benefits—from 65 to 67.8 The increased age for full benefits affected only people who were 45 or younger at the time, which allowed workers to plan for the change by increasing savings before retirement or by working longer (Achenbaum, 1986; Light, 1995).
The Social Security program has both a social and an insurance aspect.9 Its “social” aspect refers to its helping alleviate fear (particularly for low-income workers) of an impoverished retirement, to its compulsory character, and to its progressive benefit structure. Social Security has always replaced more of the former earnings of low-wage workers than of those at upper earning levels.
Figure 6-1 shows how, for illustrative workers with different lifetime earnings paths, lower earnings lead to lower cash benefits (left axis; line with diamonds) but higher replacement rates for those earnings (right axis, line with squares).10 Elderly retirees with the lowest income from all sources—including pensions, savings, and earnings—are most dependent on Social Security benefits; see Figure 6-2. On the basis of a 2006 survey of families and individuals 65 and older, for the lowest income quintile (with annual income of less than $11,519), Social Security benefits average 93 percent of all income. Even for the fourth quintile (total income between $28,911 and $50,064), program benefits are 50 percent of all income. Only for the top quintile (total income of at least $50,064 annually) are Social Security benefits a small (26 percent) share of all income.11
Social Security aims to alleviate economic insecurity in old age and among disabled people. As part of its “social” aspect, Social Security replaces a large proportion of preretirement wages for retirees with relatively low life-time earnings. This replacement is especially important