In 2019, 64-million Americans received a bit more than one trillion dollars in Social Security benefits, meaning nearly one-in-five Americans are on Social Security. Unfortunately, many people have some misconceptions about Social Security.
Here’s the basics of what you need to know about this important social program:
1. Social Security is an essential program
Studies have found that, for up to 40%, of Social Security recipients, Social Security is their only income, which is a truly scary figure. Without Social Security, millions of Americans would be living on the streets. Social Security lifts millions of Americans out of poverty, but, as we will learn, just barely.
Many consider Social Security benefits far from generous, and for some with limited work histories, they can be truly meagre. Some find it worth noting that in many other industrialized countries, government old-age benefits are not only greater, but that retirement ages are lower.
2. Social Security benefits may be less than you expect
In all, U.S. Social Security beneficiaries received slightly over one trillion dollars in 2019. However, this amounts to only $17,640 per year, or $1,470 per month. The formal poverty level for individuals in the contiguous U.S. is $12,760, so you can see the average SSI is nothing to write home about; recipients barely receive more than a poverty-level income. What’s more, the formal definition of poverty is widely acknowledged as grossly underestimated for those living in metro areas and coastal states. If you’re expecting to retire in comfort on SSI alone, you are in for a rude awakening.
3. Not all Social Security recipients are seniors
Social Security is not only a vital old-age pension, but it’s an essential insurance program for disabled workers and their dependents. In 2019, 9.9 million disabled workers and their dependents received Social Security—in their case, called Supplemental Social Security Income (SSI). That’s about 15% of Social Security recipients.
4. An average benefit means numerous people must earn less than the average benefit
While the average recipient received $1,470 per month, many receive much less. Social security benefits will vary by a number of factors including work history.
During the time in my career where I served as a Senior Advisor, I spoke with seniors everyday who were beginning to develop personal care needs. I was stunned by the number of assetless widows and widowers with incomes under $1,000 who lived in admittedly shabby apartments who were forced to choose between eating or paying for prescriptions. It’s tragic in every sense of the word. These are people who are too aged to “pull themselves up by their bootstraps”, and it’s worth reminding readers “to pull yourself up by your bootstrap” formerly was an idiom that meant something impossible.
As these seniors’ aging progresses and they develop the need for care, be it in-home or at an assisted living community, they realized they were in a financially hopeless situation, and were forced to enroll in Medicaid, essentially depriving them of much of their independence and forcing them to live in a “semi-private” (shared) room in a potentially low-quality nursing home. (Like Social Security itself, some might say Medicaid itself is an essential but flawed safety net, as it does assure all American seniors who need care receive care—just not necessarily in the most desirable environments or highest quality form.)
5. Social Security can be a big help paying for senior care, but it’s rarely enough alone
All is not doom and gloom. While we noted up to 40% of seniors relied on Social Security alone, it’s worth noting that figure was disputed by peer reviewers who suggested the actual figure could be as low as 19%. Even if 19% of seniors live on Social Security income alone, that is far too many, but the point is that the fortunate majority of seniors have incomes that extend beyond Social Security.
According to long-term care insurance provider Genworth, the median monthly cost of assisted living in the United States is $4,051. In the Syracuse, NY area it’s $4,033 per month and in expensive regions like Seattle it’s $6,500 per month. (Note that “assisted living” includes personal care, and involves more amenities and the potential for care than a “retirement community”, which is for more independent seniors.)
While most seniors have income streams and assets that mean they don’t merely rely on Social Security, it’s important to acknowledge a Social Security benefit will go less than halfway towards paying for assisted living. It’s for this reason other income like pensions, home-sale proceeds, savings, and family contributions are required to fully pay for assisted living. And as we discussed about averages before, medians are similar in the same way in that half of assisted living communities will cost more than the median cost cited above. Communities that offer more luxury, amenities, or desirable locations will naturally cost more than the median cost for an area. Furthermore, a resident’s care needs also often drive the total price, so a simple median or average price can be misleading.
All said, those who need senior care will be grateful for the contribution their Social Security can make, but they must acknowledge it can only be a piece of a sometimes complex financial jigsaw puzzle that can require families to make sacrifices and difficult decisions.
6. The earlier you’ve read this, the better
If you’re not already retired, you can do your best to prevent the challenges we discussed by maximizing your savings and making wise financial decisions. It’s never too late to start a wiser financial path, and, while you may feel hopelessly behind, every journey begins with a footstep.
So, know the facts, ask questions, and don’t be afraid to talk about Social Security and aging finance.