How is Social Security so effective at preventing poverty?
From the Alliance for Retired Americans:
Social Security benefits are based on a worker’s earnings; the more a worker makes, the higher the benefit amount will be. Because some workers are in low paying jobs and have little income to save for retirement, Social Security uses a benefit formula that replaces a greater fraction of the lifetime earnings of low earners than high earners.
Specifically, a minimum wage worker will see earnings replaced at 60%, an average wage worker’s earnings will be replaced at about 42% and a high wage worker’s earnings will be replaced at about 26%. Low wage workers are typically individuals who are either low skilled, receive low wages or took time out of the workforce to carry out caregiving responsibilities.
Life expectancy differs greatly between income groups. Even though life expectancy for high income men has increased by five years since 1982, lower-income men have seen a gain of only 1.1 years, and lower income women have actually seen life expectancy decline. This means that a high-income man can expect to live almost four years longer than his lower-income cohort.
Read more from Spotlight: Low Wage Earners and Social Security »
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