Press Release

NEW REPORT: An Oldie But Goodie

The Importance of Social Security as a Source of Retirement Income

Read the full report here

Washington, D.C. – Today, on the eve of the anniversary of the 1935 Social Security Act, the Center for American Progress released a new report on the significance of Social Security as a source of income. Social Security remains the only universal source of retirement income for the vast majority of Americans; for most, it is the most relevant source of retirement income after a lifetime of hard work.

“Retirement income security for the vast majority of working Americans remains an elusive goal. Much needs to be done to get there. One important piece of the puzzle is clearly to strengthen and protect Social Security as the primary retirement benefit for America’s middle class,” commented Dr. Christian Weller, a Senior Fellow at the Center for American Progress and co-author of the new report.

Yet Social Security was never meant to be the sole or even primary source of retirement income. To address apparent shortfalls in retirement income, Congress has tried to address retirement income security with changes in the tax code to encourage the growth of private pensions such as traditional defined-benefit pension plans, 401(k)-type defined contribution savings plans, and Individual Retirement Accounts, among a slew of other savings vehicles. For 2007, the government expects to lose tax revenue to the tune of $109 billion to support retirement savings in these plans.

Policymakers have also made several changes to help the elderly seek additional earnings as a supplemental source of income after reaching retirement age, which can be as early as 62. In 1983, for instance, the so-called earnings test, which set limits for the earnings of Social Security beneficiaries (before their benefits were reduced) was liberalized. This reform allowed for withholding one dollar in Social Security benefits for every three dollars in earnings over the exempt amount after 1990, and gradually increased the delayed retirement credit from 3 percent to 8 percent annually for those at full retirement age between 1990 and 2008. In addition, the annual earnings test exempt amount for recipients who have attained the full retirement age was raised in 1996, reaching $30,000 in 2002. Most recently, in 2000 Congress eliminated the earnings test for recipients who have attained the full retirement age.

Yet a secure retirement remains an elusive goal for many families. A study by the Center for Retirement Research at Boston College found that 43 percent of individuals nearing retirement were “at risk,” or unable to maintain their current standard of living once they stop working. Of those in the bottom third of the income scale, 53 percent were at risk, an increase from 47 percent in 1983. Further, this increase in the at-risk population among low-income families was principally caused by the reduction in Social Security benefits, a change enacted in 1983, but which affects only people turning 62 or younger in 2000, suggesting that additional savings and more earnings were not enough to offset the cuts in the nation’s premier retirement program.

Based on publicly available data from the Social Security Administration, this report finds the following income trends among those who were 65 and older in any given year between 1980 and 2004:

  • Retirement income declined after 2000.

  • Social Security remains the most important retirement income source.
  • Low-income and moderate-income workers depend heavily on Social Security.

  • More Social Security benefit payouts are flowing to the middle class.
  • Income from pensions has increased.

  • People over 65 receive less and less income from their assets.
  • Earnings have gained in importance as retirement income source.

As the Baby Boom generation turns 65 between 2011 and 2029, the time has come to vastly improve all forms of retirement savings so that the vast majority of workers can enjoy a decent standard of living in retirement as a reward for a lifetime of hard work.

Read the full report here.