How Are YOU Affected?

[How Are YOU Affected?]  [FAQ on Social Security] [Use Our Calculator]

I am retired and receiving Social Security. How does Social Security reform affect me?

There will be no change in your Social Security benefits. Although there is no legal right to Social Security benefits, those workers who have relied on the program in good faith should not become scapegoats for the government's failures. Workers who are retired today or who are nearing retirement should not have their benefits reduced or threatened in any way. Proposals to allow workers to privately invest a portion of their Social Security taxes through individual accounts are designed to create a better system for your children and grandchildren. No matter how much some politicians may try to scare you, you should know that your benefits would be unaffected.

I am getting close to retirement. How does Social Security reform affect me?

Nearly all plans for Social Security reform would exempt workers nearing retirement from any changes made to the program. Generally, that is defined as workers at least 50 or 55 years old. Proposals to allow workers to privately invest a portion of their Social Security taxes through individual accounts are designed to create a better system for your children and grandchildren. Your benefits would be unaffected. In fact, by helping to solve Social Security's financial problems, individual accounts may prevent benefit cuts in the future that might otherwise have reduced your benefits.

I am a young worker. How does Social Security reform affect me?

Social Security is now such a bad deal for younger workers that up until about age 40 or 45 they will probably still be better off in the private sector even without the refund of any past taxes, as long as they no longer have to pay into Social Security in the future and can use all those funds for their own investment accounts instead. However, most personal account plans would compensate you for your past taxes. Ideally, this would involve calculating the proportion of lifetime taxes the worker and his employer already paid. The refund would then equal this same proportion of expected lifetime benefits, in present value terms. The worker could be given this refund in government bonds for his private retirement account. The bonds would accrue interest over the years, reaching at retirement the present value of the proportion of retirement benefits the worker should receive based on the past taxes paid. These bonds could then be partially cashed in each year to help finance the worker's retirement benefits.

For more information, see Cato Institute Social Security Paper no. 31, "The Better Deal: Estimating Rates of Return under a System of Individual Accounts," by Michael Tanner.

I am a low-income earner. How does Social Security reform affect me?

"There is no more Democratic idea than building a generation of wealthy Americans who participate in our economy rather than feeling isolated from it."
-- Sen. Bob Kerrey (D-NE)

Social Security simply costs too much and pays too little to be a good deal for any worker, but it is a particularly bad deal for low-wage workers who depend on it most.

Social Security was designed to supplement private savings, but low-wage workers simply don't have enough money left over to set aside for retirement after paying the Social Security tax. Consequently, nearly one in three of today's seniors depends on Social Security for more than 90 percent of his income.

Social Security's benefits often are not enough to protect workers from poverty. In fact, more than 1 in 10 seniors live in poverty. For some groups, the statistics are even worse: 19 percent of widows and 29 percent of elderly African Americans fall through Social Security's safety net.

Investment Opportunities and Account Ownership

The government should give all workers the freedom to redirect their payroll taxes into individually owned retirement accounts that could be invested, similar to IRAs or 401(k) plans. Those accounts would give low-wage workers a better deal for the dollar and provide far higher benefits than does Social Security. A guaranteed safety net funded by general revenues could ensure that no more workers retire in poverty.

• Higher benefits: Through the power of compound interest, all workers would be able to accumulate substantial savings. Take, for example, a 28-year-old worker making $13,500 per year and paying $1,674 in Social Security tax. If she invested in a conservative savings program that earned just a 4 percent return, she would accrue $177,147 by age 67. That amounts to a monthly benefit of $1,243-$400 more per month than the benefits promised by Social Security.



• Private property: Workers would own their savings. Therefore, if an individual died before reaching retirement, he could leave his accumulated savings to family members. That is important to low-wage workers whose life expectancy is shorter than that of the wealthy.



• Fair and secure: Workers deserve the chance to participate in a system that makes the most of their contributions. In addition, personal accounts would free low-wage workers from dependence on government for retirement security, so benefits would no longer be subject to the vagaries of politicians. Finally, all workers could accumulate real wealth so no one would be condemned to retire in poverty.

For more information, see Cato Institute Social Security Paper 23, "The Impact of Social Security Reform on Low-Income Workers," by Jagadeesh Gokhale.

I am African American. How does Social Security reform affect me?

"The key to a more prosperous African-American community lies in making it possible to build wealth that can be passed from generation to generation."
-- Gwendolyn King, former Social Security Administration commissioner

Social Security is a bad deal for all Americans, but African Americans often get the worst deal. This is because African Americans pay too much into Social Security while working and get back too little in retirement benefits to make Social Security a good deal. So they also have the most to gain from moving to a system based on individual ownership and private investment.

How much you get from Social Security depends partly on how long you live, and African Americans generally have lower life expectancies than other groups. When a black man reaches age 65, he is expected to live only another 13.9 years, almost 2 years (24 payments) less than a white male. The RAND Corporation concluded that, because of differences in life expectancies and marriage rates, on a life-time basis the income transfer from blacks to whites is as much as $10,000 per person.

African Americans often do not have enough money left over after paying taxes to save for retirement. Elderly African Americans are much more likely than other groups to be totally dependent on Social Security for retirement income. Social Security's benefits are simply not enough: the poverty rates among black elderly women is 29 percent-almost twice the rate for all women.

The Benefits for African Americans of Personal Retirement Accounts

African Americans would be among those with the most to gain from transforming Social Security into a system of individually owned, privately invested accounts, similar to IRAs or 401(k) plans.

• Higher benefits: Through the power of compound interest, all workers would be able to accumulate substantial savings. Take, for example, a 28-year-old worker making $13,500 per year and paying $1,674 in Social Security tax. If she invested in a conservative savings program that earned just a 4 percent return, she would accrue $177,147 by age 67. That amounts to a monthly benefit of $1,243-$400 more per month than the benefits promised by Social Security.



• Private property: Workers would own their savings. If an individual died young, he could leave his accumulated savings to family members.



• Improved economy: The increase in savings caused by moving to a fully funded retirement system would stimulate the economy and lead to increased investment resources. That would be particularly important for those areas the most in need of capital.

Finally, Social Security reform must be looked at in light of the alternatives. Incremental reforms to prop up the existing system-such as raising payroll taxes or cutting benefits-could disproportionately harm African Americans.

For more information, see Cato Institute Briefing Paper no. 61, "Disparate Impact: Social Security and African Americans," by Michael Tanner.

I am a woman. How does Social Security reform affect me?

"Social Security is designed to benefit the traditional one-earner family and favors single-earner families over dual-earner families . . . Individual accounts reward the two-earner household. Both spouses contribute to the accounts, and assets accumulate in the name of the family."
-- Rep. Charlie Stenholm (D-TX)

Women are disproportionately dependent on Social Security in retirement. Twice as many women as men retire in poverty, and women receive only 75 cents in Social Security benefits to men's $1.

To make matters worse, Social Security will be able to pay just 72 percent of scheduled benefits in the future. That means the average woman's monthly benefit could drop from $621 to $447.

Even if Congress could get a few more years out of the current program by increasing taxes, women's benefits would still be inadequate. Roughly 15 percent of women retire poor. Poverty rates are even higher for minority women: 29 percent of black women and 28 percent of Hispanic women retire in poverty.

The best solution is to give women the option of redirecting their payroll taxes into real retirement accounts, similar to IRAs. Personal accounts with an earnings-sharing component and a guaranteed safety net can ensure that every woman has the opportunity for a middle-class retirement and no woman retires in poverty.

Important Advantages of Personal Accounts to Women:

• Virtually every woman would be better off in retirement. For example, a single woman making $12,000 a year pays $1,488 per year in Social Security tax. When she retires, Social Security promises her $683 per month (assuming solvency). If she were allowed instead to save and invest her money in a portfolio of stocks and bonds earning a 6.2 percent return, she would retire with $936 per month.



• Social Security's discrimination against working wives and widows would be eliminated. Currently 25 percent of married women who work receive the same retirement benefit as their stay-at-home counterparts. That unfair discrimination is expected to affect 40 percent of women by the year 2040. Stay-at-home spouses, too, would have greater retirement benefits with earnings sharing.



• Women would own their accounts, which means their retirement benefits would not be taken away in the event of divorce or death, or congressional fancy.



• With a guaranteed safety net funded by general revenues, women would not have to retire poor.

For more information, see Cato Institute Social Security Paper 33, "Social Security Choices for the 21st Century Woman," by Leanne Abdnor (to be published February 24, 2004).

I am disabled. How would Social Security reform affect me?

There would be no change in your benefits. Proposals for reforming Social Security are focused on the retirement portion of the program. Nearly all reform proposals leave existing disability benefits unchanged.