So Many Benefits
Dennis Friedman | Dec 10, 2019
SOCIAL SECURITY HAS come under political attack over the years. With the federal deficit ballooning, will there be another round of attacks in the run-up to 2020’s election?
I hope not. Here are 15 reasons we should all want to preserve Social Security benefits, no matter which political party we favor:
- It helps many. About 63 million people get a Social Security check each month. That’s one out of six Americans.
- It provides insurance. Social Security is a wage insurance program designed to help people when they retire and in the event of disability or the death of a family’s breadwinner.
- It’s reliable. Three weeks after the 9/11 attack on the World Trade Center, Social Security checks were mailed out as usual. In fact, Social Security has never missed a payment.
- Low expenses. Since 1989, Social Security’s administrative expenses have totaled 1% or less of the combined total outflows from the trust funds. That’s less than many private plans.
- It forces people to save for retirement. For most folks, participation is required by law. You also can’t withdraw your contributions prematurely, as you can with most private savings plans.
- It’s the only retirement plan for many people. Just 27% of those without access to an employer-sponsored savings plan say they have any retirement savings.
- Social Security is a steady source of income—one that isn’t subject to financial risk or stock market fluctuations. It’s viewed as one of the three pillars of retirement income, along with employer pension plans and income from personal savings.
- Social Security provides a higher annual payout than private retirement annuities. A key reason: Its administrative costs are much lower.
- It’s a major source of income for older Americans. According to SSA.gov, “Social Security benefits represent about 33% of the income of the elderly. Among elderly Social Security beneficiaries, 21% of married couples and about 45% of unmarried persons rely on Social Security for 90% or more of their income.”
- Social Security lifts more people above the poverty line than any other program. Kathleen Romig, a senior policy analyst at the Center on Budget and Policy Priorities, writes that, “Without Social Security, 22.1 million more Americans would be poor, according to analysis using the March 2018 Current Population Survey. Although most of those whom Social Security keeps out of poverty are elderly, 6.7 million are under age 65, including 1.1 million children.”
- It protects the most vulnerable. Social Security is especially important for women and people of color. Again, according to Romig, “Social Security brings 9.1 million elderly women out of poverty. Without Social Security, the poverty rate among elderly Latinos would approach 50%, and the poverty rate among elderly African Americans would exceed 50%.”
- It offers inflation protection. Social Security benefits increase along with inflation, so people are less likely to fall into poverty.
- It benefits all of us. Frank Stricker, an emeritus professor of history at California State University, Dominguez Hills, says, “Social Security is a system into which everyone contributes and from which everyone gets something.”
- It’s a way of helping each other. Workers and their employers contribute 12.4% of wages, so retirees can get their monthly check.
- It promotes equality. It isn’t means-tested. Instead, Social Security treats everyone equally, no matter what their wealth or income.
Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. His previous articles include Peace of Mind, Getting Schooled and Battling Time. Follow Dennis on Twitter .
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SS is means tested, albeit indirectly way. This is done via taxing benefits when there is sufficient other income.
Rather than reducing benefit paid based on an income means test, it is a benefit claw back. The SSA pays a dollar in benefits, and the IRS takes some of it back and give it back to the SSA.
For the highest earners, this works out to a 31.45% or more reduction of SS benefits (85% of 27%).
Note that SS is not asset tested. Only income tested. Also note that all income in considered, including half of your benefit. Not just wages.
It’s great to read, but hard to believe our government can manage anything at only 1% for administrative expenses.
SS is essential, no question about that, but many people would argue that inflation protection is adequate. That “helping each other” also creates a burden on younger generations which can only increase in the future. I would argue that it does not treat everyone equally as the formula is skewed toward lower income, which is okay, but the more you earn, the less you receive in replacement %. There are also rules that create advantages for some such as those regarding marriage and divorce. Two workers can pay the same in taxes over a working life and one gets married a year before retirement and instantly gets a 50% benefit increase.
The greatest risk is the failure of politicians to effectively manage the program and instead moving from one crisis period to the next eventually placing a greater burden on current workers.
On point #15, I once read an argument that SS is, in a sense, means tested by way of how the US income tax system treats it relative to your other sources of income.
If you’ll bear with me and consider this — should your total income fall underneath the base amounts allowed (ie $32k for MFJ, $0k for MFS, and $25k for pretty much everyone else) then your SS benefits are pretty much tax-free at the FED level (and dependent on whichever state you happen to reside in).
So, to Richard’s point, SS is skewed towards the lower income and the most needy. This presumes this is the type of social and social welfare system we want.
I would argue that the taxation of benefits for those lucky enough to have earnings from pensions and savings is a way of means-testing it, but I’m OK with that as the funds from that are supposed to go back into the Trust Fund.