If Social Security benefits did not exist, an estimated 44% of the elderly would be poor today, assuming no behavioral changes such as saving more or working longer. Future Solvency Changes Could Also Increase Elderly Poverty

Many recent proposals to improve system solvency would reduce Social Security benefits in the future. If Social Security benefits were cut across the board, the poverty rate among elderly Americans could be significantly higher than under the current-law benefit formula. In 2006, about one-quarter of the elderly relied on Social Security for all of their income. Supplemental Security Income (SSI)

The Supplemental Security Income (SSI) program was designed explicitly to benefit the elderly poor, in addition to the low-income blind and disabled. Option 1: Poverty-Line Minimum Social Security Benefit

The first option would create a new minimum Social Security benefit equal to the elderly poverty line. Eligibility for Social Security would not change, but the additional Social Security benefits some individuals receive would disqualify them for SSI. Projected Change in Elderly Poverty

The option to create a poverty-line SSI benefit and liberalize eligibility is projected to reduce the elderly poverty rate by about three percentage points, compared to the payable baseline, reducing the number of elderly poor by about 1.9 million individuals in 2042. Both of these changes would dramatically affect the SSI program. Each option is projected to reduce poverty somewhat compared to the current law payable baseline—ranging from a negligible reduction in the elderly poverty rate for Option #2 (which would create a Social Security minimum benefit for long-term low earners) to a reduction of three percentage points for Option #4 (the poverty-line SSI benefit with liberalized eligibility). It is important to note that the projected elderly poverty rate under all of the options would be higher than under the current law scheduled baseline, which assumes no benefit cuts. Both of the SSI options are free of similar interaction effects. Targeting Spending Toward the Elderly Poor

If one of the objectives of reforming Social Security were to mitigate the effect of possible benefit reductions on the elderly poor, targeting spending would become an important consideration. Changing the Social Security benefit formula to mitigate the effects of changes on the elderly poor arguably would not target additional dollars as efficiently. Baseline
All of the options in this paper are compared to a current law payable baseline, which assumes that current law benefits are cut across the board to balance Social Security's annual income and spending at the point of insolvency, currently projected to occur in 2041. Year of Analysis
This report focuses on the effects of policy changes in 2042, the first full year of projected trust fund insolvency. As a result, the interactions between Social Security and SSI benefits can be seen.
Social Security has significantly reduced elderly poverty. The elderly poverty rate has fallen from 35% in 1959 to an all-time low of 9% in 2006, in large part because of Social Security. If Social Security benefits did not exist, an estimated 44% of the elderly would be poor today assuming no changes in behavior. The Supplemental Security Income (SSI) program, also provides benefits to the poorest elderly, many of whom do not qualify for Social Security benefits. However, despite these programs, about 3.4 million elderly individuals remained in poverty in 2006.
The Social Security system faces a long-term financing problem. The Social Security Trustees project cash-flow deficits beginning in 2017 and trust fund insolvency in 2041. Many recent proposals to improve system solvency would reduce Social Security benefits in the future. Benefit reductions could affect the low-income elderly, many of whom rely on Social Security benefits for almost all of their income. Such potential benefit reductions could lead to higher rates of poverty among the elderly compared to those projected under the current benefit formula. Because the low-income elderly are especially vulnerable to benefit reductions, many recent Social Security reform proposals have included minimum benefits or other provisions that would mitigate the effect of benefit cuts on the elderly poor.
This report analyzes the projected effects of four possible approaches to mitigating the effects of Social Security benefit reductions on elderly poverty in 2042, the first full year of projected trust fund insolvency. The options are compared to a payable baseline, which assumes current-law benefits would need to be cut across the board to balance Social Security's annual income and spending at the point of insolvency. The four options examined are (1) a poverty-line Social Security minimum benefit; (2) a sliding-scale Social Security minimum benefit; (3) a poverty-line SSI benefit; and (4) a poverty-line SSI benefit with liberalized eligibility.
Major findings include the following:
Each of the four options would reduce elderly poverty compared to the payable baseline—ranging from a negligible reduction in the elderly poverty rate for the option to create a sliding-scale Social Security minimum benefit to a reduction of three percentage points for the poverty-line SSI benefit with liberalized eligibility. The elderly poverty rate under all of the options would be higher than under the current law scheduled baseline, which assumes the current benefit formula can be maintained with no reductions. The SSI options examined would target the additional spending more efficiently toward the poor elderly than would the Social Security options. The Social Security options examined would reduce the incomes of some elderly because of interaction effects; the SSI options would not create such interactions.