Congressman Sander Levin

Why Social Security is Important

Retirement security is often described as a three-legged stool, supported by Social Security, employer-provided pension funds, and personal savings. For millions of Americans, however, the retirement stool has begun to wobble as personal savings and employer-sponsored 401(k) plans have been hit hard by the ups and downs of the stock market.

In stark contrast, Social Security is the one stable leg of the retirement stool. It provides guaranteed, lifelong, inflation-protected benefits for America's working families.

A benefit that can be counted on. Social Security is a "defined-benefit" pension system. That is, benefits are determined according to the level of a worker's earnings and years of work. Further, benefits are paid as long as the worker (and his or her spouse) lives. By contrast, a "defined contribution" system - such as a 401(k) or an individual savings account - can only pay out what is in the account. Under a 401(k)-type plan, if a worker does not contribute enough during their career, or has poor investment results, or is simply unlucky by retiring in a down market, he or she must get along on less. If the account is exhausted before a worker reaches the end of her life, she will have nothing left to live on. Defined contribution plans are an excellent supplement to Social Security, but they cannot replace it.

Family insurance. Social Security is based on the concept of insurance. It protects against the risk of having low income in old age. It protects against the economic risk of career-ending disability or premature death. It insures family members against the loss of a breadwinner's earnings.

More than just a retirement program. About 30 percent of Social Security beneficiaries receive disability or survivor benefits from Social Security. For a 27-year-old worker with a spouse and two children, Social Security provides the equivalent of a $403,000 life insurance policy or a $353,000 disability insurance policy.

The most effective anti-poverty program there is. It's hard to believe today, but as recently as 1959, the poverty rate for older Americans was 35 percent. By comparison, the poverty rate of elderly persons today is 9.4 percent. Social Security is the single largest source of retirement income in the United States. For 6 in 10 seniors, Social Security provides half or more of their total income. Among elderly widows, Social Security provides nearly three-quarters of their income, on average.

(Updated October 19, 2009)