Social Security Is Already the Best Anti-Poverty Program We Have – Don’t Make Big Changes – Center for Retirement Research

Changing Social Security to a lower benefit for all would put workers and the poor at risk.

Social Security is this country’s most important and most popular program. However, changes will be needed soon, as the plan will not be able to pay full benefits when the retirement trust fund runs out in 2033. Although many options have been proposed to solve the financial crisis within the current structure of Social Security, a major report and two books (Biggs and Boccia & Nachkebia) have proposed to radically change the system. Although the details differ, all three proposals would shift Social Security from a wage replacement program to one that provides a lower benefit for all, aimed at reducing poverty.

A major overhaul of Social Security is not only necessary but also harmful to the poor. While a down payment may start without a means test, pressure can increase over time to limit expenses from regular income. And the evidence in the US is that publicly funded experimental efforts are very vulnerable. The latest and most dramatic evidence is the recent cuts to Medicaid and SNAP (formerly food stamps) in the Great One Good Bill last year. But equally disheartening is the gradual erosion of the nation’s Supplemental Security Income (SSI) program, designed to eradicate poverty among those age 65+ and those with disabilities.

Although the poverty rate can be measured in several ways, they all tell the same story – poverty among those 65+ is about 10%. Most importantly, while poverty among older Americans in the 1960s was much higher than among other adults, today it is about the same (see Figure 1). This improvement is due to the growth of the Social Security system, which allows retirees’ incomes to keep pace with rising living standards with first income-indexed benefits and then price-indexed benefits during retirement.

Indeed, Social Security is the largest source of income for those 65+ with incomes below the poverty line (see Figure 2). Only 10 percent comes from SSI and other types of means-tested programs.

That pattern of little support from audited sources reflects the fact that, in the US, programs designed only for the poor are poor programs – their benefits erode over time; fixed income and asset tests reduce the number of eligible people; and expensive to manage. In contrast, programs like Social Security — where everyone participates and receives benefits — are the most reliable means of ensuring income for those with low incomes.

That means Social Security alone is not enough for those with weak ties to the workforce. To meet that need, Congress created the SSI program in 1972 to provide federal welfare programs for adults age 65+ and those with disabilities. But the program, which began paying benefits in 1974, has not kept pace, and the percentage of people 65+ receiving SSI benefits has dropped from 9 percent to 2 percent (see Figure 3).

We need to end poverty for older Americans, but the answer lies in strengthening SSI, which has been allowed to wither on the vine. SSI offers very modest benefits because its asset and income limits have not been revised in decades. Specifically, the asset limit, where beneficiaries can keep only $2,000 in savings, has been frozen since 1989. Also, working beneficiaries can only keep $65 of their wages each month, after which benefits are reduced by $1 for every $2 earned, and Social Security beneficiaries can only keep $20 of their monthly paycheck without a reduction in their SSI benefits.

Let’s overhaul SSI and preserve the current structure of Social Security to better protect America’s poor seniors.