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Sunday, April 9, 2023

Social Security and Inequality

Gopi Shah Goda and Andrew Biggs at AEI:


  • Almost one in every five Americans receives income support from Social Security.
  • Social Security is financed on a pay-as-you-go basis, which means that today’s workers’ payroll taxes are used to pay benefits to today’s beneficiaries. 
  • Changes in population demographics, including longevity improvements, have resulted in a sharp decline in the number of workers per beneficiary, and this trend is projected to continue. 
  • As a result, Social Security is facing significant financial challenges and policymakers must take action to ensure its long-term sustainability
From the article:
In 2015, Social Security represented 30 percent of income on average for individuals age 65 and over. Forty percent of all seniors in 2015 received 50 percent or more of their income from Social Security. Meanwhile, 14 percent of all seniors received 90 percent or more of their incomes from the program.1 Social Security is a critical source of income for those who are widowed and low-income retirees, and Social Security represents a larger share of retirement income for women than for men. Inequality in life expectancy has significant implications for the distributional consequences of Social Security. Lower-income individuals tend to have lower life expectancies than higher-income individuals, meaning that they may receive fewer years of Social Security benefits. This means that the increasing gap in life expectancy by income works against the progressivity in the benefit formula.2

 1 Dushi, Irena, and Brad Trenkamp. “Improving the measurement of retirement income of the aged population.” Social Security Administration. ORES Working Paper No. 116 (January 2021).

2 See National Academies of Sciences, Engineering, and Medicine, and Committee on Population. “The growing gap in life expectancy by income:Implications for federal programs and policy responses.” National Academies Press, 2015.