Why We Need Social Security: It Has Radically Reduced Poverty in Old Age. and It Protects the Middle Class against Inflation and the Ups and Downs of the Market

By Starr, Paul | The American Prospect, February 2005 | Go to article overview

Why We Need Social Security: It Has Radically Reduced Poverty in Old Age. and It Protects the Middle Class against Inflation and the Ups and Downs of the Market


Starr, Paul, The American Prospect


FOR NEARLY THREE-QUARTERS OF a century, Americans have taken Social Security for granted. Now we had better learn how it works, what it has done, and what the true facts are regarding its future--or else we are going to lose it.

Superficially, Social Security resembles traditional employer pensions: Americans pay into the system during their working years and receive a monthly pension during retirement. But the differences are fundamental. Social Security benefits are based on a balancing of two principles: equity and adequacy. Equity means that what you put in is related to what you get out; in other words, workers with higher wages, who pay more into the system, receive higher benefits later on. But under the principle of adequacy, the Social Security benefit formula overlooks years of low earnings (for example, when a worker may have been disabled or unemployed), and it replaces a higher proportion of earnings for the poor than for the rich. That's why it's our most successful antipoverty program. In addition, Social Security benefits are indexed against inflation and protected from the ups and downs of the economy and financial markets. That's why the program provides security for the middle class.

Privatization would do away with the idea of guaranteeing a minimally adequate income for the elderly who have worked all their lives. From their own earnings, low-wage workers would be unlikely to generate enough funds in an individual account to maintain a decent standard of living in retirement. Even middle-class workers would be at greater risk of poverty in old age. It's intrinsic to financial markets that they yield unequal returns; many of those who did badly with their individual accounts wouldn't have enough from other sources to live on. And markets fluctuate: Some generations would retire during one of the long downturns that periodically hit the markets, when their investments would be convertible only into paltry annuities. Those who lived into their 80s or 90s would be especially likely to outlast their individual accounts, or, if they had bought annuities at retirement, see those annuities severely eroded by inflation.

The elderly used to be an age group with an especially high rate of poverty. One of the signal achievements of Social Security, hardly noticed today, is that poverty has fallen dramatically among Americans over age 65 to just 10 percent, lower than the 12-percent rate for the population as a whole. For millions of the elderly who would otherwise be poor, Social Security is the single biggest source of income, the financial bedrock of their lives. Indirectly, their working-age children are beneficiaries of the program because the elderly no longer have to move in with them. People under age 65 also benefit from two other elements of Social Security that often get forgotten: benefits during long-term disability and survivor benefits for dependents if a worker dies before retirement. These are also important anti-poverty programs that don't carry the stigma of welfare.

Social Security was never expected to be the sole source of retirement income for the middle class, who ideally also have employment-based retirement plans and personal savings. But if one thinks of these various sources of income as making up a "portfolio" of retirement assets, Social Security's distinct value is even clearer. While other assets typically erode or become exhausted with advanced age, Social Security pensions keep their value because they have an annual cost-of-living adjustment. Moreover, as many employers convert from pension plans with a defined benefit to 401(k) and other plans with uncertain payouts, workers are already bearing more risk for retirement. In that context, Social Security provides a valuable hedge against the financial markets.

But what's wrong with voluntary and partial privatization--giving people the option of holding back 3 percent or 4 percent of their Social Security contributions to deposit in individual accounts? …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Why We Need Social Security: It Has Radically Reduced Poverty in Old Age. and It Protects the Middle Class against Inflation and the Ups and Downs of the Market
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.