There have been some pretty scary headlines in the news lately about certain people who will never receive a Social Security benefit… even if they paid Social Security taxes throughout their working lives.
On the face of it, this sounds crazy! I can certainly understand why this would cause concern, especially if you think you might be one of those people.
You pay Social Security taxes while you’re working in exchange for the implied promise of receiving a benefit when you retire. No one wants to be the one who pays into the system but doesn’t receive any income from it when it’s their turn to receive income from the program.
But according to the Social Security Administration, there are more than 1.6 million people who pay into Social Security, but never receive a benefit in return. This represents 3% of the population between the ages of 60 and 89.
What’s going on here?
The Social Security Administration’s “Never Beneficiaries”
Those news headlines aren’t entirely wrong: there are people who pay in but don’t receive a benefit. The Social Security Administration even has a term for this group, referring to these individuals as “never beneficiaries.”
Who are these individuals who will never receive a benefit? Are you one of them?
Thankfully, the Social Security Administration doesn’t keep us in the dark here. The organization gives us data on the demographics of these individuals, so we know that they are:
- Infrequent Workers (who make up 44.3% of never beneficiaries)
- Late-arriving immigrants (37.3% of never beneficiaries)
- Non-covered workers (11.4%)
- People who die before receiving benefits (6.9%)
Let’s break each of these demographic categories into more details so we can better understand who these folks are.
Infrequent Workers
These are people who just don’t do enough work to earn the 40 credits necessary to qualify for benefits. Becoming eligible for benefits generally requires 10 years of work. So if you work for a total of nine years, you don’t receive your own benefit which means that you get nothing for all of those taxes that you paid in.
Late-Arriving Immigrants
Late-arriving immigrants are people who immigrate to the United States at age 50 or later, and like the last category, don’t work for a long-enough period of time to earn enough credits to qualify for Social Security benefits.
Non-Covered Workers
These are people who worked long enough to qualify for a benefit, but who did not pay into the Social Security system. This usually applies to individuals who worked in a state where public service positions do not contribute to Social Security.
Die Before Receiving Benefits
The last category represents the people who die before receiving benefits, which is just under 7% of all never beneficiaries.
What Happens to Money Paid In That Doesn’t Go to Never Beneficiaries
So what happens to all of this money that was paid in, but never paid out? Well, this actually isn’t an issue due to the way the system works.
There is no account with your name on it that will eventually pay you back a benefit. When you pay into the system as a present-day worker, your dollars go to pay benefits for today’s retirees.
The money that gets paid into the system via Social Security taxes is simply helping to pay for those who currently receive Social Security benefits.
If you look into these Social Security never beneficiaries groups a little deeper, you’ll see that there’s more demographic data that can help us understand more:
- Among those who are classed as never beneficiaires, 63% are women
- 34.7% have less than a high school education
- 19.6% are widowed
- 18.9% have never been married
One of the most alarming numbers is that 62% of “never beneficiaries” are in poverty. This is especially concerning when you look at the Social Security data that shows that more than two-thirds of unmarried persons receive 50% or more of their income from Social Security.
This means that many of those who will never receive a benefit are the ones who need the income the most.
Now, if you bump into these headlines about never beneficiaries from now on, you’ll know what’s going on.
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Hey Devin, can receiving an inheritance affect your disability insurance?