Policymakers will need to act in coming years to shore up the long-term financing of Social Security, and when they do, they should also strengthen the program by improving its minimum benefit, which is intended to help the poorest recipients but is now obsolete. A major new report written by my CBPP colleague Kathleen Romig and two Social Security experts from the Urban Institute, Chantel Boyens and Jack Smalligan, presents lessons for policymakers as they design a better minimum benefit.
Before giving an overview of the paper, some background is necessary.
While Social Security lifts more people above the poverty line than any other government program, significant gaps in the system leave many elderly and disabled people in poverty. Eight million people aged 65 and older have incomes below the poverty line, as do 3.6 million non-elderly adults with disabilities. (These figures are for 2022 and use the Supplemental Poverty Measure, which includes government non-cash benefits such as food and housing aid, taxes, and tax credits.)
Social Security eligibility and benefits are based on a person’s work history. Those with low earnings and/or fewer years of work get lower benefits, or in some cases don’t qualify for benefits at all. The program’s minimum benefit was intended to protect the lowest-income seniors against poverty in old age by giving low earners a higher benefit than they would receive through the regular benefit formula. But because of its design, it has helped fewer and fewer people over the years, and now it helps virtually no one.
Strong bipartisan interest in addressing poverty among seniors has yielded many proposals to improve minimum benefits in Social Security. Often, however, these proposals would not dramatically lower poverty because they don’t help most people who had periods when they were out of the labor market. As a result, the proposals miss many women facing serious economic hardship, who often had years of unpaid caregiving work. They also miss many people of color, who faced higher unemployment rates throughout their careers due to labor market discrimination.
In their new paper, Boyens, Romig, and Smalligan examine recent minimum benefit proposals and identify three key insights to guide development of a more effective and efficient alternative:
1. A minimum benefit that helps only long-term low earners is insufficient to significantly reduce poverty.
The most frequently proposed minimum benefit policy targets benefit increases to “long-term low earners” — people who have worked at or just above the minimum wage for their entire career. Often an individual must have worked at least 30 years to receive the full amount of the proposed new minimum benefit.
For example, the long-term low-earner proposal in two bills introduced in the current Congress (the Social Security 2100 Act [H.R. 4583] and the Social Security Expansion Act [S. 393]) would establish a new minimum benefit for newly eligible retired and disabled workers equal to 125 percent of the poverty line if they have 30 years or more of Social Security coverage. Benefits would be prorated for those with fewer years of covered earnings.
In 2065, the fully phased-in benefit would reduce poverty among older and disabled adults by 0.6 percentage points or roughly 680,000 people. But 8.5 percent of older and disabled adults, or 9.6 million people, would remain in poverty using a wage-indexed measure.
The long-term low-earner policy is the least costly of the proposals analyzed in the report, but it also reduces poverty far less because it misses most beneficiaries with career interruptions, who are more likely to be poor.
2. Targeting the minimum benefit based on current income can yield larger reductions in poverty and make the proposals more cost effective.
The long-term low-earner benefit not only excludes workers with career interruptions, but also is based on beneficiaries’ work histories, which may not reflect their present financial circumstances. Policymakers can avoid both of these problems by targeting the minimum benefit using information on beneficiaries’ most recently available income as reported to the IRS. This approach would greatly increase poverty reduction and could be accomplished with only a small increase in cost.
A number of proposals have been offered that would base a new minimum benefit on beneficiaries’ incomes. They vary in generosity. One proposal, for example, would set the minimum benefit at whatever amount was needed to bring a beneficiary’s overall income up to the poverty level, while another would set the minimum benefit itself at the poverty level.
An income-tested approach to the minimum benefit could be designed to all but eliminate poverty among beneficiaries. The fact remains, however, that substantially reducing poverty has unavoidable costs. Introducing means-testing in Social Security would also represent a major change in the program’s philosophy and could weaken its support.
3. Changes to the minimum benefit must address interactions with Supplemental Security Income (SSI) and other means-tested programs or risk leaving some beneficiaries worse off.
Increasing Social Security benefits for beneficiaries with low incomes could affect their eligibility and benefit levels for other economic security programs. For example, higher Social Security benefits reduce SSI benefits dollar-for-dollar for participants in both programs (after the first $20) and would put some over SSI’s income limit. Also, additional income from Social Security could put some low-income beneficiaries above the income thresholds for means-tested benefits like Medicaid and SNAP.
Thus, an increase in Social Security benefits could actually make some low-income beneficiaries worse off: their total cash income could decrease, and they could lose eligibility for valuable in-kind assistance.
Addressing interactions with SSI and other programs is therefore essential. Policymakers could, for example, minimize the effects on SSI eligibility and benefit levels by raising SSI’s $20 general income exclusion, which has been frozen since the program’s creation over 50 years ago, and reducing the rate at which SSI benefits are reduced for receipt of Social Security.
Along with redesigning the Social Security minimum benefit, policymakers should make other changes to protect seniors who don’t qualify for Social Security and to address disparities in the program by gender, race, income, and disability status. For example, improvements to SSI are needed to reduce poverty among the most marginalized seniors and people with disabilities. Many older or disabled people don’t qualify for Social Security, and many others qualify for very low benefits. Improving SSI could be a complement to improving minimum Social Security benefits — or, if sufficiently comprehensive, an alternative. SSI is very well targeted to people who have limited income and aren’t able to earn self-supporting wages.