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A Young Person's Guide to Social Security, Third Edition

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A Young Person's Guide to Social Security, Third Edition A Young Person’s Guide to Social Guide to Security Person’s Young A THIRD EDITION THIRD A Young THE ECONOMIC POLICY INSTITUTE is a nonprofit, nonpartisan think tank that seeks to broaden the public debate about strategies to achieve a prosperous and fair economy. The Institute stresses real world analysis and a concern for the living standards of working people, and it makes Person’s Guide its findings accessible to the general public, the media, and policy makers. EPI’s books, studies, and popular education materials address important economic issues, analyze pressing problems facing the U.S. economy, and propose new policies. Economic Policy Institute books are available in bookstores and at www.epi.org. to Social Security THIRD EDITION THE NATIONAL ACADEMY OF SOCIAL INSURANCE is a non-profit, non-partisan organization made up of the nation’s leading experts on social insurance. Its mission is to advance solutions to challenges facing the nation by increasing public understanding of how social insurance contributes to economic security. National Academy of Social Insurance publications and resources are available online at www.nasi.org. EPI & NASI & EPI Printed on recycled paper using 100% wind power. A Young Person’s Guide to Social Security Kathryn Anne Edwards Anna Turner Alexander Hertel-Fernandez THIRD EDITION • JANUARY 2016 Copyright © 2016 by Economic Policy Institute and the National Academy of Social Insurance This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-sa/3.0/. ISBN: 1-932066-31-5 About the work This curriculum is the result of a collaboration between many people. Kathryn Anne Edwards was the lead author and editor. She wrote the introduction, the majority of the text, organized the chapters, and saw the project completely through from initial brainstorming to the final production. Anna Turner was the genius behind most of the figures, and worked most on the budget chapter and options for reform. The idea of a textbook explaining Social Security to young people belongs to Alexander Hertel- Fernandez. He started the project, made contributions to the first two chapters, and worked most on the social insurance chapter. Josh Bivens lent his expertise and advice to every page of the curriculum as our primary reader. Monique Morrissey and Virginia Reno provided valuable assistance. The National Academy of Social Insurance updated the data and portions of the text for the 2015 re-release of this textbook. Acknowledgments This project was made possible with generous funding from the National Academy of Social Insurance (NASI). We thank NASI sincerely for enabling us to work on something we care so much about. Many people helped. Ethan Pollack was our budget guru; his contribution to the text included CBO numbers over the 10-year window compared to the current policy baseline. Andrew Green, Andre Nakazawa, and Daniel Kopf’s careful reading ensured that the text was understandable, and possibly interesting, to humans. Elise Gould and Heidi Shierholz were champions of benign neglect, happy to let us work on our project instead of theirs. But our friends and family are the real heroes, for putting up with us and the need to bring up Social Security at every holiday, birthday party, or social gathering over the past year. This textbook could not have happened without the help of Josh Bivens. Thank you for your guidance, insight, and encouragement, and being awesome about everything all of the time. Elliot Schreur and Ben Veghte of the National Academy of Social Insurance updated the text and data for the 2015 version. Jill Braunstein lent her time and energy to ensure the timely re-release of this important publication. Economic Policy Institute 1333 H Street, NW Suite 300 Washington, DC 20005 National Academy of Social Insurance 1200 New Hampshire Ave, NW Suite 830 Washington, DC 20036 Visit our websites at www.epi.org and www.nasi.org Table of contents Introduction – You’re insured ........................................................................................................................5 Chapter 1 – ‘Protection against the hazards and vicissitudes of life’ .....................................................7 History and structure ................................................................................................................................................7 The contributions .........................................................................................................................................................................7 The beneficiaries ...........................................................................................................................................................................9 The benefits ..................................................................................................................................................................................11 How important are Social Security benefits? ..................................................................................................15 Contributions to income ........................................................................................................................................................15 Poverty reduction ......................................................................................................................................................................16 Disability and survivor insurance .......................................................................................................................................16 Social Security and children .................................................................................................................................................18 Conclusion ...................................................................................................................................................................18 Chapter 2 – Social insurance: the philosophy behind Social Security............................................... 19 Social insurance .........................................................................................................................................................19 How to manage risk: savings, private insurance, and social insurance ..................................................20 Risks best addressed through insurance rather than savings ................................................................................20 Risks best addressed through social rather than private insurance ....................................................................22 The practical benefits of social insurance .........................................................................................................23 Why do we need social insurance? The example of Social Security........................................................24 External economic shocks .....................................................................................................................................................24 Insufficient savings to match longevity ..........................................................................................................................24 Inflation .........................................................................................................................................................................................24 Disability and Family Life Insurance .................................................................................................................................24 Chapter 3 – Social Security’s finances: if it ain’t broke, don’t break it ............................................... 25 A self-financed program .........................................................................................................................................25 Here’s how it works: ..................................................................................................................................................26 The trust fund..............................................................................................................................................................28 Causes of the shortfall .............................................................................................................................................29 Fertility ...........................................................................................................................................................................................31 Life expectancy ...........................................................................................................................................................................32 Inequality ......................................................................................................................................................................................33 Options for reform .....................................................................................................................................................35 Ways to increase revenue ......................................................................................................................................................35 Ways to cut benefits .................................................................................................................................................................40
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