Will Social Security Keep Fewer of Tomorrow’s Elderly Out of Poverty?

Social Security has been remarkably successful in reducing old-age poverty. The elderly had tradition­ally been a distinctly poor population. As recently as 1959, more than one out of three older Americans had incomes below the federal poverty threshold – twice the rate for working-age adults and more than 10 percentage points above the rate for children. Social Security is largely credited with reducing the incidence of poverty among the elderly today below the rate for both children and working-age adults. This achievement will be challenged by Social Security’s long-term financing shortfall. In its initial attempt to close the shortfall, Congress in 1983 raised the program’s Full Retirement Age (FRA) from 65 to 67, cutting benefits by 13 percent when fully in place, for workers turning 62 in 2022. The Social Security Trust Fund is nonetheless projected to be depleted in 2034. Absent additional revenues, benefits would then be cut an additional 21 percent. This brief reviews studies by the Social Security Administration’s Retirement Research Consortium that address the challenge of keeping the elderly out of poverty. Since poverty is hard to define, the first section presents the government’s “official” and recently developed “supplemental” definitions. The second section discusses the reduction in old-age poverty since the enactment of Social Security, as indicated by the official statistics. The third section compares official and supplemental estimates of elderly poverty today, and the ability of each measure to identify individuals experiencing financial distress. The fourth section shows that the magnitude of the challenge of keeping the elderly out of poverty tomor­row depends on how poverty is defined. The final section concludes that, if the supplemental measure is better, Social Security and the safety net could need significant structural adjustments to avoid a spike in poverty should benefits be cut.