Old-Age payments

To be eligible for "full" social security benefits a worker must

have put in a sufficient number of years paid employment [D2]
retire at age 65 [D4]

But the level of "full" benefits depends on the worker's average wage during her career. The higher her average wage, the higher her Social Security payment.[D6] Thus, payments are not based on need. The government is not committed to any particular eligibility requirements or level of Social Security payments for the future, and in fact has frequently changed payment levels and eligibility requirements in the past.

In FY1998, the average monthly old-age payment to retired workers was $768 ($9216/yr.). There were 27m beneficiaries, so that total payments were $249b (15% of the budget)[s]

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S1,3,5,7. Source: World Almanac, p. 715, q.v. for more detailed information.

[D2] Details: This requirement is easy to meet. As of 1999: Each year, you are credited with a "credit" for each $740 in wages you earn, up to four credits in a year. Upon retirement you are eligible for full benefits if you've accumulated 40 credits. Thus, you could easily work only 10 years and still be eligible for "full" benefits. (But note that the level of "full" benefits varies. See above.) But note that housewives would not qualify. [s]Back

D4. Details: You may retire at age 62 and receive "reduced benefits"--i.e., your benefits at every age will be reduced relative to what you'd get if you waited till 65. The government plans to gradually increase the "full benefits" retirement age from 65 to 67. People ages 65 through 69 who continue working receive lower benefits than retired people of that age--they lose $1 in benefits for every $3 in wages above $15,500. People 70 and up receive full benefits regardless of employment status. [s]

D6. Details: The monthly payment to a worker who meets the two "full eligibility" criteria described above is called the PIA ("primary insurance amount") and is what is meant by full benefits. But, the PIA, and, hence, "full" benefits, differ between workers--the higher your average wage was, the higher your benefits. The SSA calls its estimate of your average wage your AIME ("average indexed [for inflation] monthly earnings [read, wages]"). Benefits are indexed to the Consumer Price Index and hence rise automatically with inflation--though of course Congress could alter this policy at any time.[S7] Indeed, since the CPI overstates inflation, benefits currently rise faster than prices--indeed, that has recently been a point of contention, with downward revisions in the CPI estimate being seen as an "easy" way to reduce Social Security payments. Note though that the CPI may not overstate inflation in the elderly's basket of goods, since old people may not be typical consumers. E.g., old people spend more on health care, and health care inflation is greater than the CPI. (But given Medicare do the elderly really spend more on health care?)

Examples:

A worker with average yearly real wages of $12,028 would get a PIA of $566 ($6792/yr).
A worker with average wages of $26,731 would get a PIA of $933 ($11,196).
The maximum PIA, for a worker with wages of at least $65,400, is $1,326 ($15,912/yr).[S8] (Note that $65,400 defines the "earnings base" for Social Security taxes as well.)

S8. Source: World Almanac, p. 718. Q.v. for more specific examples of payments to families of different incomes and eligibity profiles.

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This page maintained by Steven Blatt. Suggestions, comments, questions, and corrections are welcome.