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Social Security has tilted to favor higher earners who delay claiming benefits, report says

Former Tufts Health Plan CEO Jim Roosevelt (right) says Social Security is now less progressive. Legislation creating the program was signed by his grandfather, President Franklin D. Roosevelt, in 1935.Suzanne Kreiter/Globe staff/File 2018/Globe staff

The nation’s Social Security program was designed with special concern for the least fortunate Americans, to keep them from sinking into poverty when they became too old to work.

But recent demographic changes have tilted the system against lower earners who claim Social Security benefits early, even as they’ve rewarded higher earners who claim benefits later, according to a Boston College report.

That report, from the college’s Center for Retirement Research, details how longer life spans have scrambled the decades-old calculations that determine the payouts Americans receive at full retirement age, and the adjustments for claiming Social Security benefits early or later.


Higher earners who can afford to delay benefits are living significantly longer — and reaping benefits longer — than poorer people who need the money right away.

“Lower earners were supposed to gain more from Social Security,” said Anqi Chen, coauthor of the report. “But those who can’t wait to collect at their full retirement age are now getting penalized.”

Many of those who begin collecting later are often seniors in good health working at white-collar jobs deep into their 60s, and they can look forward to larger Social Security checks for decades.

It’s only the latest evidence of what many see as a swing away from Social Security’s foundational promise to help low- and middle-income Americans in retirement.

“The program’s become less progressive,” said a retired Tufts Health Plan president, Jim Roosevelt. He is also a former associate commissioner for retirement policy at the Social Security Administration and a grandson of the late president who ushered in Social Security in the 1930s. “It doesn’t take care of the people at the lower- and middle-income levels as well as it was intended do, and it needs to be updated,” he said.

He pointed to other factors, such as a cap on income subject to Social Security withdrawals, that also benefit the highest earners.


Employees who earn more than $132,900 in 2019 — about 6.2 percent of US workers — make no Social Security contributions on additional earnings. While that cap excluded only 10 percent of earned income when it was established in the 1980s, increasing income inequality has boosted the share that’s excluded to 18 percent.

That has deprived the system of money it needs to survive at a time when historically low interest rates have further weakened the Social Security trust fund, which is invested in rate-sensitive US Treasury bonds.

“We have to expand the system,” said Nancy Altman, president of Social Security Works, a Washington, D.C., group that backs proposals from Democratic lawmakers and presidential candidates to increase benefits and eliminate the contributions cap.

“Social Security is extremely important to low-income people,” she said. “They’re less likely to work in jobs that have private pensions, so it’s more likely to be their only retirement income.”

In another report last March, the Urban Institute examined how growing disparities in health and disabilities have disadvantaged lower-income Americans who depend most heavily on Social Security and other federal programs.

“We’re seeing a lot of social changes that don’t bode well, including wage stagnation and increasing longevity for people at the top and not people at the bottom,” said Melissa Favreault, a senior fellow at the Urban Institute.

BC’s report, published late last month, focused on adjustments devised by the Social Security Administration in the 1980s. The aim was to assure that lifetime Social Security payouts — and costs to the system — would be roughly constant for beneficiaries of the same income with average life expectancy, no matter when they chose to begin collecting benefits.


But with Americans living longer, the adjustments are now out of whack. Thus, older folks who choose to start taking benefits before their full retirement age are getting smaller monthly checks than they should, according to the BC report.

“The penalty for early claiming is now too large,” said Chen , assistant director of savings research for BC’s retirement research center, who cowrote the report with the center’s director, Alicia Munnell.

The report doesn’t attribute the trends to intentional policy changes. But it suggests low-income seniors — forced to leave physically demanding jobs early and turn to Social Security to support their retirement — are being hurt.

And it’s adding to the economic pressures on those with meager retirement savings, as housing and health costs rise and fewer private employers pay out pensions.

Social Security, a linchpin of President Franklin Delano Roosevelt’s far-reaching New Deal, was created to guarantee retirement income for Americans devastated by the Great Depression.

From its start in 1935, the program aimed to especially help workers who earned less — as well as women and disabled Americans, who often worked fewer years — through a progressive benefit formula that gave greater weight to the first dollars of earnings.


That meant Social Security would replace more of the lifetime income of lower earners during retirement than it would the income of higher earners.

The program has evolved over the years. The ability to claim benefits early was offered to women in 1956, and extended to men in 1961, while the option of claiming later was introduced in 1972 but implemented gradually. The full retirement age was also put on a sliding scale; those who turn the traditional retirement age of 65 this year actually have to wait until they turn 66, for example. Those who are younger will have to wait even longer to claim full retirement benefits.

Those who take the option of collecting early can claim benefits as early as 62, but they receive 5 to 6.6 percent less each year — a kind of early retirement penalty — depending on their age when they begin drawing payments. Those who delay collecting until beyond their full retirement age get a credit of 8 percent each year up to age 70, the maximum age of eligibility.

Data from the Social Security Administration show that 39 percent of women and 33 percent of men chose to start collecting at age 62. Just 5 percent of women and 7 percent of men waited to age 70.

“Someone in a lower-paying job may not want to or may not be able to work as long,” Chen said. “The typical higher-income employee tends to work longer and work at older ages. That gives many of them a stream of income if they want to delay claiming benefits.”


While the overall life expectancy of Americans has dipped in recent years, largely due to drug overdoses of younger people, the general trend had been toward longer lives. Those who reach age 65 next year can be expected to live another 20.4 years, according to Social Security projections. Americans who turned 65 in 1983 lived an average of 17 additional years.

Robert Weisman can be reached at robert.weisman@globe.com.