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Social Security Beneficiaries

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Although it has accumulated surpluses in recent years, Social Security faces a future budget crunch. The ratio of contributing workers to beneficiaries is projected to shrink from 3.4 today to about 2.0 by 2035. Because Social Security is a pay-as-you-go program that disburses nearly all its current revenue as benefits, a drop in the number of contributors per beneficiary will cause shortfalls. Preserving its current structure will force lower benefits or higher payroll tax rates: At the current tax rate of 12.4%, 3.4 workers’ contributions suffice to replace 41.2% of one beneficiary’s past earnings. With only two contributors per beneficiary, the same tax rate will replace only 24.8% of those earnings, implying a benefit reduction of over 40%. Alternatively, to guarantee the same replacement rate, tax rates must increase 70%, from 12.4% to 21.1%.

Suggested citation: “Social Security Beneficiaries,” Federal Reserve Bank of Cleveland, Economic Trends, no. 98-08, pp. 12, 08.01.1998.

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