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URBAN INSTITUTE
No. 27 July 30, 2000
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LOOKING AT SOCIAL
SECURITY REFORM
THROUGH A
SOCIOECONOMIC
LENS
High-Income Retirees
Eugene Steuerle and Christopher Spiro
IT’S USEFUL TO FLIP EVALUATIONS OF SOCIAL
Security reform on their head: Instead of scrutinizing
reforms and generalizing about their impact on
retirees, we scrutinize retirees and generalize about
reforms. Many policymakers spell out the details of
their reform proposals but, when describing how
those proposals will affect lives, do not distinguish
between groups of retirees. In reality, groups of
retirees will experience reform differently and will
take on a degree of burden for reform consistent with
their socioeconomic status.
Most reforms share a basic premise. They attempt
to save money and, at the same time, maintain the
safety net for the most needy. So, regardless of the
specifics, any reform that becomes law will probably
do both of these things. By assuming these common
traits, we can focus on reform’s potential impact on
different groups of retirees. This exercise gives us a
better idea of the repercussions of Social Security
reform for recipients, regardless of which laws are
eventually passed.
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High-income individuals will almost inevitably pay
for a significant share of Social Security reform. If
reform cuts benefits, high-income retirees are likely to
lose more than their lower-income counterparts—
particularly if the poor are extended greater protections. Even if the current benefit structure is
maintained, high-income retirees will bear a disproportionate responsibility for the additional taxes
required to address the system’s solvency.
This group would probably prefer a reform that
cuts benefits to one that increases their taxes (that is,
if both reforms cost the same). Benefit cuts keep richer retirees in greater control of their money, allowing
them to invest it as they see fit (traditionally, this
group achieves very good rates of return on their saving). Thus, for those in this group willing to save a bit
more, reform will likely have little effect on retirement income. Nevertheless, there are too few highincome retirees to carry the entire burden of reform.
Average-Income Retirees
Unlike rich retirees, middle-class retirees are less
prepared for their own retirement; unlike poor
retirees, they can afford to do more to prepare.
Because most retirees fall into this socioeconomic
group, the success of Social Security reform rests on
their willingness and ability to make adjustments in
their approach to retirement. Given the eventual
shortfall in Social Security revenues, it seems almost
inevitable that the middle class will need to take on a
larger share of the burden for its own retirement.
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To do this, the middle class needs to enter retirement with significantly more private assets.
Currently, half of all retirees go into retirement with
few assets. Three-quarters have private savings—in
retirement accounts, homes, and other assets—
worth less than government-promised benefits
(Social Security and Medicare) from future taxpayers.
The middle class may also need to extend their work
lives. Today, individuals retire on average for about
one-third of their adult lives. Once the baby boomers
retire, close to one-third of all adults are scheduled to
be Social Security beneficiaries. In effect, unless most
middle-class retirees work and save more, their children will have to support them through higher taxes.
responsibility for bringing Social Security back into
solvency and improving its safety net. Those with limited abilities and lower incomes will be excused from
much of the responsibility. One way or another, all
Social Security reform proposals will have to demand
more saving, work, or taxes from the middle class—
a fact that politicians are often reluctant to acknowledge. The middle class is, after all, a majority of both
beneficiaries and taxpayers. By first deciding how
they want different groups of retirees to be affected
by reform, policymakers can better craft proposals
that bring about the changes they intend.
Eugene Steuerle is a senior fellow at the Urban
Institute, where his research includes work on Social
Security reform. Christopher Spiro is a research
assistant at the Urban Institute.
Low-Income Retirees
Protecting the elderly from poverty is Social
Security’s primary purpose. Poverty rates for certain
groups of retirees remain high—16 percent for
divorcees and 21 percent for those who have never
married. Reform can easily create a stronger safety
net for poor retirees and alleviate much poverty
among the elderly. However, this requires a degree
of sacrifice—more saving, work, or taxes—from
everyone else and, therefore, may be resisted by
those with higher incomes.
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In all likelihood, the burden of reform will not fall
equally on all retirees. Those with high incomes will
have to take on a disproportionate share of the
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This series is made possible by an Andrew
W. Mellon Foundation grant.
For more information, call Public Affairs:
202-261-5709. For additional copies of this
publication, call 202-261-5687 or visit the
Retirement Project’s Web site:
http://www.urban.org/retirement.
Copyright ©2000. The views expressed are
those of the authors and do not necessarily
reflect those of the Urban Institute, its sponsors,
or its trustees. Permission is granted for reproduction of this document, with attribution to the
Urban Institute.
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