Why Do Some Workers Have Low Social Security Benefits?

Abstract

We use data from the Health and Retirement Study linked to administrative data on earnings and benefits to determine why some workers end up with low Social Security benefits in retirement. Several characteristics are associated with family benefits of less than poverty. Racial disparities are pronounced. Women's risk is marked, especially for unmarried women, with caregiving an important contributor to low-benefit risk. Less-educated workers are also vulnerable, sometimes even when they have worked long careers. Workers with health problems and disabled workers—especially those disabled early in the career—are comparatively likely to have family benefits of less than poverty.

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Introduction

As analysts and policymakers evaluate the relative merits of different proposals to close Social Security's long-term funding gap, it's important to understand why some older Americans end up with low Social Security retirement benefits. Many Social Security proposals aim to shore up benefits for low-income seniors as part of a comprehensive reform strategy (see, for example, National Academy of Social Insurance 2009). Proposals that are grounded in up-to-date information about who the current system fails to shield from poverty or near poverty—and how factors associated with low-benefit risk are likely to change in coming decades—are more likely to reach their goal of reducing beneficiary need in retirement. Given that the current recession has imposed tremendous economic hardships on many American families and has strapped government budgets at all levels, Congress faces great pressure to target Social Security resources efficiently.

This paper identifies the characteristics of Social Security beneficiaries age 64 to 73 with family benefits of less than poverty in 2003.1 We identify factors associated with low benefits and provide data on how they are changing and what this implies for future Social Security adequacy. Finally, we discuss the findings in the context of various policy proposals designed to shore up Social Security for the most vulnerable workers.

We find a number of characteristics associated with family benefits of less than poverty. Racial disparities are very pronounced. Women's risk is marked, especially for those who are unmarried, with caregiving an important contributor to low-benefit risk. Less-educated workers are also very vulnerable, sometimes even when they have worked long careers. Workers with health problems and disabled workers—especially those disabled early in the career—are comparatively likely to have family benefits of less than poverty.

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