security reform is an issue of ongoing interest to lawmakers. For some advocates of reform, the focus is on restoring long-range solvency to the trust funds. For others, the focus is on constraining the projected growth in spending for entitlement programs—including Social Security, Medicare, and Medicaid—in the context of broader efforts to reduce growing federal budget deficits. The Social Security reform debate reflects other policy objectives as well, such as improving the adequacy and equity of benefits,36 and different philosophical views about the role of the Social Security program and the federal government in providing retirement income. Over the years, the debate has reflected two fundamentally different approaches to reform. The traditional approach would maintain the current structure of the program (i.e., a defined benefit system funded on a pay-as-you-go basis) by making relatively modest changes, such as an increase in the retirement age or an increase in the taxable wage base. In general, the goal of this approach is to preserve the social insurance nature of the program. In contrast, the personal savings and investment approach would redesign the 1930s-era program to create a pre-funded system in which benefits would be based partially or entirely on personal savings and investments. More recently, the Social Security debate has reflected a shift in focus among some lawmakers away from efforts to scale back the program toward proposals that would expand Social Security benefits to address concerns about the adequacy of benefits and, more broadly, retirement income security.

Social Security Benefit Rules

Social Security provides monthly cash benefits to retired or disabled workers and to the family members of retired, disabled, or deceased workers. Benefits are designed to replace part of a worker's earnings. As such, the amount of a worker's benefit is based on his or her career-average earnings in covered employment (i.e., earnings up to the annual taxable limit) and a progressive benefit formula that is intended to provide adequate benefit levels for workers with low career-average earnings. This section explains how the worker's primary insurance amount (PIA) is computed. The PIA is the worker's initialworker's PIA is his or her monthly benefit amount payable at the full retirement age (FRA). The worker's PIA is also used to determine; it also determines the amount of monthly benefits payable to family members based on the worker's record. In addition, this section coversThis section also covers the basic eligibility requirements for the different types of benefits available (for retired workers, disabled workers, spouses, widow(er)s, etc.)different types of Social Security benefits.

Full Retirement Age

Social Security retirement benefits are first payable to retired workers at the age of 62, subject to a permanent reduction for "early retirement." The age at which full (or unreduced) retirement benefits are first payable is the FRA.37 For most of the program's history, the FRA was 65. As part of the Social Security Amendments of 1983 (P.L. 98-21), Congress raised the FRA from 65 to 67. The 1983 law established a gradual phase-in from 65 to 67 over a 22-year period (2000 to 2022).

Specifically, workers born in 1938 or later are affected by the increase in the FRA (i.e., workers who become eligible for retirement benefits at age 62 in 2000 or later). The increase in the FRA will be fully phased in for workers born in 1960 or later (i.e., workers who become eligible for retirement benefits at age 62 in 2022 or later). Table 1 shows the scheduled increase in the FRA being phased in under current law.38

Table 1. Increase in the Full Retirement Age Scheduled Under Current Law

Year of Birth

Full Retirement Age

1938

65 and 2 months

1939

65 and 4 months

1940

65 and 6 months

1941

65 and 8 months

1942

65 and 10 months

1943 to 1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960 or later

67

Source: SSA, 20167 Social Security/SSI/Medicare Information, February 2016, availableJanuary 2017, at https://www.ssa.gov/legislation/20162017%20Fact%20Sheet.pdf.

Computation of a Social Security Retired-Worker Benefit

Among other requirements, a worker generally needs 40 earnings credits (10 years of Social Security-covered employment) to be eligible for a Social Security retired-worker benefit.39 A worker's initial monthly benefit is based on his or her highest 35 years of earnings in covered employment, which are indexed to historical wage growth.40 The highest 35 years of indexed earnings are summed, and the total is divided by 420 months (35 years x 12 months). The resulting amount is the worker's average indexed monthly earnings (AIME). If a worker has fewer than 35 years of earnings in covered employment, years with no earnings are entered as zeroes in the computation, resulting in a lower AIME and therefore a lower monthly benefit.

The worker's PIA is determined by applying a formula to the AIME as shown in Table 2. First, the AIME is sectioned into three brackets (or segments) of earnings, which are divided by dollar amounts known as bend points. In 20172018, the bend points are $885896 and $5,336399.41 Three different replacement factors—90%, 32%, and 15%—are applied to the three brackets of AIME.42 The three products derived from multiplying each replacement factor and bracket of AIME are added together. For workers who become eligible for retirement benefits (i.e., those who attain age 62), become disabled, or die in 20172018, the PIA is determined as shown in the example in Table 2.

Table 2. Computation of a Worker's Primary Insurance Amount (PIA) in 20172018 Based on an Illustrative AIME of $5,500

6,000

Replacement Factors

Three Brackets of AIME

PIA for Worker with an Illustrative AIME of $5,500

6,000

90%

first $885896 of AIME, plus

$796.50 (90% x $885)

90% x $896 = $806.40

32%

AIME over $885896 and through $5,336399, plus

$1,424.32 (32% x $4,451)

32% x $4,503 = $1,440.96

15%

AIME over $5,336

399

15% x $601 = $90
$24.60 (15% x $164).15

Total: Worker's PIA (rounded down to lower dime)

$2,245.40

337.50

Source: Congressional Research Service.

AGenerally, a worker's PIA increases each year from the year of eligibility (at age 62) to the year of benefit receipt based on the Social Security COLA.43 In addition, Social Security benefits already in payment generally increase each year based on the COLA.43

Adjustments to Benefits Claimed Before or After the FRA

A worker's initial monthly benefit is equal to his or her PIA if he or she begins receiving benefits at the FRA. A worker's initial monthly benefit will be less than his or her PIA if he or she begins receiving benefits before the FRA, and it will be greater than his or her PIA if he or she begins receiving benefits after the FRA.

A retired-worker benefit is payable as early as the age of 62, however, the benefit will be permanently reduced to reflect the longer expected period of benefit receipt. Retired-worker benefits are reduced by five-ninths of 1% (or 0.0056) of the worker's PIA for each month of entitlement before the FRA up to 36 months, for a reduction of about 6.7% per year. For each month of benefit entitlement before the FRA in excess of 36 months, retirement benefits are reduced by five-twelfths of 1% (or 0.0042), for a reduction of 5% per year.44

Workers who delay filing for benefits until after the FRA receive a delayed retirement credit (DRC). The DRC applies to the period that begins with the month the worker attains the FRA and ends with the month before he or she attains the age of 70. The DRC is 8% per year for workers born in 1943 or later (i.e., workers who attain the age of 62 in 2005 or later).

The actuarial adjustment to benefits based on claiming age is intended to provide the worker with roughly the same total lifetime benefits, regardless of the age at which he or she begins receiving benefits (based on average life expectancy). Therefore, if a worker claims benefits before the FRA, his or her monthly benefit is reduced to take into account the longer expected period of benefit receipt. For a worker whose FRA is 66, the decision to claim benefits at the age of 62 results in a 25% reduction in his or her PIA. For a worker whose FRA is 67, the decision to claim benefits at the age of 62 results in a 30% reduction in his or her PIA. Similarly, if a worker claims benefits after the FRA, his or her monthly benefit is increased to take into account the shorter expected period of benefit receipt.45

Other Adjustments to Benefits (Including GPO and WEP)

Other benefit adjustments may apply, such as those related to simultaneous entitlement to more than one type of Social Security benefit. Under the dual entitlement rule, for example, a Social Security spousal benefit is reduced if the person also receives a Social Security benefit based on his or her own work in covered employment (i.e., a retired-worker or disabled-worker benefit).46 Similarly, under the government pension offset (GPO), a Social Security spousal benefit is reduced if the person also receives a pension based on his or her own work in non-covered employment.

Under the windfall elimination provision (WEP), a modified benefit formula is used to compute a worker's Social Security benefit when he or she also receives a pension from non-covered employment. The modified formula results in a lower initial monthly benefit compared to the regular benefit formula.4647 Under the retirement earnings test (RET), a person's Social Security benefit is subject to withholding when he or she is below the FRA and has wage or salary income above an annual dollar threshold (i.e., above an annual exempt amount).4748 Under the Social Security maximum family benefit rules, benefits payable to each family member (with the exception of the worker) are subject to reduction when total benefits payable to the family based on the worker's record exceed a specified limit.

Disabled-Worker Benefit

For Social Security disability benefits, "disability" is defined as the inability to engage in substantial gainful activity (SGA) by reason of a medically determinable physical or mental impairment that is expected to last for at least 12 months or result in death. Generally, the worker must be unable to do any kind of substantial work that exists in the national economy, taking into account age, education, and work experience. As noted previously, a worker generally needs 40 earnings credits to qualify for a Social Security retired-worker benefit. A worker under the age of 62 can qualify for a Social Security disabled-worker benefit with fewer earnings credits. The number of earnings credits needed varies, depending on the age of the worker when he or she became disabled; however, a minimum of six earnings credits is needed. Similarly, while the worker's highest 35 years of earnings are used to compute a retired-worker benefit, fewer years of earnings may be used to compute a disabled-worker benefit.4849 Because a disabled worker's benefit is not reduced for entitlement before the FRA, a disabled worker's benefit is equal to his or her PIA.49

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Benefits for the Worker's Family Members

Although the majority of Social Security beneficiaries are retired or disabled workers, nearly 11 million beneficiaries (1817.5% of the total) are the dependents and survivors of retired, disabled, or deceased workers.50

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Social Security benefits are payable to the spouse, divorced spouse, or child of a retired or disabled worker. Benefits are also payable to the widow(er), divorced widow(er), child, or parent of a deceased worker. In addition, mother's or father's benefits are payable to a young widow(er) who is caring for a deceased worker's child; the child must be under the age of 16 or disabled, and the child must be entitled to benefits.5152 Benefits payable to family members are equal to a specified percentage of the worker's PIA, subject to a maximum family benefit. For example, the spouse of a retired worker may receive up to 50% of the retired worker's PIA, and the widow(er) of a deceased worker may receive up to 100% of the deceased worker's PIA. Benefits payable to family members may be subject to adjustments based on the person's age at entitlement, receipt of a Social Security benefit based on his or her own work record, and other factors.

Table 3 provides a summary of Social Security benefits payable to the family members of a retired, disabled, or deceased worker, including. It includes the basic eligibility requirements and basic benefit amounts before any applicable adjustments (such as for the maximum family benefit).

Maximum Family Benefit

The total amount of Social Security benefits payable to a family based on a retired, disabled, or deceased worker's record is capped by the maximum family benefit. The family maximum cannot be exceeded, regardless of the number of beneficiaries entitled to benefits on the worker's record.5253 If the sum of all benefits payable on the worker's record exceeds the family maximum, the benefit payable to each dependent or survivor is reduced in equal proportion to bring the total amount of benefits payable to the family within the limit. In the case of a retired or deceased worker, the maximum family benefit is determined by a formula and varies from 150% to 188% of the worker's PIA. For the family of a worker who attains the age of 62 in 20172018, or dies in 20172018 before attaining the age of 62, the total amount of benefits payable to the family is limited to

  • 150% of the first $1,131145 of the worker's PIA, plus
  • 272% of the worker's PIA over $1,131145 and through $1,633652, plus
  • 134% of the worker's PIA over $1,633652 and through $2,130155, plus
  • 175% of the worker's PIA over $2,130.53

155.54The dollar amounts in the maximum family benefit formula ($1,131145 / $1,633652 / $2,130 in 2017155 in 2018) are indexed to average wage growth, as in the regular benefit formula. In the case of a disabled worker, the maximum family benefit is equal to 85% of the worker's AIME; however, the family maximum cannot be less than 100% or more than 150% of the worker's PIA.54

55

Table 3. Social Security Benefits for the Worker's Family Members

Basis for Entitlement

Basic Eligibility Requirements

Basic Benefit Amount Before Any Applicable Adjustments

Spouse

At least age 62, or

Any age if caring for the child of a retired or disabled worker. The child must be under the age of 16 or disabled, and the child must be entitled to benefits.

50% of worker's PIA

Divorced Spouse

(The divorced individual must have been married to the worker for at least 10 years before the divorce became final.)

At least age 62

Must be unmarried

Note: A divorced spouse who is under the age of 62 is not eligible for spousal benefits even if he/she is caring for the child of a retired or disabled worker.

50% of worker's PIA

Aged Widow(er) &

Divorced Aged Widow(er)

(The divorced individual must have been married to the worker for at least 10 years before the divorce became final.)

At least age 60

Must be unmarried (unless the marriage occurred after attainment of age 60)

100% of worker's PIAa

Disabled Widow(er) &

Divorced Disabled Widow(er)

(The divorced individual must have been married to the worker for at least 10 years before the divorce became final.)

At least age 50 (ages 50-59)

Must be unmarried (unless the marriage occurred after attainment of age 50)

The qualifying disability must have occurred

(1) before or within seven years of the worker's death;

(2) within seven years of having been previously entitled to benefits on the worker's record as a widow(er) with a child in his or her care; or

(3) within seven years of having been previously entitled to benefits as a disabled widow(er) that ended because the qualifying disability ended (whichever is later).

71.5% of worker's PIAa

Disabled widow(er)s and divorced disabled widow(er)s ages 50-59 receive the same rate of reduction set for widow(er)s at age 60 (28.5% of the worker's PIA), regardless of their age at the time of entitlement.

Widowed Mother or Father

(Young Widow(er) with Child)

Surviving spouse of any age who is caring for the deceased worker's child. The child must be under the age of 16 or disabled, and the child must be entitled to benefits.

Must be unmarried

Must not be entitled to widow(er)'s benefits

Note: In the case of a surviving divorced parent, the child must be his or her natural or legally adopted child. The 10-year marriage requirement that applies to divorced spouses under other circumstances does not apply.

75% of deceased worker's PIA

Child

A dependent, unmarried child of a retired, disabled, or deceased worker.

The child must be

(1) under the age of 18;

(2) a full-time elementary or secondary student under the age of 19; or

(3) a disabled person aged 18 or older whose disability began before age 22.

The term child refers to a biological child, adopted child, stepchild, or in some cases grandchild, of the worker.

50% of worker's PIA for child of a retired or disabled worker

75% of deceased worker's PIA for child of a deceased worker

Dependent Parent of a Deceased Worker

At least age 62

Must not have married since the worker's death

Must have been receiving at least one-half of his or her support from the worker at the time of the worker's death (or, if the worker had a period of disability that continued until death, at the beginning of the period of disability).

82.5% of deceased worker's PIA if one parent is entitled to benefits

75% of deceased worker's PIA (for each parent) if two parents are entitled to benefits

Source: Congressional Research Service.

Notes: The family relationship requirement for entitlement to benefits based on the worker's record may be met in alternative ways. For example, the relationship requirement can be met if, under state law as interpreted by the courts of the state, the applicant would be able to inherit a share of the worker's personal property if the worker were to die without leaving a will. The table shows the minimum eligibility age for each type of benefit (i.e., the age at which benefits are first payable on a reduced basis). The maximum family benefit may apply, reducing the benefit payable to each family member (excluding the worker) on a proportional basis. In the case of a retired or deceased worker, the maximum family benefit varies from 150% to 188% of the worker's PIA. In the case of a disabled worker, the maximum family benefit is equal to the lesser of 85% of the worker's AIME or 150% of the worker's PIA, but no less than 100% of the worker's PIA. Other benefit adjustments may apply.

a. A worker's claiming age affects the widow(er) benefit. If a worker iswas receiving a reduced benefitsbenefit due to claiming benefits beforebefore the full retirement age (FRA), the widow(er) benefit cannot exceed the worker's reduced benefit amount. For workersAlternatively, if a worker was entitled (or who would have been entitled) to an increase (or subject to being increased) in theira higher benefit amount due to claiming benefits after FRA their PIA is increased at death to take into account the delayed retirement credits from claiming benefits after FRA, thereby increasing the widow(er) benefit.

due to claiming benefits after the full retirement age, the worker's PIA—adjusted to take into account the delayed retirement credit—is used to compute the widow(er) benefit, thereby increasing the benefit.

Social Security Beneficiaries

In October 2016August 2017, there were nearly 6162 million Social Security beneficiaries. As shown in Table 4, retired-worker and disabled-worker beneficiaries accounted for 82almost 83% of the beneficiary population. The largest single category of beneficiaries was retired workers (68.4%), with an average monthly benefit of $1,354371. The second-largest category was disabled workers (1514.2%), with an average monthly benefit of $1,167172. Family members of retired, disabled, or deceased workers accounted for the remainder of the beneficiary population (18%).5517.5%).56 Table 4 provides a breakdown of the Social Security beneficiary population in October 2016August 2017.

Table 4. Social Security Beneficiaries, by Type, October 2016

August 2017

Type of Beneficiary

Number
(in thousands)

Percentage

Total Monthly Benefits
(in millions)

Average Monthly Benefit

All beneficiaries

60,773

61,591

100.0%

$75,417

77,483

$1,240.95

258.02

Old-Age and Survivors Insurance

50,139

51,134

82.5

83.0

64,472

66,631

1,285.87

303.08

Retirement benefits

44,112

45,158

72.6

73.3

57,728

59,888

1,308.67

326.18

Retired workers

41,082

42,124

67.6

68.4

55,627

57,758

1,354.04

371.14
 

Spouses of retired workers

2,375

372

3.9

1,673

694

704.52

714.00
 

Children of retired workers

656

662

1.1

429

436

653.73

658.88

Survivor benefits

6,026

5,976

9.9

7

6,743

744

1,118.99

128.47
 

Children of deceased workers

1,878

867

3.1

0

1,566

565

833.90

838.56

Widowed mothers/fathers

134

130

0.2

126

124

945.72

954.51

Nondisabled widow(er)s

3,754

719

6.2

0

4,864

868

1,295.65

308.83
 

Disabled widow(er)s

260

259

0.4

186

185

716.02

715.28

Parents of deceased workers

1

a

1

1,146.59

162.07

Disability Insurance

10,635

457

17.5

0

10,945

851

1,029.20

037.68
 

Disabled workers

8,834

742

14.5

2

10,313

244

1,167.44

171.84

Spouses of disabled workers

136

129

0.2

44

42

322.90

326.76

Children of disabled workers

1,665

586

2.7

6

588

565

353.39

356.16

Source: Table reproduced from SSA, Monthly Statistical Snapshot, October 2016August 2017, Table 2. See the latest edition of the Monthly Statistical Snapshot at http://www.socialsecurity.gov/policy/docs/quickfacts/stat_snapshot/index.html.

a. Indicates a value less than 0.05%.

Author Contact Information

[author name scrubbed], Specialist in Income Security ([email address scrubbed], [phone number scrubbed])

Footnotes

The WEP differs from other types of benefit adjustments in that it involves an alternative PIA formula. For more information, see CRS In Focus IF10203, Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

1.

A person may receive retired-worker benefits and continue to have earnings. However, under certain circumstances, earnings may affect the amount of a person's monthly benefit.

2.

Social Security Administration (SSA), Monthly Statistical Snapshot, October 2016August 2017, Table 2. See the latest edition of the Monthly Statistical Snapshot at http://www.socialsecurity.gov/policy/docs/quickfacts/stat_snapshot/index.html. Percentages do not sum to 100% due to rounding.

3.

Currently, 94% of workers in paid employment or self-employment are covered by Social Security. SSA, 2016Fact Sheet: Social Security, at https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf; and SSA, 2017 Social Security/SSI/Medicare Information, February 2016January 2017, at https://www.ssa.gov/legislation/20162017%20Fact%20Sheet.pdf.

4.

The annual limit on covered wages and net self-employment income that is subject to the Social Security payroll tax (the taxable wage base) is adjusted annually based on average wage growth, if a Social Security cost-of-living adjustment (COLA) is payable.

5.

42 U.S.C. §401.

6.

Under current law, the Federal Old-Age and Survivors Insurance (OASI) and Federal Disability Insurance (DI) trust funds cannot borrow from each other when faced with a funding shortfall. The shifting of funds between OASI and DI can only be done with authorization from Congress. In the past, Congress has authorized temporary interfund borrowing among the OASI, DI, and Medicare Hospital Insurance trust funds, as well as temporary payroll tax reallocations between OASI and DI, to deal with funding shortfalls. Most recently, under the Bipartisan Budget Act of 2015 (P.L. 114-74), Congress authorized a temporary reallocation of payroll taxes from the OASI fund to the DI fund for calendar years 2016 through 2018. TheIn its 2016 annual report to Congress, the Social Security Board of Trustees projectsprojected that the temporary reallocation willwould extend the solvency of the DI fund from the fourth quarter of 2016 to the third quarter of 2023. (Projections from the 2017 annual report are discussed later in the report.) Because of such actions, the OASI and DI trust funds are discussed on a combined basis. For more information, see CRS Report R43318, The Social Security Disability Insurance (DI) Trust Fund: Background and Current Status.

7.

SSA, Trust Fund Data, at http://www.ssa.gov/OACT/STATS/table4a3.html.

8.

P.L. 271, 74th Congress.

9.

P.L. 379, 76th Congress.

10.

The DI program was established by the Social Security Amendments of 1956 (P.L. 880, 84th Congress). The program became known as the Old-Age, Survivors, and Disability Insurance (OASDI) program, the formal name for Social Security.

11.

Congress has increased the Social Security payroll tax rate many times over the program's history. The payroll tax rate under current law (12.4%) was established by the Social Security Amendments of 1983 (P.L. 98-21). P.L. 98-21 increased the payroll tax rate gradually from 11.4% in 1984 to 12.4% in 1990.

12.

The taxable wage base amounts ($3,000 and $127,200) are in current are in nominal dollars. The most recent legislative change to the Social Security taxable wage base was in 1977. The Social Security Amendments of 1977 (P.L. 95-216) established ad-hoc increases in the taxable wage base for 1979, 1980, and 1981, followed by a return to automatic wage indexation for 1982 and subsequent years.

13.

For example, the Social Security Amendments of 1965 (P.L. 89-97) established benefits for divorced wives aged 62 or older.

14.

See the Social Security Amendments of 1972 (P.L. 92-603). For more information, see CRS Report 94-803, Social Security: Cost-of-Living Adjustments.

15.

See the Social Security Amendments of 1977 (P.L. 95-216).

16.

Following the Social Security Amendments of 1983 (P.L. 98-21), projections showed the re-emergence of long-range deficits as a result of changes in actuarial methods and assumptions and because program changes had been evaluated with respect to their effect on the average 75-year deficit. That is, while program changes were projected to restore trust fund solvency on average over the 75-year projection period, a period of surplus years was followed by a period of deficit years. As time passed, the inclusion of additional deficit years in the 75-year valuation period resulted in a return to projected long-range deficits.

17.

The Patient Protection and Affordable Care Act (ACA; P.L. 111-148) imposed an additional Medicare HI tax of 0.9 percentage point on high-income workers with wages over $200,000 for single filers and $250,000 for joint filers, effective for taxable years beginning in 2013.

18.

Self-employed individuals must pay Social Security payroll taxes if they have net earnings from self-employment of $400 or more in a year; only 92.35% of net earnings (up to the annual limit) are taxable.

19.

If a self-employed individual does not pay himself or herself wages, SECA taxes are paid annually on the Internal Revenue Service Form 1040 (U.S. Individual Income Tax Return). If a self-employed individual does pay himself or herself wages, FICA taxes are paid during the year along with any FICA tax payments for his or her employees.

20.

The tax revenues associated with including Social Security benefits in federal taxable income go to the Social Security trust funds and the Medicare HI trust fund. For more information, see CRS Report RL32552, Social Security: Calculation and History of Taxing Benefits.

21.

Social Security Act, Title II, §201(d). For more information, see SSA, Office of the Chief Actuary, Actuarial Note Number 142, Social Security Trust Fund Investment Policies and Practices, by Jeffrey L. Kunkel, January 1999, at http://www.ssa.gov/OACT/NOTES/n1990s.html.

22.

SSA, Trust Fund FAQs, at http://www.socialsecurity.gov/OACT/ProgData/fundFAQ.html.

23.

The 20162017 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, June 22, 2016July 13, 2017, at https://www.ssa.gov/OACT/TR/2016/tr2016oact/TR/2017/tr2017.pdf. (Hereinafter cited as 20162017 Annual Report of the Social Security Board of Trustees.) See Table III.A3, p. 34.

24.

Social Security and Medicare Boards of Trustees, Status of the Social Security and Medicare Programs: A Summary of the 20162017 Annual Reports, June 22, 2016, p. 3, July 13, 2017, p. 2, at https://www.ssa.gov/OACT/TRSUM/tr16summarytr17summary.pdf.

25.

Unpublished data from CBO showing projections for tax year 2014. For more information, see CRS Report RL32552, Social Security: Calculation and History of Taxing Benefits.

26.

Projections cited in this CRS report are based on the intermediate (or "best estimate") set of assumptions ofin the 20162017 Annual Report of the Social Security Board of Trustees and refer to the OASI and DI trust funds on a combined basis. For more information on the trust fund projections, see CRS Report RL33028, Social Security: The Trust Funds.

27.

Separately, the OASI fund is projected to have asset reserves until 2035, at which point continuing income to the fund would be sufficient to pay 7775% of OASI scheduled benefits. The DI fund is projected to have asset reserves until 20232028, at which point continuing income would be sufficient to pay 89% of DI scheduled benefits.

93% of DI scheduled benefits. The trustees note, "Therefore, legislative action is needed to address the DI program's financial imbalance" (2017 Annual Report of the Social Security Board of Trustees, p. 5).
28.

20162017 Annual Report of the Social Security Board of Trustees, p. 5, https://www.ssa.gov/OACT/TR/2016/tr2016.pdf4. The Congressional Budget Office (CBO) also publishes long-range projections for the Social Security trust funds. CBO projects that the trust funds will have a positive balance (asset reserves) until 20292030 and a 75-year actuarial deficit equal to 4.75% of taxable payroll. CBO notes, "The larger shortfall projected by CBO primarily stems from differences in the projections of interest rates and taxable payroll. Differences in projections involving life expectancy, fertility, and growth in the consumer price index also contribute." See CBO, The 2016 Long-Term Budget Outlook, July 2016, pp. 28-29, https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51580-LTBO-2.pdf.

See CBO, The 2017 Long-Term Budget Outlook, March 30, 2017, pp. 13-14, at https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/52480-ltbo.pdf; and CBO, Changes to CBO's Long-Term Social Security Projections Since 2016, October 2017, at https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53209-ltbossprojections.pdf.
29.

Taxable payroll refers to total earnings in the economy that are subject to Social Security payroll taxes (with some adjustments). Program costs and income are evaluated as a percentage of taxable payroll because Social Security payroll taxes are the primary source of funding for the program.

30.

A wage-indexed benefit formula allows initial monthly benefits for successive groups of new beneficiaries to keep pace with increases in the standard of living. An annual COLA for benefits already in payment allows benefits for current beneficiaries to keep pace with increases in prices.

31.

20162017 Annual Report of the Social Security Board of Trustees, Supplemental Single-Year Tables, Table VI.G8, at https://www.ssa.gov/OACT/TR/20162017/lr6g8.html.

32.

20162017 Annual Report of the Social Security Board of Trustees, Supplemental Single-Year Tables, Table VI.G7, at https://www.ssa.gov/OACT/TR/20162017/lr6g7.html.

33.

20162017 Annual Report of the Social Security Board of Trustees, Table IV.A3, pp. 48-49, https://www.ssa.gov/OACT/TR/2016/tr2016.pdf47-48.

34.

Social Security and Medicare Boards of Trustees, Status of the Social Security and Medicare Programs: A Summary of the 20167 Annual Reports, June 22, 2016, p. 11, https://www.ssa.gov/OACT/TRSUM/tr16summary.pdfJuly 13, 2017, p. 10.

35.

For more information, see CRS Report RL32822, Social Security Reform: Legal Analysis of Social Security Benefit Entitlement Issues.

36.

Traditionally, one of the principles governing the Social Security program has been balancing the competing goals of social adequacy and individual equity. The social adequacy goal takes into account factors beyond a person's payroll tax contributions in determining the appropriate level of benefits (factors such as providing a minimum standard of living). The individual equity goal takes into account the degree to which a person's benefit level reflects his or her payroll tax contributions to the system.

37.

The full retirement age is also called the normal retirement age (NRA).

38.

For more information, see CRS Report R44670, The Social Security Retirement Age.

39.

A worker may earn up to four earnings credits per calendar year. In 20172018, a worker earns one credit for each $1,300320 of covered earnings, up to a maximum of four credits for covered earnings of $5,200280 or more. Earnings credits are also called quarters of coverage.

40.

Earnings through age 60 are indexed; earnings thereafter are counted at nominal value. Indexing past earnings brings them up to near-current wage levels.

41.

The bend points in the benefit formula are indexed to average wage growth under current law.

The bend points for 2017 are $885 and $5,336.
42.

The replacement factors in the benefit formula are fixed under current law.

43.

Since 1975, COLAs have not been payable in 2010, 2011, and 2016Automatic COLAs went into effect in 1975. Since that time, there have been three years when no COLA was payable (2010, 2011, and 2016). For more information, see CRS Report 94-803, Social Security: Cost-of-Living Adjustments.

44.

The early retirement reduction for spousal benefits is different. Spousal benefits claimed before the FRA are reduced by 25/36 of 1% (or 0.0069) for each month of entitlement before the FRA, up to 36 months, and by five-twelfths of 1% (or 0.0042) for each month of entitlement before the FRA in excess of 36 months. The reduction is applied to the base spousal benefit, which is 50% of the worker's PIA. The spousal benefit is not reduced for entitlement before the FRA if the spouse is caring for a qualifying child. The early retirement reduction also differs for widow(er)'s benefits. The maximum reduction for widow(er)'s benefits claimed before the FRA is equal to 28.5% of the deceased worker's PIA. Alternatively, if a widow(er) claims benefits at the FRA, his or her benefits are reduced if the deceased worker claimed benefits before the FRA and therefore was receiving a reduced benefit. Under the widow(er)'s limit provision, the widow(er)'s benefit is limited to the higher of (1) the benefit the deceased worker would be receiving if he or she were still alive or (2) 82.5% of the deceased worker's PIA. In this case, the maximum reduction applied to the widow(er)'s benefit is equal to 17.5% of the deceased worker's PIA.

45.

For more information, see CRS Report R43542, How Social Security Benefits Are Computed: In Brief.

46.

For more information, see CRS In Focus IF10738, Social Security Dual Entitlement.

47.
4748.

For more information, see SSA, Exempt Amounts Under the Earnings Test, at https://www.ssa.gov/OACT/COLA/rtea.html.

4849.

For more information, see CRS Report R43370, Social Security Disability Insurance (SSDI): Becoming Insured, Calculating Benefit Payments, and the Effect of Dropout Year Provisions.

4950.

For more information, see CRS Report RL32279, Primer on Disability Benefits: R44948, Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI): An Overview.

5051.

SSA, Monthly Statistical Snapshot, October 2016August 2017, Table 2. See the latest edition of the Monthly Statistical Snapshot at http://www.socialsecurity.gov/policy/docs/quickfacts/stat_snapshot/index.html.

5152.

To receive mother's/father's benefits, the person must be unmarried and must not be entitled to widow(er)'s benefits.

5253.

Social Security Act, Title II, §203.

5354.

SSA, Formula for Family Maximum Benefit, at https://www.socialsecurity.gov/OACT/COLA/familymax.html.

5455.

Benefits for a divorced beneficiary are not taken into account for purposes of the family maximum. See SSA, Program Operations Manual System (POMS), Section RS 00615.682, "Family Benefits Where a Divorced Spouse or a Surviving Divorced Spouse is Entitled," available at https://secure.ssa.gov/apps10/poms.nsf/lnx/0300615682.

5556.

Percentages do not sum to 100% due to rounding.