In recent years, various provisions of the Social Security program have come under attack - but little has been said about its overall effectiveness. What's right about Social Security?
In 1935, when the Social Security Act was passed, less than 15 percent of the jobs in the United States were covered by any sort of retirement system, and only a tiny proportion of those over 65 were drawing retirement benefits. Many people ended their lives in a now almost forgotten institution, the "county poor house." This year nearly 95 percent of the people reaching age 65 will be eligible for Social Security payments and most of those who are not will be eligible for retirement pay from some other government system, such as railroad retirement, federal civil service, or a state or local plan. Perhaps a third of those getting Social Security payments will also be eligible for a private pension supplementing their Social security, although even for this fortunate one-third, Social Security is usually the larger payment and is inflation-proof and tax free.
According to a study by the Congressional Budget Office, without Social Security 60 percent of the families headed by people 65 and over would be below the government's rock-bottom definition of poverty. In fact, nearly half would have incomes less than 50 percent of the poverty level. Social Security lifts all but about one-fifth of elderly families above poverty, and when other government program are taken into account, the proportion of elderly families wh o remain poor is reduced to about 14 percent. This is very substantial progress. As recently as 20 years ago, nearly 40 percent of those over 65 were below a comparable government definition of poverty.
But Social Security is much more than a program designed to reduce poverty. It is the base on which just about everyone now builds retirement income. The worker who has earned average wages throughout his life (the year $11,500) will receive about $400 a month in a Social Security benefit if he retired this year at 65. When a spouse's benefit is included, the amount is $600 a month. For such a couple, the amount paid is 62 percent of recent earnings. For the worker who has been earning the federal minimum wage, the proportion of recent earnings replaced by Social Security benefits is higher - 78 percent for a couple. For the worker earning at the maximum amount, the proportion is less - 47 percent for a couple.
Not only are these benefits tax free and inflation-proof once they are awarded, but prior to retirement the protection is automatically kept up to date with rising wages. Thus, when a worker now in his early 40s retires at 65 after regularly earning the average wage, his benefit (assuming a continuing increase in wages comparable to the past) will be about $15,000 a year. The $15,000 reflects not only increases in prices but also the increase in the level of living arising from productivity increases. Because of the automatic provisions now in the law, if wages rise less than they have in the past, Social Security benefits will be lower, and if they rise more, benefits will be higher.
And Social Security is not just a retirement system. It is also life insurance, paying monthly benefits to widows, widowers and orphans to partly make up for income that is lost when a wage earner in the family dies. And it is disability insurance, providing protection for workers and their families against the loss of income due to long-continued total disabilities. It is well known that just about all older people get Social Security benefits but not so well known that every month the Social Security system pays monthly benefits to 5 million children. For many young families the life insurance and siability insurance protection - frequently with a face value of from $150,000 to $200,000 - is the most important "asset" they have. And the survivors' and disability insurance, too, is automatically kept up to date with increases in the level of living before benefits are paid, and again the benefits are tax free and inflation-proof.
For the cash benefits I have described - and not taking into account the Medicare protection against the cost of hospital care - the worker today pays 5.08 percent of earnings up to maximum earnings of $22,900 a year. This amount is matched by the employer. According to the latest estimates of the Board of Trustees of the Social Security trust funds, the benefits and administrative costs of the system can be met for the rest of this century by a contribution rate of 5.5 percent of earnings. (The maximum on the earnings counted rises to $29,700 in 1961 and then rises automatically in proportion to the general increase in the wage level.)
In the next century, according to the trustees, if the proportion of retirees to earners increases as much as they expect, the contribution rate would have to be higher. Some 50 years from now the rate might need to be as high as 8 percent for an entirely self-financed system. Even this 8 percent rate in the distant future, however, would not seem to justify the kind of concern about Social Security financing now being expressed in various magazine and newspaper articles. For example, German workers and their employers each pay 8 percent currently for old-age, survivors' and disability insurance even though the cost of about one-fifth of the German system is borne by other revenue sources.
Certainly there are changes to be made in our Social Security system. I, among others, have proposed certain improvements in benefit protection and changes in the method of financing, but the point to be stressed is that the system works just as it is, and it works well. There is no crisis. Thirty-five million beneficiaries - one in seven Americans - get a check every month, on time, and in the right amount, and those who are working today can count on getting their Social Security benefits when they in turn become eligible.