a revised minimum benefit to better meet the adequacy and ... · and over by marital status,...

January 2018

A REVISED MINIMUM BENEFIT TO BETTER MEET

THE ADEQUACY AND EQUITY STANDARDS IN SOCIAL SECURITY

Kimberly J. Johnson, School of Social Work, Indiana University

Elizabeth Johns, Gerontology Institute, University of Massachusetts Boston and University of Maine Center on Aging

The authors thank Karen E. Smith, senior fellow at the Urban Institute, for running the Dynamic

Simulation of Income Model (DYNASIM) and for providing insightful comments on our

proposal.

This paper represents the views of the authors and does not necessarily reflect the views or

policy of AARP or the opinions or policy of any agency of the federal government nor of any of

the educational and research institutions that sponsor their work.

A REVISED MINIMUM BENEFIT TO BETTER MEET THE ADEQUACY AND EQUITY STANDARDS IN SOCIAL SECURITY | i

CONTENTS

Introduction 1

Economic Insecurity among Older Americans 2

Multiple Measures of Poverty 4

New Social Risks and Economic Insecurity in Old Age 5

How Does a Minimum Benefit Work? 7

Minimum Pension Benefits in International Contexts 9

Design for a New Minimum Benefit in Social Security 11

How Could a New Minimum Benefit Be Financed? 12

The DYNASIM Analysis 13

Key Findings from the DYNASIM Simulation 15Impact on Poverty 15Income Change by Quintile 16Income Change by Age 16Income Change by Sex 17Income Change by Marital Status 17Income Change by Race and Ethnicity 18Social Security Benefits in Proportion to OASI Taxes 18Other Retirement Financial Assets 19Net Cash Income 20

Conclusion 21

References 22

ii | A REVISED MINIMUM BENEFIT TO BETTER MEET THE ADEQUACY AND EQUITY STANDARDS IN SOCIAL SECURITY

FIGURE

FIGURE 1. Projected Official Poverty Rates among Individuals Ages 62 and Older under Current Law and the Revised Minimum Benefit Option, 2015–65 15

TABLESTABLE 1. Change in Mean Net per Capita Cash Income of Persons Ages 62

and over by Shared Income Quintiles, 2015–65 (2015 Dollars) 16

TABLE 2. Change in Mean Net per Capita Cash Income of Persons Ages 62 and over by Age, 2015–65 (2015 Dollars) 17

TABLE 3. Change in Mean per Capita Net Cash Income of Persons Ages 62 and over by Sex, 2015–65 (2015 Dollars) 17

TABLE 4. Change in Mean per Capita Net Cash Income of Persons Age 62 and over by Marital Status, 2015–65 (2015 Dollars) 18

TABLE 5. Change in Mean Net per Capita Income of Persons Ages 62 and over by Race and Ethnicity, 2015–65 (2015 Dollars) 18

TABLE 6. Median Ratio of per Capita Lifetime Social Security Benefits to per Capita Lifetime OASDI Payroll Tax at Age 65 by Birth Year and Shared Lifetime Earnings Quintile 19

TABLE 7. Mean per Capita Retirement Account Assets by Lifetime Shared Earnings Quintile, 2015–65 (2015 Dollars) 20

TABLE 8. Average per Capita Net Cash Income among Persons Ages 62 and over by Shared Income Quintile, 2015–65 (2015 Dollars) 20

A REVISED MINIMUM BENEFIT TO BETTER MEET THE ADEQUACY AND EQUITY STANDARDS IN SOCIAL SECURITY | 1

While not a new idea, the revised minimum benefit could make the greatest difference in reducing economic insecurity among older Americans.

INTRODUCTIONThis research analyzes a revised minimum

benefit in the Old-Age and Survivors

Insurance (OASI) program that would bring

the lowest-income beneficiaries above the

federal poverty threshold. While not a new

idea, the revised minimum benefit could

make the greatest difference in reducing

economic insecurity among older Americans.

The following sections discuss the

background and rationale for revising Social

Security’s existing minimum benefit. Particular

attention is paid to the challenges faced by

an increasingly diverse American workforce

and to retirees’ risk of living in poverty. The

paper details the proposed new benefit

structure and how a revised minimum

benefit could be financed.

The Urban Institute’s

Dynamic Simulation of

Income Model (DYNASIM)

is used to simulate the

varied effects of a revised

minimum benefit as

compared with no change

to current Social Security

law. We evaluate the impact of the revised

minimum benefit and briefly discuss

implications of this policy change.

2 | A REVISED MINIMUM BENEFIT TO BETTER MEET THE ADEQUACY AND EQUITY STANDARDS IN SOCIAL SECURITY

Social Security is given much credit for a large

reduction in older adult poverty in the years

since the first claim was filed in 1939.

ECONOMIC INSECURITY AMONG OLDER AMERICANSCore objectives of the Social Security

program are to protect older Americans from

economic insecurity (adequacy) while linking

benefits to workers’ contributions to the

system (equity). These principles are implicit in

the founding Social Security Act of 1935 and

have been affirmed in multiple amendments

over the years to extend the program’s reach

and ensure its fiscal well-being. However,

maintaining an acceptable balance between

the two goals has always been a challenge.

In 1939, the year the first

Social Security benefit

claim was filed, a startling

78 percent of people ages

65 and over were considered

poor (Smolensky, Danziger,

& Gottschalk, 1987).

Social Security is given

much credit for a large reduction in older

adult poverty over subsequent decades.

Nonetheless, an estimated 4.2 million

older Americans were officially poor in

2015, or 8.8 percent of all persons ages 65

and older. Poverty rates are higher among

older minority groups: 7.5 percent among

Whites but 18.4 percent among both African

Americans and American Indians/Alaska

Natives, 17.5 percent among Hispanics, and

11.8 percent among Asians (US Census, 2016).

Poverty varies significantly by gender as

well as race and ethnicity, with women

consistently disadvantaged relative to men.

Current Population Survey data for 2015

(US Census, 2016) indicate that poverty

is higher among older White females

(8.9 percent) than White males (6.0 percent),

for Black females (19.6 percent) compared

with Black males (16.7 percent), for Native

American females (24.3 percent) relative to

Native American males (11.3 percent), for

Hispanic females (20.1 percent) compared

with Hispanic males (14.0 percent), and for

Asian females (14.3 percent) compared

with Asian males (8.7 percent).

Additionally, the incidence of poverty rises

with age, as older adults spend down their

retirement resources and encounter higher

costs of living, in part linked to greater

utilization of medical services and long-term

care (De Nardi, French, Jones, & McCauley,

2016; Fahle, McGarry, & Skinner, 2016). In

2014, 12.7 percent of persons ages 85 and

older were poor compared with 8.8 percent

of those ages 65–74 (AARP, 2017).


Increased age also raises the incidence of

widowhood, and single older adults are

more likely to be poor than partners in

couples—4.4 percent of married persons

versus 12.1 percent of widow(er)s—with

higher rates for the divorced (14.7 percent)

and never-married (21.4 percent) (US Census,

2016). Marriage for women tends to bring

economic protections in retirement (e.g.,

related to the accumulation of greater wealth

and shared living expenses); however, such

advantages are not equally experienced

across racial/ethnic groups, leaving women of

color more vulnerable irrespective of marital

status (Lin, Brown, & Hammersmith, 2017;

Traub, Sullivan, Meschede, & Shapiro, 2017).

Financial need persists in spite of Social

Security. In 2015, 77.8 percent of persons ages

65 and older who were living alone and in

poverty were recipients of OASI benefits, as

were 61.6 percent of poor multiperson families

in which the household head was age 65 or

older (Social Security Administration, 2016).


The United States has one of the highest

rates of poverty among persons ages 66 and older living in upper-

income countries: 21.0 percent in 2014.

MULTIPLE MEASURES OF POVERTYThe foregoing figures reference official

poverty thresholds that are widely perceived

to be an outdated measure of economic

insecurity (e.g., Blank & Greenberg, 2008).

Since 2010, the Census Bureau has also

reported a Supplemental

Poverty Measure designed

to be a more accurate gauge

of economic well-being.

It incorporates the value

of in-kind benefits (e.g.,

Supplemental Nutrition

Assistance Program or

SNAP benefits) as well

as major household

expenditures (e.g., for

medical care). By this measure, older adult

poverty is even higher: 13.7 percent in

2015 for all persons ages 65 and older as

compared with 8.8 percent for the official

poverty measure (Renwick & Fox, 2016).

The Supplemental Poverty Measure is not

used to set policy but does provide strong

evidence of need—as do other indices, such

as the Elder Economic Security Standard

Index (Mutchler, Li, & Xu, 2016), or Smeeding’s

(2016) proposed poverty threshold of half

the median national household income,

a measure widely used in international

contexts. By this measure, the United States

has one of the highest rates of poverty

among persons ages 66 and older living in

upper-income countries: 21.0 percent in 2014.

That rate compares unfavorably with such

countries as Canada (9.0 percent), France

(3.6 percent), Germany (9.5 percent), the

Netherlands (3.1 percent), and the United

Kingdom (13.1 percent) (OECD, 2017).


Minority households experienced widening inequality in income and wealth in the years preceding the Great Recession of 2008–09, and data show the wealth gap continuing to widen in the postrecession period.

NEW SOCIAL RISKS AND ECONOMIC INSECURITY IN OLD AGEDevised in the 1930s as the keystone in a

social policy structure meant to protect

workers and their families against financial

risk, Social Security never covered all social

groups adequately. Eighty years later

it is less well equipped for the kinds of

“new social risks” (Hacker, 2004) that have

emerged in recent decades. An example

is rising income inequality compounded

by the decline of the classic lifelong career,

replaced for many workers with shortened

job tenures, contingent employment, and

wage stagnation (Johnson, 2016). People

with less income are more likely to become

a caregiver for an aging family member, a

situation disproportionally impacting women

that often has negative effects on subsequent

earnings (Lee, Tang, Kim, & Albert, 2015).

Changing social and employment trends,

coupled with the shortcomings of the private-

sector retirement financing system, hinder

the accumulation of retirement savings,

particularly for families living in the lower half

of the income distribution (Rhee & Boivie,

2015; Sullivan et al., 2015). Thus many workers

are challenged to anticipate and meet their

postretirement needs for social and financial

support (Reinhard, Feinberg, Choula, &

Houser, 2015). America’s minority ethnic and

racial populations, which have long faced

systematic economic disadvantage resulting

from discrimination, are disproportionately

subject to these risks. Less housing equity,

lower wages, and more limited access to

pension plans than non-Hispanic White

adults translate to less wealth and retirement

income security (Choi,

Tang, & Copeland, 2017;

Veghte, Schreur, & Waid,

2016). Minority households

experienced widening

inequality in income and

wealth in the years preceding

the Great Recession of

2008–09, and data show the

wealth gap continuing to

widen in the postrecession

period (Kochhar &

Fry, 2014; Vornovitsky,

Gottschalk, & Smith, n.d.).

As we know, about half of American workers

do not participate in a pension plan at

work, and those without coverage tend to

be lower earners, part-time workers, and

persons working for small employers (Rhee

& Boivie, 2015; Zukin & Van Horn, 2015).


Members of racial and ethnic minorities

are more likely to work in employment

sectors where retirement plans and other

job benefits are less commonly offered,

which contributes to slower wealth

accumulation (Shapiro, Meschede, &

Osoro, 2013) and greater dependency on

Social Security for retirement income.

Moreover, lower-wage work, which often

comes with more periods of unemployment

and greater physical demands, can place

socially and economically disadvantaged

workers at greater risk for disability, serious

health problems, and death at earlier ages

(Zajacova, Montez, & Herd, 2014), and these

differences in healthy life expectancy have

serious implications for the financial stability of

these workers’ families and the Social Security

system (Rockeymoore & Lui, 2011). One

report by the General Accountability Office

(GAO, 2016) observed that among males

approaching retirement, those with lower

incomes had between 3.7 and 12.7 fewer years

of life expectancy than did higher-income

males. The study estimated that lower-income

males lost 11–14 percent in the value of Social

Security benefits relative to someone with

average life expectancy, while higher-income

males saw benefit increases of 16–18 percent.

A separate analysis (Committee, 2015)

found a similar pattern in life expectancy

for women, while Olshansky and colleagues

(2012) found the effect to be exacerbated

by race. Income-related disparities in life

expectancy have the effect of eroding the

progressive design of Social Security benefits

and undermining the equity principle.

What links these different forms of risk is the

lag in social policies to lessen their impact

on workers and their families (Bonoli, 2006).

Given the lack of private-sector initiatives

adequate to meet these challenges,

retirees of the future are likely to be even

more dependent on Social Security than

are current cohorts (Munnell, Hou, Webb,

& Li, 2016), making program adjustments

to meet increased need imperative.


By the 1970s policy makers had become concerned that most benefits were not reaching the intended population but instead were going to two groups seen as less deserving.

HOW DOES A MINIMUM BENEFIT WORK?There is currently a minimum OASI benefit,

and there has been one since the earliest days

of the program. Originally, it was intended

to provide a threshold benefit for retired

workers without reference to their years of

employment, but by the 1970s policy makers

had become concerned that most benefits

were not reaching the intended population

but instead were going to two groups seen

as less deserving: (a) retirees with short

records of covered employment but with full

pensions from state and local jurisdictions

not covered by Social Security (so-called

double-dippers), and (b) “homemakers

supported by their spouses’ incomes.” The

minimum benefit was also criticized for giving

the program a “welfare aspect” that was at

odds with the program’s mission of providing

for retired workers (Staats, 1979, p. i).

In 1977 Congress froze the value of the

original minimum benefit and eliminated

it 4 years later for new beneficiaries. It was

supplanted by a new “special minimum

benefit” intended for retirees with eleven or

more years of qualified earnings whose Social

Security benefit fell below the poverty level.

These retirees were eligible for a benefit

that was slightly higher than the regular

benefit they would be entitled to based

solely on their limited earnings histories, and

benefit levels rose with each year of covered

employment up to 30 years. This formula

was intended to correct the perception that

“many, if not most, people receiving the

[original] minimum benefit ... have had little

connection with employment covered under

social security” (US Senate, Committee on

Finance, 1972, p. 154). Poor older adults with

shorter work records could

apply for assistance through

the Supplemental Security

Income program, enacted in

1972 (Martin & Weaver, 2005).

The special minimum benefit

was inflation indexed, and

over the years its value

declined relative to regular

Social Security benefits,

which are indexed to wages

(and which have tended to

increase more rapidly than

prices), thus gradually reducing the pool of

beneficiaries. Since 1998 no new beneficiary

has been assigned the special minimum

because that benefit would be lower than the

regular benefit he or she would be entitled to

receive (Social Security Administration, 2014).


While these policy initiatives came up short,

they suggest elements a successful initiative

will require. Apart from financial need

there must be a sufficient link to a worker’s

employment record and contributions to

Social Security. However, the link should

not be so stringent as to have little impact

in reducing poverty among older persons

(Herd, 2009). And in light of the 2016 Trustees’

report projecting wages to continue to

rise over at least the next decade at a

faster rate than prices (Trustees, 2016),

benefits ought to be wage adjusted.


In recent decades, aging populations and declining fertility have challenged retirement financing in many countries and prompted widespread reforms to public pension systems, including more privatization of risk.

MINIMUM PENSION BENEFITS IN INTERNATIONAL CONTEXTSMost European Union member states have

some form of basic or minimum pension for

their retirement-age populations, and similar

measures have been adopted in public

pension systems in other parts of the world—

Australia, Canada, Chile, Korea, Mexico, New

Zealand, Turkey, and others. These may or

may not be linked to retiree work records,

but they are distinguished from safety-net or

last-resort benefits, which are provided when

other measures are unavailable or insufficient

to prevent severe economic need. Typically, the

basic and minimum pensions provide higher

benefits than do the safety-net measures.

One estimate valued them collectively at

about 29 percent of average national earnings

in the Organisation for Economic Co-

operation and Development (OECD) member

countries (Pearson & Whitehouse, 2009). Most

exist alongside second-tier occupational

pensions and third-tier private savings.

National minimum and basic pension

schemes vary considerably in their design

and application. For some, benefit eligibility is

linked to length of residency in the providing

country (e.g., Australia, Canada, Finland); in

others it is based on workers’ years of tax

contributions to the public system but not their

level of earnings (e.g., Ireland, Luxembourg,

Portugal). Typically, these are a flat-rate benefit

(OECD, 2015). In some instances, a minimum

benefit guarantees a retirement income at a

certain level by supplementing other income

sources if they do not reach a set threshold.

There is considerable variability in these

schemes involving eligibility, means testing,

generosity and financing of

benefits, interactions with

second- and third-tier income,

role of the private sector, and

other policy considerations.

In recent decades, aging

populations and declining

fertility have challenged

retirement financing in many

countries and prompted

widespread reforms to

public pension systems,

including more privatization

of risk. In this context, older-

age poverty has become

an increasing concern, and creating or

strengthening minimum pension guarantees

is often proposed in response, including by


such organizations as the World Bank and

International Labour Organization (Orenstein,

2013). Many design choices are available

to policy makers, and to date research is

limited on what policy configurations can

best meet complex policy goals. Robalino

and Holzmann (2009), in a World Bank–

sponsored international survey of social

pension systems, identify features that

contribute to success in providing a minimum

level of retirement income while attending

to the values of adequacy and equity. The

principles are familiar: encourage labor

force participation and private retirement

saving; discourage early retirement; do not

create incentives through overly generous

benefits for early retirement or inadequate

saving. Many observers urge wage indexing

of benefits rather than price indexing, as

a way to preserve the value of benefits

over time. In general, however, it appears

that as long as a core commitment exists

to alleviate poverty, specific policy details

can be tailored to individual countries’

social and political cultures, economic

capacities, and existing policy frameworks.


DESIGN FOR A NEW MINIMUM BENEFIT IN SOCIAL SECURITYThe proposed policy links a new minimum

benefit to a percentage of the federal poverty

threshold and a retiring worker’s years of

covered labor force participation. Recognizing

the limitations of the official poverty measure

but also its common utilization in policy

making, we propose cut points above the

poverty threshold. Eligible retirees with

80 or more quarters (20 years) of covered

employment and household income totaling

less than 125 percent of the poverty threshold

receive a supplement raising their income to

that level. For workers with 40–79 quarters

(10–19 years) of covered employment, the

qualifying household income level and

supplement is set at 112 percent of the

poverty threshold. At age 80, all low-income

beneficiaries are moved to the 125 percent

threshold in recognition of the financial

stresses that accompany advanced age.

These thresholds are proposed for simplicity,

but (assuming no significant additional

administrative burden) benefits could be

stepped in such a way as to reward each

added year of covered employment—

perhaps in increments of 1–2 percent

per year, as other policy analysts have

proposed (e.g., Favreault, 2009; Favreault,

Sammartino, & Steuerle, 2002). The benefit

level might start at 110 percent of poverty

for someone with 10 years of covered

employment and rise by 1.5 percent for each

additional year worked, up to a 125 percent

benefit for 20 or more years of work.

For purposes of this analysis, we assume

no changes to other elements of Social

Security eligibility: no change in the early and

full retirement ages (including no increase

above age 67), no change in the spousal

benefit, no change in years of covered

employment required for benefit eligibility,

and no change in the formula by which

the regular OASI benefit is calculated.

One unintended effect of the policy for

low-income retirees could be reductions in

eligibility for valuable social welfare benefits

such as SNAP and Medicaid unless there

were accompanying eligibility adjustments

for those programs. Placing additional

financial strain on poor retired workers

from increases in housing or out-of-pocket

health expenses would negate any poverty

prevention from the revised minimum benefit.


HOW COULD A NEW MINIMUM BENEFIT BE FINANCED?We offer two measures to help finance the

proposed change in benefits. One is to assess

some employers an increased share of the

Old-Age, Survivors, and Disability Insurance

(OASDI) tax, raising their obligation from

6.2 percent to 8 percent of employee earnings.

The employer would contribute the extra

1.8 percentage points for any employee for

whom the employer pays the OASDI tax but

does not contribute at least 3 percent of the

employee’s earnings to a qualified pension

plan as defined in the Internal Revenue Code.

An exception would be made for an employer

whose 3 percent contribution would result in

a pension contribution higher than the annual

legal limit. Employers meeting their pension

obligation would continue to contribute to

OASDI at the 6.2 percent rate. Self-employed

workers not participating in a qualified

pension plan would also pay the extra amount.

A second component of the proposal is

to modify the calculation of the taxable

earnings base set at $127,200 in 2017. Under

current policy, the taxable base is adjusted

each year proportionally to the change in

average national earnings. For example,

average earnings rose by 1.28 percent

from 2012 to 2013; the so-called tax max

rose proportionally, from $117,000 in 2014

to $118,500 in 2015. (The lag relates to the

time required to gather and process the

data used in the calculation.) In recent

years, the taxable earnings base has been

equal to approximately 2.5 times average

annual earnings. We propose formally

linking the amount of taxable earnings to a

set multiple of average national earnings—

specifically, raising the annual taxable base

to 3.0 times average national earnings.

Under this suggestion, for example, the

taxable earnings base in 2015 would have

been $144,295 instead of $118,500.

In addition, we propose that all earnings of 10

or more times the average national earnings

be subject to the OASDI tax, in response to

long-term disproportionate growth at the

highest levels of the earnings distribution

(Committee, 2015; Mishel & Kroeger, 2016).

(Indeed, the rising share of earnings not

subject to the OASDI tax has contributed to

the long-term projected fiscal imbalance in

the system [Diamond, 2005].) In 2015, that

upper earnings threshold would have been

$480,980. In other words, under this proposal

earnings between 3 and 10 times the national

average would not be subject to the tax.


DYNASIM uses characteristics of the US population from the Survey of Income and Program Participation to estimate annual changes in marriage, fertility, mortality, and divorce.

THE DYNASIM ANALYSISThe Urban Institute’s Dynamic Simulation

of Income Model was used to simulate the

implementation of the revised minimum

benefit as part of the OASI program.

The analysis assumed our basic, two-

part design: a minimum benefit worth

125 percent of the poverty threshold for 20

or more years of covered employment and

112 percent of poverty for 10–19 covered

years. All simulations were performed

by Karen Smith of the Urban Institute.

In brief, DYNASIM uses characteristics of the

US population from the Survey of Income

and Program Participation to estimate annual

changes in marriage, fertility, mortality,

and divorce. Economic indicators reflect

employment status, disability, retirement,

hours worked, earnings, pension coverage

and contributions. DYNASIM simulates

the participation, benefits, and cost of the

Social Security programs, and the model

allows us to estimate the distributional

effects of the revised minimum benefit

on various socioeconomic groups

through 2065. A detailed description of

DYNASIM is provided elsewhere (see

Favreault, Smith, & Johnson, 2015).

Several assumptions are made in the

simulation results discussed below. In order

to offset the cost of the minimum benefit, we

stipulated that employers not contributing

at least 3 percent of employee earnings

to a qualified pension account would be

assessed a higher OASDI tax of 8 percent.

In the simulation, some employers respond

by increasing their defined-contribution

pension payments while others pay the

tax. In both cases, the models assume that

employers reduce employee wages to

keep total compensation

unchanged. Because higher

earners pay more in payroll

taxes under our proposal,

they also receive higher

amounts in the average

indexed monthly earnings

formula for calculating their

Social Security benefit.

Eligibility for the revised

minimum benefit is based

on total income, and total

income is calculated as the sum of a tax

unit’s earnings, Social Security benefits,

defined-benefit pension income, taxable

interest, dividends, rental income, and

withdrawals from retirement accounts.

The simulations preserve the 2015 ratio

between the wage-indexed federal poverty


threshold and the price-based annual

wage index in order to maintain the value

of the minimum benefit over time.

Results of the simulation are reported

in 2015 dollars for successive decades

to 2065. The simulation assumes that

promised OASI benefits can be paid in

full through 2065 without any change to

current eligibility criteria or benefit formulas,

other than those we propose as part of the

revised minimum benefit. It also assumes

that the Social Security Trust Fund has

sufficient assets to pay promised benefits

throughout the simulation period.


KEY FINDINGS FROM THE DYNASIM SIMULATIONIn the following section, we briefly summarize

selected key results of the DYNASIM

projections, focusing on economic impacts

for demographic groups identified by income,

age, gender, marital status, and race/ethnicity.

While not a comprehensive summary, these

results suggest that the revised minimum

benefit can help strengthen the Social

Security program’s commitment to adequacy.

IMPACT ON POVERTYOne result we can readily see is the impact

of the initiative on the official poverty rate for

the 62-and-older population, although our

proposed benefit would affect only those of

full retirement age (ages 66 or 67), providing

a benefit higher than the official poverty

threshold, an outcome that was not analyzed

directly. As Figure 1 shows, the share of the population living in poverty falls from

9.1 percent in 2015 to 3.9 percent in 2065. This

drop is somewhat larger than the projected

decline assuming no change to OASI: from

9.1 percent in 2015 to 5.7 percent in 2065.

FIGURE 1. Projected Official Poverty Rates among Individuals Ages 62 and Older under Current Law and the Revised Minimum Benefit Option, 2015–65

Source: Urban Institute DYNASIM3


INCOME CHANGE BY QUINTILEThe impact of the revised minimum benefit

is better observed by looking at the change

in average net income. Table 1 reports

the change in average net individual cash

income by quintile for the years 2025

through 2065. Here the bottom quintile is

the general focus and greatest beneficiary

of our initiative. With the minimum benefit, this income group experiences an average

income increase of 16.4 percent in 2025

that rises each decade to 33.9 percent by

2065. The second quintile also sees income

increases, but of a lower magnitude, from

2.5 percent in 2025 to 11.3 percent by 2065.

The remaining three quintiles also see small

increases, with the smallest accruing to the

top quintile, an increase of less than 1 percent across the 50-year span of the simulation.

TABLE 1. Change in Mean Net per Capita Cash Income of Persons Ages 62 and over by Shared Income Quintiles, 2015–65 (2015 Dollars)

Quintile 2015 $ (%)

2025 $ (%)

2035 $ (%)

2045 $ (%)

2055 $ (%)

2065 $ (%)

Bottom 0 (0) 1,604 (16.4) 2,340 (23.2) 2,857 (27.8) 3,472 (30.8) 4,239 (33.9)

2nd 0 (0) 533 (2.5) 1,100 (5.2) 1,968 (9.1) 2,554 (11.1) 2,923 (11.3)

3rd 0 (0) 172 (0.6) 250 (0.8) 526 (1.5) 823 (2.3) 1,025 (2.6)

4th 0 (0) 27 (0.0) 145 (0.3) 307 (0.6) 506 (0.9) 691 (1.2)

Top 0 (0) –93 (0.0) –93 (0.1) 110 (0.3) 149 (0.5) 657 (0.8)Source: Urban Institute DYNASIM3

INCOME CHANGE BY AGEWe know that economic insecurity increases

with advancing age. How do the oldest

retirees fare under a revised minimum benefit?

Table 2 shows mean per capita cash incomes

rising for each age group from age 62 to

ages 85 and over. Younger OASI beneficiaries

see the lowest level of increase, which is not

surprising because our benefit is not available

until full retirement age. Per capita cash

incomes rise by age group, so that across

the 50-year span of the data, 62- to 69-year-

olds see an income rise of 1.2 percent, 70- to

74-year-olds see an increase of 3.9 percent,

75- to 79-year-olds see a rise of 5.6 percent,

80- to 84-year-olds’ incomes increase by

7.7 percent, and people ages 85 and older

see an increase of 10.0 percent. Incomes also

rise with each decade across the 50-year

time span for all but the youngest group.


TABLE 2. Change in Mean Net per Capita Cash Income of Persons Ages 62 and over by Age, 2015–65 (2015 Dollars)

Age 2015 $ (%)

2025 $ (%)

2035 $ (%)

2045 $ (%)

2055 $ (%)

2065 $ (%)

62–69 0 (0) 202 (0.6) 228 (0.6) 434 (1.1) 454 (1.0) 613 (1.2)

70–74 0 (0) 568 (1.6) 986 (2.8) 1,355 (3.4) 1,660 (3.9) 1,836 (3.9)

75–79 0 (0) 548 (1.6) 1,048 (3.3) 1,323 (3.7) 1,956 (5.2) 2,301 (5.6)

80–84 0 (0) 694 (2.2) 972 (2.9) 1,632 (5.2) 2,271 (6.4) 2,856 (7.7)

85+ 0 (0) 894 (3.3) 1,090 (3.5) 1,756 (5.7) 2,459 (7.6) 3,377 (10.0)Source: Urban Institute DYNASIM3

INCOME CHANGE BY SEXTable 3 shows the change in income for

women and men by decade to 2065. Women

show slightly higher percentage increases

in income under the revised minimum

benefit, although both genders evidence

a steady rise over the 50-year period. The

rise is smaller for males, from 1.1 percent

in 2025 to 3.9 percent by 2065, whereas

for females the increase begins in 2025 at

1.6 percent and rises to 4.9 percent by 2065.

TABLE 3. Change in Mean per Capita Net Cash Income of Persons Ages 62 and over by Sex, 2015–65 (2015 Dollars)

Gender 2015 $ (%)

2025 $ (%)

2035 $ (%)

2045 $ (%)

2055 $ (%)

2065 $ (%)

Female 0 (0) 515 (1.6) 821 (2.4) 1,238 (3.5) 1,627 (4.2) 2,062 (4.9)

Male 0 (0) 372 (1.1) 665 (1.9) 1,057 (2.8) 1,360 (3.3) 1,732 (3.9)Source: Urban Institute DYNASIM3

INCOME CHANGE BY MARITAL STATUSMarriage acts as a buffer against financial

hardship, and in Table 4 we see never-

married beneficiaries receiving the largest

percentage increase in per capita net

income of the four groups considered by

marital status. With a 3.9 percent increase

in 2025, they see a rise to 10.1 percent

by 2065. The next-highest increase is

experienced by divorced beneficiaries,

whose incomes rise by an average of

3.1 percent by 2025 and continue rising to

6.9 percent in 2065. Widowed persons fare

only slightly less well, with increases from


Married individuals see barely any increase:



TABLE 4. Change in Mean per Capita Net Cash Income of Persons Age 62 and over by Marital Status, 2015–65 (2015 Dollars)

Marital Status 2015 $ (%)

2025 $ (%)

2035 $ (%)

2045$ (%)

2055 $ (%)

2065 $ (%)

Married 0 (0) 127 (0.4) 228 (0.7) 399 (1.1) 501 (1.2) 754 (1.7)

Widowed 0 (0) 659 (1.9) 1,036 (2.8) 1,586 (4.2) 2,205 (5.6) 2,736 (6.3)

Divorced 0 (0) 997 (3.1) 1,532 (4.4) 2,034 (5.5) 2,476 (6.0) 2,979 (6.9)

Never married 0 (0) 1,205 (3.9) 1,831 (5.5) 2,548 (7.7) 3,218 (8.8) 3,835 (10.1)Source: Urban Institute DYNASIM3

INCOME CHANGE BY RACE AND ETHNICITYUnder our proposal, all four racial and

ethnic groups analyzed are projected to

experience steady net gains in mean per

capita income. As Table 5 shows, White

non-Hispanics see the smallest gain, with a

3.4 percent increase over the 50-year time

span of 2015–65. Black non-Hispanic older

adults see the largest increase, 8.3 percent,

followed by Hispanics (5.6 percent) and

the group “other” with 5.1 percent.

TABLE 5. Change in Mean Net per Capita Income of Persons Ages 62 and over by Race and Ethnicity, 2015–65 (2015 Dollars)

Race/Ethnicity 2015 $ (%)

2025 $ (%)

2035 $ (%)

2045 $ (%)

2055 $ (%)

2065 $ (%)

White non-Hispanic 0 (0) 310 (0.8) 557 (1.4) 932 (2.3) 1,261 (2.8) 1,644 (3.4)

Black non-Hispanic 0 (0) 888 (3.5) 1,388 (5.1) 1,955 (6.7) 2,544 (7.9) 2,917 (8.3)

Hispanic 0 (0) 816 (4.1) 1,042 (4.5) 1,334 (5.2) 1,477 (4.9) 1,893 (5.6)

Other 0 (0) 627 (2.3) 979 (3.1) 1,277 (3.8) 1,605 (4.4) 2,042 (5.1)Source: Urban Institute DYNASIM3

SOCIAL SECURITY BENEFITS IN PROPORTION TO OASI TAXESBesides the impact of a revised minimum

benefit on various demographic groups,

an additional factor to consider is the

return in benefits to retirees relative to their

contributions to Social Security in the form of

payroll taxes. Table 6 predicts the net returns

of the proposed minimum benefit for retirees

of different birth cohorts (1950–2009) and

different lifetime earnings profiles. The table

shows the bottom two earnings quintiles

faring best, with benefit levels expected to

exceed taxes paid into the Social Security

system for every birth cohort. In all cohorts,

however, retirees in the third, fourth, and


fifth earnings quintiles are estimated to see

negative returns—that is, to receive less in

Social Security benefits than they paid in taxes

into the system. The disparity is particularly

noticeable for the top earnings quintile,

which for each birth cohort is projected to

receive in benefits only about half what it

contributed. However, other projections,

not shown here, indicate that across the

50 years of projected Social Security income,

persons in the highest income quintile

will receive annual benefits averaging in

dollars about 125 percent more than those

in the lowest quintile and about 30 percent

more than those in the second quintile.

TABLE 6. Median Ratio of per Capita Lifetime Social Security Benefits to per Capita Lifetime OASDI Payroll Tax at Age 65 by Birth Year and Shared Lifetime Earnings Quintile

Birth Year All Own Lifetime Earnings QuintileBottom 2nd 3rd 4th Top

1950–59 0.965 3.097 1.250 0.863 0.712 0.568

1960–69 0.964 3.204 1.293 0.889 0.703 0.552

1970–79 1.090 3.138 1.430 0.940 0.746 0.563

1980–89 1.103 3.062 1.419 0.965 0.755 0.575

1990–99 1.078 3.073 1.415 0.965 0.733 0.556

2000–09 1.037 2.955 1.367 0.922 0.717 0.541Source: Urban Institute DYNASIM3

OTHER RETIREMENT FINANCIAL ASSETSIn addition to Social Security, retirees

depend on personal resources for their

income security. Table 7 indicates substantial

differences by lifetime earnings quintile in

estimated retirement assets that include

individual retirement accounts, Keoghs,

and employer defined-contribution plans.

Here again, persons in the lowest quintile

are at a substantial disadvantage: only

25–30 percent will have any of these assets.

Over the 50-year span of the simulation,

that minority is projected to gain about

$2,500 in asset value to $13,860. This

compares with over 90 percent of individuals

with retirement assets in the top earnings

quintile, who gain just over $340,000, for

a 2065 total of $545,493. Put another way,

over the 50-year simulation, assets for

savers in the top quintile are predicted to

average 33 times those of the minority in the

bottom quintile who possess any retirement

assets. These figures again predict heavy

dependency on income from Social Security

for tomorrow’s lower-income workers.


TABLE 7. Mean per Capita Retirement Account Assets by Lifetime Shared Earnings Quintile, 2015–65 (2015 Dollars)

Quintile 2015 2025 2035 2045 2055 2065Bottom 11,328 10,826 9,996 10,470 11,438 13,860

2nd 33,642 38,447 38,056 38,603 45,142 50,001

3rd 57,026 75,038 83,192 91,963 108,729 122,657

4th 98,419 136,467 164,886 188,953 217,675 243,990

Top 205,491 280,429 357,655 416,510 490,869 545,493Source: Urban Institute DYNASIM3

NET CASH INCOMETable 8 displays the differences in individual

net cash income by shared income quintile

across the 50 years of the simulation. In 2015,

the top quintile has income that is 8.5 times

that of the lowest quintile, an advantage it

maintains throughout the 2015–65 period.

This estimate also shows that while lower-

income groups are favored relative to

the higher-income quintiles for indicators

such as the ratio of return on OASI taxes

paid or in income gains attributable to the

revised minimum benefit, the higher-income

quintiles continue to experience a strong

advantage in overall economic well-being.

TABLE 8. Average per Capita Net Cash Income among Persons Ages 62 and over by Shared Income Quintile, 2015–65 (2015 Dollars)

Quintile 2015 2025 2035 2045 2055 2065Bottom 7,635 9,316 9,671 9,563 10,153 11,173

2nd 17,521 19,109 19,335 20,263 21,662 23,731

3rd 26,336 28,676 29,322 30,089 32,271 35,394

4th 38,249 41,648 43,717 45,453 49,116 53,607

Top 65,365 70,106 76,085 83,426 94,911 100,878Source: Urban Institute DYNASIM3


The simulated data clearly show that a revised minimum benefit could be an effective measure for alleviating economic insecurity among a wide range of population groups.

CONCLUSIONThe DYNASIM data provide evidence that a

revised minimum benefit in Social Security

may substantially enhance the financial

security of certain vulnerable groups of

retirees. The data show a reduction in

poverty among the older population, and

lower-income groups see substantial extra

income. As years go on, older retirees see

higher benefits, women do slightly better than

men, and the unmarried are helped more

than marriage partners. Racial and ethnic

minorities fare better than non-Hispanic

Whites. Lower-income groups also receive

more value in Social Security benefits than

they contribute in payroll taxes to the system.

While vulnerable groups may be better off

relative to their status at the 2015 baseline,

the revised minimum benefit does little to

alter the substantial absolute advantage in

income and assets accruing to upper-income

retirees. Indeed, DYNASIM assumes that

disparities in assets and income now apparent

among socioeconomic groups in the United

States will widen over the coming decades.

An analysis using simulation data has obvious

limitations. While it is useful for predicting the

impact of a single intervention in a complex,

dynamic policy world that is temporarily held

constant, we know that real-world events will

look far different, especially over a 50-year

time horizon. Other changes will need to be

made to Social Security seeking to achieve

other objectives, including the long-term

solvency of the Trust Fund. Increases in the

taxable earnings threshold that we draw

on to help finance the minimum benefit

may be needed for different priorities.

The measure could also

face difficult challenges

politically, depending on

the overall climate in which

Social Security reforms

are being considered.

Nevertheless, the simulated

data clearly show that a

revised minimum benefit

could be an effective

measure for alleviating

economic insecurity among

a wide range of population groups. For that

reason it is well worth continuing to analyze

possible designs and funding mechanisms

and promoting awareness among policy

makers of the minimum benefit’s possibilities.


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a revised minimum benefit to better meet the adequacy and ... · and over by marital status,...

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