One of the greatest successes of American social policy over the last few decades has been a dramatic reduction in poverty among the elderly. Even so, some 3.3 million seniors still live below the poverty line. Several million more scrape by just above the poverty line. For many of these people, poverty is the reward for adult lives spent continuously in the workforce or raising children and managing a family. Good housing and proper medical care are often out of reach for the poor elderly—or so expensive that little money is left over for other needs. Hundreds of thousands of elders go hungry every month.
In the current debate over Social Security reform, the plight of America's poor elders has so far received little attention. With the elderly poverty rate below that of the general population, many policymakers do not see it as a major national concern. The Clinton administration has only recently directed attention to the subject, and few of the many Social Security reform bills introduced in Congress over the past year contain any provisions to help the elderly poor. The near silence of our political system on this issue is testament to the dark side of American exceptionalism: among industrialized democracies, only in the United States would an elderly entitlement program that left one of five seniors in poverty or near poverty be viewed as a success.
Indeed, America's indifference to the elderly poor is perhaps the single best indicator of the limits of compassion in this country. Beyond plain callousness and fiscal stinginess, there is no good explanation for why so many of the elderly are consigned to poverty. The elderly poor cannot be expected to work, so the conservative hostility to welfare policy does not apply. Nor is there uncertainty about which government programs are effective. More generous minimum Social Security benefits, along with higher Supplemental Security Income (SSI) benefits, could eliminate nearly all elderly poverty almost overnight.
The current Social Security debate provides an opportunity for America to recommit itself to the goal of lifting all senior citizens out of poverty. Over the past two years, this debate has focused chiefly on how to bring the program into long-term fiscal balance and whether to include some form of privatization. Those large questions will continue to frame discussion through this year. How ever, with President Clinton's rejection of partial privatization schemes and the retreat in April of House Republican leaders from this goal, the defenders of Social Security are finally gaining ground. While it may be premature to talk of going on the offensive, now is a good moment to think through a progressive reform agenda for Social Security that goes beyond preserving the system's redistributory aspects or adding supplemental savings accounts, as Clinton has proposed. In technical policy terms, this challenge is a modest one, given how easy it would be to wipe out elderly poverty. Polit ically, however, the challenge is formidable: not since the early 1970s has Congress taken major action to expand the protections that Social Security extends to low-income Americans. And with the fiscal pressures on the system mounting, the trend seems to be in the opposite direction, with many reform plans containing measures that would hurt poor seniors.
For its first few decades, Social Security was not a very effective antipoverty program. Benefit levels were neither generous nor indexed to inflation. In 1967 the poverty rate among the elderly was over 25 percent—twice the national rate. Real progress came when Congress passed a 15 percent benefit hike in 1969 and a 20 percent increase in 1972, when it also indexed benefits to inflation. Congress also folded several programs into a new Supplemental Security Income benefit for the disabled and dependent poor. These measures dramatically decreased elderly poverty but still failed to eliminate it. In 1997, the Census Bureau estimated that 3.3 million Americans 65 and over were poor, or 10.5 percent of the elderly population; more than a fourth of all elderly Americans had incomes that placed them below 150 percent of the poverty threshold. And elderly women are substantially more likely to live in poverty than elderly men; Census Bureau figures indicate that women accounted for 58 percent of the elderly population, but were a full 74 percent of the poor elderly. And although blacks were only 8 percent of the total elderly population in 1990, they made up 24 percent of all elderly poor.
Of course, the number of elderly in poverty would be far higher without Social Security. In 1997, nearly half of elderly Americans would have fallen into poverty without government assistance. That year, Social Security benefits lifted 11.4 million Americans out of poverty. Social Security constitutes the majority of income for most elderly Americans and, for many, it is the primary source. Currently, over half the elderly depend on Social Security for 50 percent or more of their income; one-quarter depend on it for 90 percent or more of their income; and 15 percent depend on it for all of their income.
But if Social Security is a heroic antipoverty program, it is also a flawed one. Those elderly Amer icans who are least protected by Social Security include individuals with low-wage histories or major gaps in their work history, women, and widows.
Today, even a lifetime of work does not assure a retirement free of poverty in the United States. Those Americans who are among the working poor in their younger years are likely to join the ranks of the retired poor in old age. According to the Social Security Administration, a hypothetical worker who had worked continuously his entire adult life at low wages—earning, for example, 45 percent of the national average—and then retired in 1998 at the age of 65 could expect to receive monthly benefits of $568. This level of income would place a single retiree with no other source of income just below the poverty threshold.
Early retirees do even worse. According to the Social Security Administration, a low-wage worker who retired in 1998 at the age of 62 received monthly benefits of just $473. Of course, many low-wage workers are employed in physically taxing occupations that become more difficult to continue in as they get older. Low income levels also correlate with greater health problems for people in their 50s and early 60s. Overall, low-wage workers are more likely to be pushed into involuntary early retirement and, with that step, into poverty.
Social Security also fails those who haven't spent a full 40 years in the workforce. Congress did create a "special minimum benefit" in 1981, for those with between 10 and 30 years of work. The level of benefits, however, is pitifully low and does little to ease the plight of the sporadic worker. In December 1998, the highest benefit level under this special provision was $567 a month for a single retiree who had spent 30 years working. But, for a retiree who had spent only 20 years working, the level was $283. For a retiree with 12 years working, it was a paltry $56.10 a month.
To Be Old, Female, and Poor
The inadequacies of Social Security also account for high levels of poverty among elderly women. Often, women have not spent significant time in the workforce because they have been busy raising children and otherwise taking care of the home front. This is especially true for women who married in the 1940s and 1950s and are now retired—and often widowed as well. For widows, Social Security pays a survivor's benefit equal to the benefit their husband was receiving. This amount, however, is often grossly inadequate for a person living alone (as opposed to a person who is part of a couple in which a husband is receiving his full benefit and his wife is receiving a wife's benefit equal to half of that). For many elderly women, poverty begins when married life ends. The vast majority of widows in poverty become poor only after their husbands die. For both retired women workers and for women with little work history who outlive their husbands, Social Security is a tragically porous safety net.
Compared to 40 years ago, America's social safety net for the elderly is extensive but incomplete. Taking care of this unfinished business requires neither brilliant policy innovation nor new taxation. According to a recent report by the Center on Budget and Policy Priorities (CBPP), eliminating all elderly poverty would cost an additional $10 billion a year in federal spending—money that could come from the government surplus. Below are some simple steps that would lead entitlement programs for the elderly in a more progressive direction.
Minimum benefits for workers. A higher minimum benefit would address the poverty of low-wage workers in retirement. A plan by the National Commission on Retirement Policy, a group convened by the (ordinarily conservative) Center for Strategic and International Studies, proposes a minimum benefit provision for which individuals would be eligible after 20 covered years of earnings, equal to at least 60 percent of the poverty level, phasing upwards with each year of covered earnings until it reaches 100 percent of the poverty level after 40 years of work. A more generous version of this plan could guarantee 100 percent of the poverty level after 20 years of covered earnings and phase upward to 125 percent of the poverty level for workers with 40 years of covered earnings.
Higher SSI payments. Cur rently, SSI payments are not high enough to lift many beneficiaries out of poverty. One advantage of using SSI to raise elderly income levels, as opposed to increasing Social Security benefits, is that SSI is not funded out of the Social Security trust fund and thus this step would not exacerbate Social Security's long-term fiscal strains. Changes in the SSI program, which is funded out of general government revenues, could attack elderly poverty in two ways: First, the elderly poor who receive SSI in addition to very low Social Security benefits could be given more generous SSI payments so that the combination of these two benefits brings them above the poverty line. Second, the flat benefit paid by SSI—$494 per month for an individual in 1998—could be raised and pegged at the poverty threshold so that the elderly recipients who depend solely on SSI are raised out of poverty.
Protecting widows. Given the vulnerability of elderly widows to poverty, various proposals have been put forth to raise survivorship benefits, including several by the 1994–1996 Advisory Council on Social Security. The Advisory Council proposals are cost-neutral and involve reducing spousal benefits or benefits to retired couples and using the proceeds to raise benefits for widows. However, according to a study by the Social Security Administration, none of these proposals would reduce the poverty rate for widowed women below 13.4 percent. While the challenge of aiding widows is often treated in isolation, raising the benefits for all retired low-wage workers, as discussed above, would also dramatically reduce the number of widows in poverty. Under such a reform, when a husband dies and a widow receives the full amount of his retirement benefit as a survivor's benefit, that benefit would be sufficient to protect her against falling into poverty. Raising SSI payments could also dramatically reduce the number of widows living in poverty.
New mechanisms for saving. Social Security was conceived as a three-legged stool, in which government benefits were supplemented by pensions and personal savings. However, most low-income Americans are not in jobs that provide pensions and most also have problems saving for retirement. Currently 401(k) plans are available to only a minority of workers. One attractive remedy to this problem is to create a system of voluntary individual retirement accounts as part of the Social Security program, as President Clinton has recently proposed. The administration's plan would allow all workers to put away money regularly that could be invested in private equities by the federal government under a model similar to the Federal Thrift Savings Plan. The plan would assist low-income Americans in building up these accounts by having the federal government match their contributions.
Protecting manual laborers. Some Social Security reform proposals involve raising the age at which individuals may retire and receive full or early benefits. But such an across-the-board age increase would risk impoverishing older Americans who labor in physically demanding occupations that cannot be performed effectively by aged workers. For example an increase in the retirement age to 70—as proposed by the National Com mission on Retire ment Policy—would mean that workers who couldn't work to that age because their jobs were too physically demanding would be forced to take reduced early retirement benefits. Since full Social Security benefits for low-wage earners are already very low, policy steps that would force more such workers to take reduced benefits should be avoided. And any increase in the retirement age should be accompanied by a loosening of criteria by which workers can qualify for disability benefits.
Keeping up with inflation. Social Security has not protected elderly persons against the harmful effects of inflation as much as might be hoped since the elderly experience higher cost-of-living increases than the rest of the population. According to an experimental consumer price index for the elderly compiled by the Bureau of Labor Statistics (BLS), cost-of-living adjustments to Social Security have consistently underestimated inflation for the elderly over the past 15 years because of disproportionate expenses for drugs and other "market-basket" differences. Never theless, some Social Security reform proposals—most notably legislation proposed by Senators Daniel Patrick Moynihan and Robert Kerrey—would actually reduce the rate of inflation adjustment. This step would have the most severe impact on those elderly who receive the smallest Social Security checks. Instead, we should peg cost-of-living adjustments to the BLS's experimental index of inflation for the elderly.
America's social insurance system for the elderly today faces two major problems: it may be heading toward fiscal crisis if economic growth slows and, at the same time, it does not offer adequate protection to low-income elders against poverty and even hunger. As policymakers consider reform options for Social Security and changes to Medicare and Medicaid, the maxim "first do no harm" is highly relevant. Large parts of America's elderly population live in economically tenu ous circumstances. The official pov erty rate for the elderly masks the huge number of elderly who often live in destitution just above the poverty threshold. And for many married elderly women, a life in poverty or near poverty lies just around the corner, the inevitable result of their spouse's death. Given all this, policymakers must bear in mind that even minor reductions of benefit levels in elderly entitlement programs can make a bad situation significantly worse for America's elderly poor and near poor.
While maintaining current protections for low-income elders is a first imperative, the current period of reform also opens a window of opportunity for expanding such protections. Beyond the measures I've mentioned are a range of other steps that are also needed to help low-income seniors, including the expansion of housing and nutritional programs for the elderly and new assistance efforts to help offset the crushing burden poor seniors now face from out-of-pocket health expenses. Together, a major offensive against elderly poverty is sure to be expensive. Progress and compassion, however, have rarely come cheaply.
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