Social Security benefits replace only about 40 percent of an average retiree’s recent earnings, new Congressional Budget Office (CBO) estimates show. The actuaries at the Social Security Administration (SSA) find a similar result using a different technique. By either measure, Social Security benefits are not overly generous.
Financial planners recommend as a rule of thumb that retirees build a portfolio — from the “three-legged stool” of Social Security, pensions, and savings — that replaces about 70 percent of their previous income. Social Security gets them only partway there, as the new CBO estimate confirms. And Social Security’s replacement rate (the ratio of a person’s initial Social Security retirement benefit to his or her previous earnings) will fall as the age for full benefits, which rose from 65 to 66 in the early 2000s, rises further to 67 due to 1983 legislation. Raising Social Security’s full retirement age cuts benefits for all retirees, as we explain here.
Furthermore, rising Medicare premiums will take a growing bite out of beneficiaries’ Social Security checks. That’s because most beneficiaries 65 and older, along with most disabled workers under age 65, participate in Medicare’s Supplementary Medical Insurance program (“Medicare Part B”) and have the premium deducted from their Social Security checks. So there’s little room for policymakers to cut benefits without hurting vulnerable retirees.
– Center on Budgeting and Policy Priorities