National Approaches Income Support for Nonworkers

The primary public retirement program in the United States is the Old-Age, Survivors, and Disability Insurance (OASDI) program. OASDI, referred to by almost everyone simply as Social Security, now covers almost all U.S. workers, regardless of age. The primary exceptions include workers enrolled in some state and local pension plans and federal government employees hired before 1984.

The U.S. Social Security system is a mandatory contributory program under which workers and their employers each pay 6.2 percent of a worker's earnings up to a maximum, which in 2001 was US$80,400. This "taxable maximum" is adjusted annually based on increases in average wages. Self-employed workers pay the combined employer-employee amount. U.S. workers and their employers each contribute an additional 1.45 percent on all earnings to the Medicare program, the federal health insurance program for persons aged sixty-five and older.

For the first six decades of the OASDI program, full retirement benefits were payable at age sixty-five. Early actuarially reduced benefits have been available at age sixty-two since 1956 for women and 1961 for men. For workers turning age sixty-two in 2000, the age of eligibility for full benefits began to increase gradually; it will reach sixty-seven in 2027. Benefits will still be available at age sixty-two when the higher full benefit age is fully in effect; however, workers will experience a greater reduction in benefits. Workers who postpone collecting retired worker benefits between full retirement age and age sixty-nine receive a delayed retirement credit. This credit has not represented a full actuarial increase in benefits and has not been instrumental in prolonging the worklife. However, the credit is increasing and will reach the full actuarial increase of 8 percent per year for workers delaying retirement after 2008.

Social Security benefits are indexed according to changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers and adjusted once a year. To be eligible for benefits, workers must have at least forty quarters of credits, or ten years of earnings. Benefits are based on thirty-five years of highest indexed covered earnings out of a total of forty. The five years of lowest earnings are deducted before the benefit is calculated. There are no child-care credits or exclusions. Years of zero earnings, up to a maximum of five, serve as de facto child care credits for many workers who leave the labor force to care for children. Long-term low-income workers may be eligible for a minimum benefit.

Upon reaching retirement age, workers may be eligible for Social Security benefits based on their own earnings as workers, on the earnings of a spouse, or on a combination of the two. Most men and a growing number of women collect retired worker benefits based on their own work histories and earnings. Many spouses— predominantly women—still lack the requisite forty credits of coverage and are entitled to a spousal benefit that amounts to 50 percent of their husband's retired worker benefit. Workers whose retired worker benefit amounts to less than 50 percent of their spousal benefit are dually entitled, that is, they are entitled to benefits as retired workers and as spouses. However, they can only receive one benefit. Technically, they receive their own retired worker benefit that is "topped up" to the spousal benefit to which they are entitled. In effect, they receive the same benefit they would have received had they never contributed to Social Security. Though Social Security is gender neutral, most recipients of spousal benefits and dually entitled beneficiaries are women.

A divorced spouse who has been married for at least 10 years is also eligible for spousal benefit of 50 percent of the other spouse's retired worker benefit. A surviving spouse—whether a widow or divorc¤e who had been married 10 or more years—will collect 100 percent of the former spouse's benefit if that is higher than her own benefit. Common law partners may also be eligible for spousal and survivor benefits in states that recognize those marriages. Earnings sharing, as it is called in the United States, has been proposed for Social Security. Although extensively studied in the 1980s (U.S. House of Representatives; Congress of the United States; Fierst and Campbell), it has not advanced legislatively.

The weighted benefit formula used to calculate Social Security benefits redistributes income from higher earners to lower earners by replacing a greater percentage of the pre-retirement earnings of a low earner than a high earners Social Security replaces about 40 percent of the preretirement earnings of a life-time average earner.

Social Security disability benefits may be paid to workers with sufficient quarters of coverage who are unable to engage in "substantial gainful activity due to impairment expected to last at least one year or result in death." At age sixty-five, disability benefits convert to retired worker benefits. Medicare is the national health insurance program for persons sixty-five and older who are eligible for Social Security. Part A, which is non-contributory, covers hospital expenses. Part B, which requires a premium contribution from beneficiaries, primarily covers physician expenses.

Supplemental Security Income (SSI) is a means-tested program administered by the Social Security Administration that provides income support to needy persons aged sixty-five or older and blind or disabled adults and children. The level of benefits, however, keeps many of these recipients below the poverty level. Twenty percent of the recipients, or about 1.3 million persons, are receiving benefits based solely on age; another 11 percent are blind or disabled and sixty-five or older. The majority also receive Social Security (U.S. Social Security Administration, 2000a). Federal SSI payments, which are paid from general revenues, may be supplemented by payments from the States.

In recent years, the Social Security Trust Funds have been building up sizable reserves, which under current law are invested in special U.S. Treasury bonds guaranteed by the government. The growing demands that baby boomers will place on the U.S. Social Security system as they retire have led to numerous proposals for reform, including calls to invest a portion of the reserves in equities, as has occurred in Canada.