In the early 1930s, before Social Security was created, many older Americans were destitute or depended on help from family and friends for basic needs like food and shelter.
Today, Social Security is the nation’s single most important anti-poverty tool – lifting about 21.4 million people of all ages out of poverty. Social Security lifts about 35 percent of older Americans (almost 14.5 million) out of poverty by providing a regular, guaranteed retirement income. Thanks to Social Security, only about 8.7 percent of Americans aged 65 and over-and many of these are not beneficiaries-fall below the Census Bureau’s poverty thresholds .
Older women in particular benefit from Social Security’s monthly benefits. Without it, about 48% of women would fall below the poverty line. But when Social Security benefits are included in family income, the percent in poverty falls to about 11%. Older women are more at risk of poverty than men because women often have lower earnings, lower pensions, and are more likely to have interrupted their careers to care for family members. Lower average earnings over a career leads to lower Social Security benefits, less savings, and smaller (if any) pensions.
Some point out that we do not really know how many seniors would be in poverty today if Social Security did not exist. In the absence of Social Security, people might change their behavior. They might work longer, and/or they might save more, if they couldn’t count on Social Security.
But consider this. To buy a monthly annuity payment equal to $957.50 per month, which is the federal poverty guideline for a single person in 2013, a retiree would likely have to lay out a couple hundred thousand dollars in cash, depending on prevailing interest rates and her age and marital status.
Without Social Security, would most workers actually save enough to escape poverty or live independently? It’s hard to answer this question, although the evidence-Americans’ disappointingly low savings rates and our history of high poverty rates before Social Security-suggests many people wouldn’t save enough. In addition, some researchers have found a strong causal role for Social Security in reducing poverty among the elderly.
The Social Security program faces a long-term financial shortfall, as the recent Trustees’ report highlighted. If Congress does not act to address this shortfall, benefits could be reduced by about 25 percent across-the-board starting in 2033. If this were to happen, no doubt poverty rates among seniors would rise. This shortfall should be addressed soon. Solvency alone, however, should not be the only goal of Social Security reform. Future retirees face the daunting challenge of diminished pensions, lower savings, and longer life expectancies. Given these larger challenges, changes to strengthen the program’s financing must also ensure that benefits remain adequate so that Social Security can continue to help provide a secure retirement, especially for low and moderate income retirees.
Alison Shelton is a Senior Strategic Policy Advisor on the Economic Security Team in the AARP Public Policy Institute. She is responsible for research and analyses of policy issues relating to Social Security and retirement security.