Living off Social Security alone, the financial website Motley Fool warns, “your income would be barely above the poverty level.” Georgetown University retirement policy expert Angela Antonelli agrees, telling CNBC the average Social Security benefit “doesn’t put you much above the poverty level.” That’s a widely held view, and seemingly buttresses progressive calls to expand Social Security across the board.
And yet, the data tell a very different story.
The average Social Security retirement benefit for Americans retiring in 2021 was $1,754 per month. The federal poverty threshold for a single individual aged 65 and over in 2021 was $12,996, or $1,083 per month. So the average Social Security benefit for a new retiree was actually 1.6 times the federal poverty line. Not “barely above poverty,” in my view.
But there’s more. About two-thirds of seniors live with a spouse, partner, or other household member. Therefore, the more relevant poverty threshold is for two people over age 65, which for 2021 the Census Bureau pegged at $15,569 annually, or $1,305 per month.
A couple retiring in 2021 who both collected the average monthly Social Security benefit of $1,754 would receive a total annual benefit of $42,096, bringing them to 2.6 times the federal poverty threshold before counting even a penny of their own retirement savings.
Contrary to popular claims, the average Social Security benefit takes a retiree well above the poverty line.
So why are some retirees still living in poverty? Officially, about 9.0 percent of seniors had incomes below the poverty threshold in 2020, based upon household survey data. Census Bureau research, relying on more accurate Internal Revenue Service data, finds elderly poverty rates in the region of seven percent. But why are even 7 percent of seniors living in poverty if the average Social Security benefit is between 1.6 and 2.5 times the poverty threshold?
The answer is that seniors most in danger of poverty receive much lower Social Security benefits. To start, Social Security requires 10 years of contributions to qualify for benefits. As a result, about one-in-20 seniors don’t even receive Social Security, and these non-beneficiaries are disproportionately poor. Moreover, even after qualifying there is no minimum Social Security benefit. Yes, Social Security is progressive, replacing up to 90 percent of pre-retirement earnings for the poorest seniors. But if you were in poverty before retirement, you may end up poor after retirement as well. Nearly one quarter of new retirees last year collected a benefit of less than $1,000 per month.
Meanwhile, a high-income dual-earner couple retiring today could end up with more than $82,000 in combined Social Security benefits. Is that what we really mean to do?
Most countries don’t handle retirement programs this way. Canada, for instance, offers a generous means-tested benefit for low-income retirees, but caps benefits from its version of Social Security—the Canada Pension Plan—at about $22,000 for a retired couple, one quarter the maximum Social Security benefit. Australia offers a guaranteed minimum retirement benefit of about $26,750 for a retired couple, but reduces that benefit based upon other income, including from retirement accounts into which each worker is automatically enrolled. New Zealand pays every retired couple a slightly lower benefit of about $21,650 per year, but without any means test. The United Kingdom offers couples a maximum annual benefit of $20,900, scaled based upon years spent in the workforce.
Social Security reform could more cheaply and effectively protect against poverty in old age, but this would require rethinking how Social Security has traditionally worked. An earnings-based system like Social Security does generate its own political support, because benefits are viewed as earned rather than as welfare. And yet an earnings-based program also locks in what Social Security produces today: unnecessarily generous benefits for the highest earners, who easily could save more for retirement on their own, while shortchanging the Americans most at risk of poverty in old age because they received low pay during their working years. It’s not clear what important public policy problem this is the solution for.
Social Security reform cannot pass on a partisan basis. But a bipartisan approach just might. A stronger minimum retirement benefit, perhaps funded out of income taxes rather than payroll taxes, could provide a true guarantee against poverty in old age. Universal workplace retirement plans could boost personal savings. And the gradual scaling down of Social Security benefits for middle and high earners could help restore the program to long-term solvency. It’s not rocket science, and countries very similar to ours are already doing it.
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