Most people probably think of Social Security as a retirement system, which it is in part. But at the same time it is also a welfare system, which explains why the retirement part is so minimal as compared to actuarially based pension systems. That is, the welfare aspect costs money, to the detriment of the retirement aspect.
My aim is to flesh out the details of this a bit. My source of data is the official website of the Social Security Administration: www.socialsecurity.gov.
ELEMENTS OF THE WELFARE ASPECT
1. SSI (Supplemental Security Income) and Disability
SSI payments, either separately or in combination with regular Social Security benefits, go to people who have "low income and few resources" (as carefully defined, of course), and who are 65 and older or who are blind or disabled. In November, 2009, 12,675,000 "disabled" people were on Soc. Sec. and/or SSI, including children with their own disabilities.
2. Spousal Benefits
Even if a spouse has never worked under Soc. Sec., he or she at full retirement age can collect one-half of the full retirement amount of the working spouse if that spouse is already drawing a benefit. (Amount reduced if spouse is collecting a substantial non-Social Security pension.)
A deceased worker's unmarried children under age 18 receive benefits, as does the widow or widower. (Full benefits at age 66, reduced benefits at 60, or benefits at age 50 if disabled).
Even if not survivors of a deceased worker, as above, unmarried children under age 18 of Soc. Sec. retirees receive benefits.
ELEMENTS OF THE RETIREMENT ASPECT
Even the computation of the basic Soc. Sec. retirement benefit has a "welfare" aspect: Low wage earners get a higher percentage of their earnings as benefits than do high wage earners. For a worker who turns 62 in 2010, the first $761 of average monthly wages is multiplied by 90%; the next $4,586 by 32%; and the remainder by 15%. Thus, the maximum Soc. Sec. benefit at age 66 in 2010 is $2,346. This is based on the maximum taxable amount of wages for every year after age 21. This is pretty paltry! And the average monthly Soc. Sec. benefit is $1,164 at the beginning of 2010. Again, not much!
While Social Security was not intended to be a sole adequate source of income in retirement, and while seniors living on Soc. Sec. alone are probably guilty of poor planning, the fact remains that there are a lot of them and that they have a VERY difficult time just getting by. Whether we think the dual retirement/welfare nature of Soc. Sec. is good, bad, or indifferent, it remains something not usually fully appreciated.