The United States has had one of the most effective social insurance systems in the world for almost a century, shielding citizens against the risk of outliving their savings due to old age, disability, and the death of a spouse or parent.
Regardless of our financial situation, the majority of us are afraid of these things, and in spite of the rhetoric, these are not welfare programs. Americans contribute to Social Security, and without it, we will all be at greater danger of financial hardship and maybe losing the high standard of living to which we have been accustomed since its inception.
Touching Social Security has been considered a “third rail” for decades because of this, and it continues to be a major source of dispute at the heated town halls held around the country in recent years.
Thousands of people are kept out of poverty by Social Security.
When it comes to the financial stability of many Americans, the Old-Age, Survivors, and Disability Insurance (OASDI) line may not be the first thing that springs to mind when you glance at a paystub. This premium provides protection against the risks associated with being unable to work.
Social Security programs pay benefits when we grow too old to work, lose a spouse, get disabled, or have a dependent who has a disability.
In the absence of Social Security, over 19.5 million adults would have to make do with incomes below the poverty line (less than $16,000 for a single person in 2025), as the old age and survivors’ insurance programs across America lower the Supplemental Poverty Measure among those 65 and older by 33 percentage points.
Of all Americans, 27.6 million are lifted out of poverty by Social Security.
The majority of workers today will need to rely on their own savings due to the decrease of defined benefit pensions. Workers run a higher chance of outliving their savings or experiencing a significant market downturn if they are not guaranteed lifetime benefits. These dangers are lessened by Social Security.
How might the typical American compensate for significant OASDI changes?
The answer is simple: Save a lot more and spend a lot more on private insurance coverage. We provide some estimations below.
As more individuals in our communities live in deeper poverty, we also need to get ready for the state to shoulder a larger portion of the expenditures.
How Americans might fare in the absence of Social Security
The impact in particular places is broken down as follows:
Retirement. If Congress doesn’t take any legislative action, Social Security won’t have enough money to support retirees by 2033. Actuarial estimates indicate that benefits must be promptly reduced by 21%. Nor will the program be “broke” or have “nothing for future retirees.” However, present and future retirees will get smaller benefit levels. In the United States, the average worker makes around $1,900 a month. This suggests that in order to preserve the earning power of today’s Social Security payments, present and future retirees will need to contribute $4,800 year. Seniors will need to reduce spending, spend more of their savings, and depend more on family members for financial help.
Impairment. The likelihood of acquiring a disability is high for the 161 million American workers; in fact, 25% of today’s 20-year-olds will have a disability before reaching retirement. It would cost about $1,200 annually for a 40-year-old man to switch from Social Security disability insurance to private coverage. Employers provide minimal disability insurance to an estimated 40% of workers, however this coverage is not as comprehensive as Social Security. Additionally, applicants are screened by private disability insurers, who may charge some workers more or refuse coverage entirely. If coverage is offered at all, it will probably cost a lot more than $1,200 annually for certain workers. All workers are entitled to the same benefits and regulations under Social Security.
Advantages for survivors. As of December 2023, almost 5.7 million Americans—enough to rank as the 23rd largest state—were collecting Social Security benefits as a result of a parent, spouse, or child who had passed away. The annual rates for comparable life insurance coverage purchased privately by a typical 40-year-old man would exceed $500. Naturally, medical examinations are required for this private coverage, and premium hikes occur when the policy is renewed. Social Security survivors’ payments are particularly crucial for lower-income workers with dependent children, even if some private sector employees have limited access to life insurance coverage at work.
Security Income Supplement. SSI pays about $63.5 billion in benefits to over 7.4 million Americans each year. For the poorest Americans, such as children, the elderly with low-paying occupations, and those with disabilities, these payments average little over $700 per month. The ordinary Wisconsinite would have to pay $260 year per person to make up the difference if plans to transfer SSI from Social Security to the state were to move.
The average American will ultimately pay more than $6,800 annually in increased insurance premiums, a greater need for savings, and state tax increases if Social Security retirement benefits are cut as a result of legislative inaction, Social Security survivors’ and disability benefits are eliminated, and SSI’s assistance for the poorest seniors and those with lifelong disabilities is discontinued or transferred to the state.
According to our estimates, this amount exceeds $7,000 annually in 12 states (with Connecticut having the highest annual amount at $7,279) and exceeds $6,400 annually in all states (Montana having the lowest annual amount at $6,474).
This probably far outweighs any sensible payroll tax cuts, and it doesn’t account for the expenses that communities and families may incur to care for the most vulnerable members of society.
There are real financial advantages to the insurance protection that Social Security programs offer. We will all need to reevaluate our financial plans in the absence of these services.