How Much Do Americans Depend on Social Security?

Policy Reports | Social Security

No. 301
Tuesday, August 07, 2007
by Laurence J. Kotlikoff, Ben Marx and Pietro Rizza


  1. Based on the study by Laurence J. Kotlikoff, Ben Marx and Pietro Rizza, “Americans' Dependency on Social Security,” National Bureau of Economic Research, Working Paper No. 12696, November 2006.
  2. The 2006 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and the Federal Disability Trust Funds.
  3. This may be an unrealistic assumption, since the future benefits promised today's workers are unsustainable. Without substantial payroll tax increases or an infusion of general tax revenues, today's younger workers are unlikely to receive all the benefits “promised” under current law.
  4. Singles with incomes of $250,000 have the same expected Social Security benefits as singles with incomes of $100,000. Couples with incomes of $500,000 and $200,000, respectively, receive the same Social Security benefits. This is because the amount of taxable wages, and therefore the amount of benefits an individual can accrue, are capped; in 2005, for example, the payroll tax cap was $90,000. The model assumes the dollar amount of earnings subject to Social Security payroll taxes increases by 1.1 percent (in real terms) annually.
  5. Note that the percentage reduction in consumption for any of the households is likely different from the proportion of total retirement income their full Social Security benefits represent. That is because many variables change in response to the loss of benefits, including the amount of savings, life insurance and taxes. For example, higher income seniors may pay less income taxes since their Social Security benefits were likely taxable (the so-called benefits tax).
  6. The real rate of return is based on a 7 percent nominal rate of return in non-equity funds (bonds) minus inflation and estimated taxes.
  7. According to the Social Security Administration, some 90 percent of current retirees rely on Social Security for half or more of their retirement income. For one-in-five households, Social Security is their only source of retirement income. Social Security Administration, “Fast Facts & Figures about Social Security, 2005.” Available at
  8. They may increase their savings in later middle age. For examples, see the simulations for 50 year olds in Laurence J. Kotlikoff, Ben Marx and Pietro Rizza, “Americans' Dependency on Social Security.”

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