Enhancing Social Security Benefits for Low Earners: Effects of Reducing Eligibility Requirements for Social Security Retirement Benefits
26 Pages Posted: 21 Feb 2009
Date Written: November 14, 2008
Under current law, eligibility for Social Security retirement benefits requires 40 quarters (roughly 10 years) of earnings in covered employment. While individuals with less than 40 quarters of employment may receive benefits based on the earnings record of an eligible spouse, a small number of unmarried individuals fail to qualify for retirement benefits due to a short earnings record. These non-qualified individuals often must depend on Supplemental Security Income (SSI) for support in retirement. However, SSI eligibility requirements limit earnings and asset accumulation, making it more difficult for beneficiaries to work or save. This paper explores the effects of eliminating the 40 quarters eligibility requirement. Doing so would allow retirement benefit eligibility for individuals with very short work histories and reduce dependency on SSI benefits. The effects of reducing the 40 quarters eligibility requirement are analyzed for the 1950 birth cohort using the Policy Simulation Group's GEMINI and PENSIM microsimulation models of the Social Security population and private pensions.
Eliminating the 40 quarters eligibility requirement would increase benefits for approximately 5.8 percent of individuals. These benefit increases would be concentrated in the bottom three deciles of lifetime earnings, where 15 percent of individuals would receive increased benefits. Average benefit increases for affected individuals in the bottom three deciles of earnings would be around $2,400 per year. Benefit increases are concentrated among immigrants, whose shorter periods in the labor force increase the likelihood of not satisfying the current 40 quarters eligibility requirement. Due to the relatively small number of affected individuals, increases in total system costs would be modest. The 75-year actuarial deficit would increase from 1.70 percent of taxable payroll under current law to around 1.79 percent of payroll.
While reducing or eliminating the 40 quarters eligibility requirement could increase benefit availability for very low lifetime earners, it would also increase benefits for individuals whose primary earnings were derived from employment not covered by Social Security. These individuals, mostly employees of state and local governments, could receive windfalls if other corrective actions were not taken. However, application of the existing WEP/GPO provisions to newly Social Security eligible state/local government employees could help correct for any imbalances in relative benefit generosity, although some modifications to WEP/GPO rules to maintain neutrality between covered and non-covered employees may be necessary.
Moreover, increased Social Security retirement benefits could potentially remove individuals from SSI, which could then put at risk these individuals' eligibility for means-tested assistance programs such as Medicaid and Food Stamps. In most cases, however, increased Social Security benefits would supplement SSI rather than eliminate it.
Keywords: Social Security, retirement income, Supplemental Security Income, immigration
JEL Classification: H55
Suggested Citation: Suggested Citation