Tuesday, May 5, 2009

AARP: Social Security: 10 Facts that Matter

The AARP Public Policy Institute released a fact sheet by Selena Caldera titled "Social Security: 10 Facts That Matter." By and large it's fine, but one quick comment on a claim made in the paper.

"In 2007, Social Security kept nearly 35 percent of older Americans out of poverty." This poverty argument assumes that these retirees were forced to pay into Social Security while working but denied any benefits when they retired. In that case, yes, Social Security has a large impact on poverty. But if we were truly "without Social Security" that should also include the tax part. In that case, workers would presumably save a good portion of what they'd otherwise have put into Social Security and could use those funds in retirement. Social Security reduces poverty somewhat by forcing some people to save who otherwise wouldn't and by redistribution to folks who are so poor that they'd retire in poverty even if they had saved. But these reductions are nowhere near 35 percent.


 

3 comments:

Steve said...

"workers would presumably save a good portion of what they'd otherwise have put into Social Security and could use those funds in retirement"

Given the very low to nonexistent savings rate in the US, this is a pretty shaky assumption. I doubt very much that money not taken out for Social Security tax would have been saved for retirement.

Andrew G. Biggs said...

Steve,

It's possible you're right, but it's also possible that the low saving rate today is the RESULT of Social Security and Medicare benefits, which displace private saving. For example,see this paper: http://ideas.repec.org/p/nbr/nberwo/5571.html

Andrew

JG said...

Historically, when SS was being created, initial political opposition from businesses quickly vanished when the business community realized it could substitute SS for the pensions they were providing on very favorable terms (since the payroll tax then was so low).

To this day, many businesses "integrate" SS benefits into their defined benefits pension plans, to help provide lower-level benefits.

So clearly, to some extent at least, SS reduced and replaced corporate pensions.