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Social Security Is a Very Important Anti-Poverty Program for Children
RESULTS is concerned that the well-being of children is missing from the debate about preserving solvency of the Social Security system. Most of the discussion about Social Security distorts its true nature by treating it as purely a retirement pension program. In fact, it is an important social insurance program that includes retirement, disability, and survivor benefits. While the Social Security debate focuses on adult retirement, Social Security is an essential anti-poverty program for the nation’s children.
Current Policy Situation
Estimates by the members of the Social Security trust fund and the Congressional Budget Office show that the trust fund will be empty around the middle of the century. In about 2018, benefit payments will exceed payroll tax revenues, and the trustees will begin redeeming the U.S. Treasury Bonds in the fund. The Social Security Administration trustees’ estimate shows that by 2042 (CBO says 2052) benefits would have to be reduced to about 70 percent of what has been promised. While some benefits cuts or revenue increases will be needed to keep paying 100 percent of promised benefits beyond mid-century, assertions that there is a “crisis” are exaggerated.
(The dates 2018 and 2042 are based on the Social Security trust fund’s intermediate economic forecast. Historically, the trust fund’s optimistic forecast has been closer to realized economic results than the intermediate forecast. If the optimistic forecast is correct, the Social Security Trust fund will still be in fine shape at the end of the 75-year projection.)
The president’s Social Security Commission recommended a plan to create private accounts using funds “carved out” of the payroll taxes paid by workers and empoyees, leaving less money to pay current benefits. The commission assumed that all Social Security benefits — including those for children, disabled workers, survivors, and retirees who do not choose to have a private account — will be reduced. Under the proposal, benefits would eventually be 46 percent lower than benefits scheduled under the program as it currently exists. The National Women’s Law Center issued a report (PDF) illustrating how such benefit cuts would afect survivors and people with disabilities in each state.
President Bush revealed a plan to reduce benefits for higher-income retirees, while preserving full benefits for the lowest-income retirees. Unfortunately, as a paper from the Center on Budget and Policy Priorities explains, the president’s proposed cuts 1) are not progressively targeted but rather squeeze the middle class, 2) are not voluntary but apply even to those who opt out of private accounts, and 3) are not necessary to shore up Social Security. While the proposal was described as reducing benefits for the most affluent Americans, it would result in large benefit reductions for middle-class workers, as well.
How Children Benefit from Social Security
In February 2008, the National Academy of Social Insurance issued its Social Security Brief No. 27, Children’s stake in Social Security (PDF). This paper shows that previous research understated the importance of Social Security for children. The authors assert that 6.5 million children under age 18 received part of their family income form Social Security in 2005. That’s nearly 9 percent of American children. These children include 3.1 million who receive benefits as dpendants of deceased, disabled, or retired workers and an estimated 3.4 million other children who do not themselves receive Sopcial Security but live with relatives who do.
This matches with earlier data that showed about three million children living in families receiving either survivor or disability payments. Social Security pays monthly survivor’s benefits to 7.4 million Americans, including almost two million children. Disability benefits go to more than four million disabled workers under 65, and 1.7 million dependents, including more than a million children. This data comes from the U.S. Federal Citizen Information Center (FCIC) (January 2001).
The Center for Economic Policy Research (CEPR) points out that more poor children benefit from Social Security than from Temporary Assistance to Needy Families (TANF). A study by CEPR economist Heather Boushey, using data from the U.S. Census Survey on Income and Program Participation (SIPP), found that in 2003 more low-income children lived in families that receive a Social Security check than in families that receive a check from TANF. CEPR found:
Below the poverty line, TANF is slightly more common:
Survivor Benefits for Children with Deceased Parents
Younger Americans face roughly a 1-in-5 chance of dying before reaching age 65, according to FCIC. Survivors’ benefits, which are paid to a deceased worker’s family, can help with financial problems that sometimes follow a worker’s death by providing continuing cash income.
FCIC says that the value of Social Security survivors’ benefits for an average wage earner who dies and leaves a spouse and two children is equivalent to a $374,000 life insurance policy. Of course, Social Security benefits are paid monthly and not in a one-time payment.
FCIC says the average monthly payment for a family consisting of a widow(er) with two children is about $1,696 per month. Social Security payments increase based on the annual cost-of-living index — something few private insurance plans offer.
Who, exactly, can get survivors benefits? Children under 18 can get Social Security survivors’ benefits, and so can a child who is under 19, but still in high school . . . or a child who is 18 or older but who becomes disabled before age 22. A widow(er) who is caring for children under age 16 or disabled may receive benefits. A widow(er) age 60 or older, or a widow(er) age 50 or older who is disabled, may receive benefits.
Disability Benefits a Key Safety Net for Adults and Their Dependents
Social Security also protects a worker who becomes severely disabled. It is important protection. FCIC says that a 20-year-old worker stands nearly a 3-in-10 chance of becoming disabled before age 65.
Few workers have private, long-term disability insurance. But nearly all workers do have Social Security disability protection, which is equivalent to a $223,000 disability policy for an average income earner with a spouse and two children.
Under Social Security, workers are considered disabled if they have a severe physical or mental condition that prevents them from working. The condition must be expected to last for at least 12 months or to result in death. Once benefits begin, they continue for as long as the worker is disabled and cannot work. The disabled worker and his or her eligible family members receive checks each month.
The average monthly payment to a disabled worker is about $786; for a disabled worker with a spouse and two or more children, the average payment is about $1,310.
Social Security disability insurance is a program that workers, employers, and the self-employed pay for with their Social Security taxes. It is separate from SSI, which is paid for from general revenues. You qualify for these benefits based on your work history, and the amount of your benefit is based on your earnings.
Social Security pays monthly retirement benefits to more than 31 million retired workers and their families. More than 9 out of 10 Americans who are age 65 or older get Social Security benefits.
Full retirement benefits are now payable at age 65 for those born before 1938, with reduced benefits available as early as age 62. The age for full benefits will gradually rise in the future, until it reaches age 67 in 2027 for people born in 1960 or later. (Reduced benefits will still be available at age 62.)
Financial advisers often tell people that, when they retire, they will need about 70 percent of pre-retirement income to live comfortably. By itself, Social Security replaces about 60 percent of the pre-retirement earnings of a low wage earner, 42 percent of an average wage earner, and 26 percent of a high wage earner. These numbers show that the retirement part of the system was not designed to give high-income workers the biggest possible return for their payroll taxes. Rather, it was designed to provide a floor to prevent lower-wage workers from sinking into poverty.
RESULTS Urges Congress to Preserve Social Security’s Basic Guarantees
Social Security is an important source of income support for the low income families who receive it, accounting for nearly half of the income for families with children living below 150 percent of the poverty level and receiving a Social Security check.
While it is common knowledge that Social Security is essential to the well-being of the nation’s retirees, Congress must recognize the fact that it is also an extremely important program for the nation’s children and in particular, the poorest children. Any changes to the system must take this into account, as well as the effects of restructuring of Social Security on disability and survivors benefits, which also affect the well-being of low-income children. The debates over the future of this system must address the potential political and economic implications to all of its beneficiaries.
RESULTS opposes diverting part of a worker’s payroll taxes into personal (or private) retirement accounts. Such a move would leave less money in the Social Security trust fund for disability and survivors benefits, and for guaranteed retirement benefits. Diverting payroll tax receipts into private accounts leaves less money in the trust fund to ensure a minimally decent retirement benefit for low-wage workers.
RESULTS urges policymakers to preserve the basic guaranteed benefits of all three kinds — survivor, disability and retirement — in any legislation intended to ensure the long-term solvency of the system.
Center on Budget and Policy Priorities, What the New Trustees’ Report Shows about Social Security, revised 3-23-05
Coalition on Human Needs, Tell Congress: Protect Social Security!
Economic Policy Institute, An Introduction to Social Security
National Women’s Law Center, How Benefit Cuts Affect Your State
National Women’s Law Center, Social Security: Women, Children and the States