NCPA - National Center for Policy Analysis

Social Security and the Poor

December 4, 2001

Social Security has had great success in reducing poverty among the elderly. However, as currently structured, Social Security will be distributing smaller and smaller shares of its expenditures to the oldest and poorest recipients in the future.

For example, since 1940 the Social Security program has paid out spousal and survivors benefits to ensure that persons with little or no earnings have adequate income in old age. These benefits are pure transfer payments not financed by added contributions or reduced worker benefits.

  • These benefits are tied to the prime beneficiary's earnings, so that spouses of higher earners gain more in benefits than spouses of lower earners.
  • Single heads of households -- mainly lower-income women raising children -- are increasing significantly, and they do not receive spousal and survivors benefits.

Older retirees also see their share of benefits falling steadily relative to benefits paid to younger retirees.

  • Social Security law schedules higher real levels of benefits for each year's new retirees equaling the average wage growth relative to the previous group's.
  • Thus, if future real wage growth averages 1 percentage point per year, the average benefit for retirees age 67 in 2042 will be 21 percent higher than the average benefit for 87-year-old retirees in that same year.

In the past a majority of younger retirees used to work until older ages. In 1940 about 80 percent of men expecting to live 16 more years still worked, whereas today only 35 percent of these men work. In some respects, Social Security has shifted from an old-age to a middle-age retirement program, replacing income that still healthy individuals could earn themselves.

Source: Eugene Steuerle and Adam Carasso, "Social Security's Additional Dollars Could Buy Less Poverty," No. 33 in the Series "Straight Talk on Social Security and Retirement Policy," October 30, 2001, Urban Institute, 2100 M Street, N.W., Washington, D.C. 20037, (202) 833-7200.

 

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