On this day, 80 years ago, President Roosevelt signed the Social Security Act as a part of his New Deal plan and in an attempt to lift Americans out of the Great Depression. On Wednesday, we explored what Social Security is. Today, we’ll talk about why Social Security is considered the most effective anti-poverty program in the United States.
While many consider Social Security a program that benefits only older Americans, the truth is, the program has a broader reach. It is trued that the majority of beneficiaries are retirees or elderly widow(er)s. However, one in five individuals receive Social Security for purposes other than retirement income. For example, 11 million Americans received disability insurance in June.
Social Security is also important for children who have lost a parent. Children eligible for survivor benefits can receive income support until their 18th birthday. In 2013, 6 million children lived in families where at least one family member received Social Security benefits. As a result, the program lifted about 1.2 million children out of poverty.
Additionally, Social Security has a significant impact on women. Women are more likely to have less income than men over their lifetime, accumulate less savings, yet live longer, which means after retirement, they could potentially be financially insecure for longer periods. Over half of all beneficiaries over the age of 62 are female and 97% of survivor benefits go to female spouses. In 2013, Social Security helped keep 8.6 million women over the age of 65 out of poverty and establish better economic security later in life.
While it’s important to point out that Social Security benefits broader populations, the impact on older Americans cannot be overlooked. For almost two-thirds of elderly beneficiaries, Social Security makes up the majority of their cash income. And as older Americans age, they are less likely to work, but more likely to have decreased savings. As a result, they rely more and more on retirement income to remain financially secure.
Without retirement benefits, over 40% of Americans over the age of 65 would be living in poverty. The receipt of retirement income through Social Security dramatically decreases this figure and because of the program, less than 10% of older Americans live in poverty.
Aside from the millions of people it keeps out of poverty each year, Social Security is considered a model anti-poverty program in part, because of its progressive benefit structure. You may recall from past blogs that we talk about regressive and progressive tax structures. For example, in Montana, we have a regressive property tax, which means low-income individuals pay higher shares of their income in property taxes than do high-income individuals. Social Security retirement benefits are structured in the opposite way so that low-income retirees receive a greater share of benefits based on their past earnings than do higher-income retirees.
For example, if an individual earned 45% of the average wage during his or her career and retired at 65, a retirement benefit from Social Security would replace about 52% of this individual’s prior earnings. However, for an individual with high income, a retirement benefit from Social Security would replace about 25% of their prior earnings. It’s expected that a higher-income individual will have more income and from various sources after retirement and therefore does not need as much in retirement income from Social Security to remain economically secure.
Since its inception, Social Security has grown into the most effective anti-poverty policy in the United States. When combined with programs like SNAP and an Earned Income Tax Credit, American families are better equipped with the resources the need to make ends meet, rise out of poverty, and begin to establish economic security and independence.
MBPC is a nonprofit organization focused on providing credible and timely research and analysis on budget, tax, and economic issues that impact low- and moderate-income Montana families.