Low-income retirees could benefit from Social Security reform

The way that the Social Security and Supplemental Security Income (SSI) programs interact is unfair to low-income workers and retirees, and changing the Social Security benefit applied to SSI would “allow low-income older adults to obtain additional income during retirement.” This is according to a new report published by the Brookings Institution.

“We argue that the total benefit amount for low-income retirees and disabled workers receiving support from both programs is antithetical to key principles of social insurance,” the report stated. 

For those who have significantly contributed to the workforce, the contributions to both programs and the standards by which they receive benefits are out of balance, according to the researchers.

The Social Security program “asserts the worker should receive social insurance benefits later in life commensurate with, and related to, the amount of their earnings and taxes paid. Social Security does just this, as benefits received are based on the worker’s earnings history.”

But for those who may qualify for SSI benefits, “having a work history that results in receiving Social Security reduces the amount of benefit available through SSI,” the report stated. “[T]here is a dollar reduction in the SSI benefit for every dollar received in Social Security benefit. This interaction is unfair to the low-income worker, as it contradicts the concept of the earned income principle.”

As a potential solution, the researchers propose unifying “the goal of setting an income floor for retirees and disabled workers” with “maintaining Social Security’s benefit-contributions link,” which can be achieved by changing the Social Security benefit (or disregard) applied to SSI.

“We propose increasing the current $20 disregard to $60, indexing the $60 for inflation, and adding an additional 40% disregard to the remaining Social Security benefits when calculating the SSI benefit,” the researchers explained.

Such an increase would be modest since the disregard has not changed since the beginning of the SSI program in 1972.

“Adjusting for inflation, the $20 disregard established in the 1970s is equivalent to about $160 today,” the report stated. “In addition to the fixed $60, introducing a disregard percent reflects the earned income principle more evidently, as a portion of benefits received are clearly awarded based upon the worker’s earnings history.”

Increasing the size of the disregard would be costly to taxpayers, but it would also “improve the well-being of low-income retirees and disabled workers significantly,” the researchers said.

“Our proposal draws on the social insurance principles of horizontal equity and the earned income principle to make benefit amounts received by low-income workers on Social Security and SSI fairer, while reflecting the goals of both the SSI and Social Security programs.”

Despite an increase in Social Security benefit payments this year, many seniors remain worried that they are still not enough to cover their basic needs in a high-inflation environment.