UNCOMMON SENSE 24 © October 2000
#3 of a Social Security packet
by Jean T.D. Bandler, Assoc. Prof. (retired), Social Work, New York University and founding member, National Academy of Social Insurance
The National Jobs for All Coalition works for enough living wage jobs for everyone who wants to work, and adequate, secure income support for others such as the elderly, the disabled, and persons caring for very young or infirm family members. Social Security provides a measure of basic income security for most workers and their families, and keeps millions out of poverty. Despite the widespread misconception, there is no impending crisis of Social Security nor must it be drastically altered to be “saved”. And good jobs for all would contribute mightily to the health of Social Security because more people working means more Social Security taxes flowing into the Trust Funds. The Coalition’s Social Security packet aims to insure that workers, advocates, policy makers, and the media are better informed about these issues. This Uncommon Sense stresses the special significance of Social Security to young people and other workers before they retire.
Social Security has always been the nation’s most popular social program. But although it is not in “crisis” (see Uncommon Sense 21), many, especially young people, have been convinced that it is and that they will not benefit from the program. Few are aware that they are already benefiting from Social Security because of its major role in providing basic income security.
One reason for this misconception is that the present debate about Social Security pays scant attention to the benefits provided to current workers and their families. By focusing on senior beneficiaries, the debate overlooks the protection that Social Security provides for all workers during their working years and the benefits to children and family dependents.
A multi-risk insurance plan. While Social Security is commonly perceived as solely a retirement program, it is in fact also is a multi-risk insurance plan that protects workers when they no longer can work and earn a living. Besides offering retirement benefits to workers and their spouses during old age, the program also provides disability and survivors’ insurance to younger workers and to family members dependent on a worker’s earnings: minor children, care-taking parents, widows with disabilities and adult children with disabilities.
Understanding the important, if often ignored, family protections of social insurance is essential when assessing the criticisms of Social Security and the proposals to revise it. By ignoring the full range of benefits of Social Security, critics speciously bolster their claim that workers will receive higher returns on their Social Security contributions if the system is privatized and workers have individual investment accounts. A shift to private accounts would jeopardize Social Security’s protections for current workers and their family dependents.
Benefits for seniors. It is, of course, understandable that Social Security debate centers on senior beneficiaries–those 62 years old and older. Social Security benefits reach nearly all of the elderly, and the elderly comprise over three-quarters of Social Security beneficiaries.
Social Security is crucial for the well-being of seniors. The major source of income for the aged, Social Security has successfully rescued more than two out of five elderly beneficiaries from poverty. It provides dependable, earnings-related benefits for elderly workers and their elderly spouses or survivors.
Further, most young workers do not know that before Social Security, adult children often had to help support their elderly parents as well as their own children. Today, by providing stigma-free protection and dignity for the elderly, Social Security relieves younger workers of much of the financial strain and intergenerational tension caused by their responsibility for supporting their aging parents.
Benefits for current workers and their families. Critics fail to acknowledge that about 9 million beneficiaries are not elderly. In fact, 4.5 million are workers with disabilities, nearly 4 million are children, including disabled adult children of beneficiaries, and half a million are care-taking parents. For these beneficiaries, as for the elderly, Social Security replaces a portion of past wages of workers who can no longer work.
Important as retirement benefits are for all workers and their families, Social Security’s disability and survivorship protections are crucial as well. Like fire and flood insurance, the disability and survivorship insurance means that workers are fortunate if disaster does not strike and they are protected when it does. Social Security provides more than $12 trillion in life insurance protection, which exceeds the combined face value of all current life insurance policies. Nor is anyone turned down for insurance from Social Security because of health problems. For young workers, this protection is substantial. Take a 27-year -old couple working at average wages, with two small children. In the mid-1990’s, survivors’ protection amounted to a $307,000 policy for this family, with disability protection worth $207,000.1
Disability and early death coverage. Many workers overlook these protections since few anticipate being struck with a disability or early death–and most won’t be faced with such a tragedy. Yet a substantial number of workers become disabled or die before their retirement age. The odds are that as many as two in five workers will become disabled or die before retirement.2 Moreover, the chance of that happening increases with age. People of color, low wage earners, and less educated workers are particularly at risk and often lack the occupational income protections provided to higher earners.
The disability coverage protects younger workers when they become so ill or injured that they meet a state-tested criterion of being “unable to perform any substantial gainful activity.” For a typical worker, this criterion is met when he or she is physically impeded from earning over $500 a month. In 1997, over 4.5 million workers received Social Security benefits because of a disability, with benefits averaging $721 a month.3 More than half of the beneficiaries are age 50 or older. Although the possibility of disability increases with age, 1.4 million of the disabled recipients are actually 45 years of age or younger. Slightly over a fifth are minority workers, reflecting the disproportionate burden of disability on this group. Disability strikes low-wage workers of all races. These workers report poorer health than those at higher wage levels. They face greater physical and environmental hazards, and, along with less educated workers, they are more likely to become disabled and less likely to have employer-sponsored disability plans. Social Security, therefore, provides a crucial income support for these workers.
Expansion of benefits. Congress extended Social Security’s income protection for workers to family dependents in 1939 with legislative amendments that revolutionized social insurance. Originally established to provide benefits to the elderly, Social Security began to provide support for young survivors of deceased workers and dependents of elderly retired workers. The amendments transformed Social Security from an individual insurance plan to a family program. Besides elderly wives of retired workers and elderly widows of insured workers, the new beneficiary groups included the children of retired workers and the children and child-caring widows of deceased workers.
In the 1950’s and 1960’s, benefits were extended to workers with disabilities and their families as well as to other groups of disabled kin–adult children disabled in childhood and disabled widows at age 50.
Coverage of young families. For young families who lost a breadwinner’s earnings, Social Security now provided a national uniform entitlement program and freed them from the stigma of means tests to qualify for inadequate public assistance. Today, younger care-taking parents and children of retired or disabled beneficiaries receive a 50 percent benefit, and surviving care-taking parents and children of deceased workers get one of 75%. Family maximums–limiting the amount of benefits a family receives — are set to keep total benefits below the worker’s previous earnings.
While benefits are capped, they are based on progressive formulas to provide help to low-income workers. For workers at the federal minimum wage, the wage-related benefit is 97% for a disabled worker with two entitled dependents, and 99% for a survivor family of a widowed parent and two children. For the same workers with an average wage, the benefit would replace 62% and 75.6% of their respective pay. If workers were receiving the highest taxable earnings to qualify for Social Security, the replacement ratios would be 40% and 48%.4
Social Security reflects changes in family structure. The dramatic changes in family structure and roles during the past 50 years are reflected in equally striking changes in Social Security. Nowadays, couples marry later, have fewer children, divorce more often, remarry more frequently, and have more dual earners. In responding to both changed realities and constituent hardships, policymakers and politicians have shown a special concern to meet the needs of children. Broad parental definitions recognized by the Social Security system now make benefits available to stepchildren, adopted children, dependent grandchildren, and, in landmark 1967 legislative language, children of unmarried parents. Social Security entitlements also recognize divorce and remarriage by providing benefits for young divorced widows (and widowers) caring for children who receive benefits because of the death of a parent from a previous marriage.
Today nearly all children who have lost the support of a working parent due to retirement, death or disability (about 3.8 million) are Social Security beneficiaries. Two-thirds are white and one-third are minority. For a retired worker’s family with one child, the average monthly family benefit is $1,600. (Benefits also extend to care-taking parents, as long as a stringent earnings test is met.5) Here is an additional breakdown of this group of children.
- Nearly three million children are under the age of 18.
Children of retired workers (240,000 beneficiaries) are the smallest and the oldest group. More than 50% are between the ages of 14 and 18.
About 1.4 million of the covered children of deceased workers are under 18 years; half are 12 years old or younger.
Minor children of disabled workers account for another 1.4 million beneficiaries.
- Another 96,000 children — a small but important group — are between the ages of 18-19; they are eligible because they are finishing high school.
- Finally, over 700,000 are disabled adult children of workers now retired, disabled or deceased; these adults were severely disabled before the age of 22, were dependent on the worker for support, and are now unable to work.
Misleading arguments for change are based on misconceptions. Overlooking the protection Social Security offers workers and their families leads to misleading arguments for change. Charges that contributing to Social Security is “a bad deal” — that workers do not get their “money’s worth” for their investment — ignore the survivor and disability entitlements. They also discount the risks of alternate investment schemes and the reality faced by most working families, who have inadequate protection against death and disability. Social Security’s important non-retirement entitlements provide essential, predictable, inflation-adjusted, and dignified benefits to young workers and their children should death or disability occur. Only the very frugal and extremely lucky could ever get a high enough return on their investment through a private insurance plan to match the benefits that Social Security provides to the surviving families of deceased or disabled workers.
Good jobs bolster Social Security. In addition to Social Security, workers need the assurance of jobs at livable wages. The program of the National Jobs for All Coalition–jobs for all at decent wages — would help make that goal a reality. It would also help to maintain the health of Social Security because when more people work, more revenues flow into the Social Security Trust Fund.
1. Report of the 1994-96 Advisory Council on Social Security, v. 1, Washington, D.C., 1997, p.89.
2. Richard Du Boff, “Social Security is not in ‘Crisis'”, Uncommon Sense 21.
3. Annual Statistical Supplement 1998 to the Social Security Bulletin, 5A p. 184.
4. Information–private correspondence: Working Draft on Earnings Replacement Ratios: Social Security Administration. C. Pauzenga.
5. There is a reduction of benefits of $1 for each $2 earned over $9,120 and benefits stop when the youngest child reaches 16 years of age.
Edited by Greg Heires, Assoc. Editor, Public Employee Press; June Zaccone, Economics (Emer.), Hofstra University; Helen Ginsburg, Economics (Emer), Brooklyn College, CUNY
© 2000 National Jobs for All Coalition