Outcome Indicators

Since its inception, Social Security has been an important source of economic security and financial stability for the American people. The programs administered by the Social Security Administration (SSA) for nearly 70 years touch the lives of virtually every American. The Old-Age, Survivors, and Disability Insurance  OASDI) programs are earnings-based and provide income support to individuals who experience the onset of unexpected disability or the untimely loss of a spouse or parent, and those who have made the transition from work to retirement. The Supplemental Security Income (SSI) is a needs-based program that provides financial support to the aged and disabled who are unable to meet their basic needs. SSA's programs, however, are not the only factors that affect the economic status of the aged, disabled, and survivor populations. Personal choices, social attitudes, and the economic climate also play important roles. Thus, it is not feasible for the agency to establish numerical goals for such measures as levels of income or rates of poverty.

Today, 45.9 million people, or approximately 1 out of every 6 Americans, receive Social Security benefits and nearly 1 in 4 households receive income from Social Security. A majority of the elderly receive more than half of their income from Social Security and a growing proportion receive all or almost all of their income from Social Security.

At present in the United States, over five million children receive a portion of their family income from Social Security. They include three million children who receive Social Security as dependents of deceased, disabled, or retired workers and an additional two million children who live with relatives receiving Social Security benefits. The poverty rate for children in families reporting Social Security benefits declined from about 25 percent to 20 percent in the period from 1998 to 2001—this represents approximately 300,000 fewer children living in poverty.

No single indicator can capture the effectiveness of a social program. Therefore, SSA has developed a number of outcomes for the OASI, DI and SSI programs. Each outcome contains multiple data indicators that reflect the different bases and objectives of each program. These indicators measure how well the Agency's programs provide for the economic security of its beneficiary populations. They should be considered both within the context of each other and in relation to external economic, social and other factors. Although SSA cannot set goals for these indicators, the agency has committed to identifying and defining quantitative measures to assess the outcomes of the Agency's programs.

This is the fourth year that SSA has published outcome indicators. A number of changes have been made this year, including:

• Adding a new measure for Labor Force Participation;
• Changing the data source for the Percentage of the Population Participating in an Employer-Sponsored Pension Plan;
• Discontinuing Hypothetical Earnings Replacement Rates of Retirees at Normal Retirement Age, since SSA now has actual replacement rates; and
• Temporarily dropping the measures, Percentage Reduction in Poverty Gap Due to SSI, and Relative Importance of SSI Income to Beneficiaries' Total Income, by Age until issues of data comparability are resolved.

The five outcome categories are:

1. Program Coverage and Eligibility
2. Benefit Adequacy and Equity
3. Reliance on Social Security Programs
4. Return-to-Work Among Persons with Disabilities
5. Private Provision for Retirement

I. Measures of Program Coverage and Eligibility

OASDI benefits are based on lifetime labor force participation. The outcome indicators in this section show the extent to which individuals have worked in covered employment and meet the work requirements to be insured for old-age or disability benefits, and for women, the extent to which they receive benefits based on their own work record or the work record of a spouse.

Labor force participation rates vary greatly by age and sex and have been changing over time, especially for women. The labor force participation rate for men aged 25 to 54 has been declining gradually since 1998. This trend is consistent with that of the past half century—participation among this group declined from 97.4 percent in 1955 to 91.0 percent in 2002. However, the trends for men aged 55 to 64 and those aged 65 and over have been quite different. Although participation for these groups declined significantly between the 1950s and the 1980s, they have generally been increasing gradually for the past few years (Table IA). Labor force participation among women aged 25 to 54 and 55 to 64 has increased dramatically over the past 50 years. However, the rate among the former group appears to have leveled off, and has actually declined slightly (from 76.8 percent in 2000 to 76.0 percent in 2002). Participation among women 65 and over has been generally stable for many years but has increased from 8.6 percent in 1998 to 9.9 percent in 2002.

Many factors influence the rate of employment among persons aged 55 and older, including the rate of economic growth, eligibility for Social Security benefits, personal savings and both the prevalence and design of employer-sponsored pension plans. For example, Congress legislated changes in the Social Security earnings test in 1996, and again in 2000, that made it more desirable for persons aged 66 and older to continue working. Also, the trend away from defined-benefit private pension plans, which often include early-retirement subsidies, toward age-neutral defined-contribution plans, may have had a similar effect.

Forty quarters of coverage are required to establish eligibility for retirement benefits. Newly retired male workers typically have earned more quarters of credit for Social Security coverage than newly retired female workers and have experienced fewer years with no earnings. Men retiring in 2002, on average, had covered earnings in about 84 percent of the quarters from age 22 to the year before first collecting retired-worker benefits, compared with 66 percent for women (Table IB). And men had, on average, 6 years with no earnings from age 22 to retirement compared with over 13 years for women (Table IC).

Almost 95 percent of individuals aged 62 or older were eligible (either insured for benefits or could receive benefits based on the work record of an insured worker) for OASDI benefits in 2002 (Table ID). Eighty-four percent of men and 72 percent of women aged 20 to the normal retirement age were insured for disability (Table IE). Although fewer women were insured for disability benefits than men (72 percent compared with 84 percent), the percentage insured is gradually increasing. Also, more individuals of both sexes under age 62 than those between age 62 and the normal retirement age were eligible for disability benefits. This was especially true of women (74 percent for women aged 20–49, for example, compared with 60 percent for those aged 62 to the normal retirement age).

Social Security provides benefits not only to workers but also to spouses and survivors. More women receive OASDI benefits based on their own work record only than as a spouse only. In 2002, about 37 percent of the female beneficiaries aged 65 or older were receiving only retired-worker benefits and 33 percent were receiving only a wife or widow benefit. Twenty-nine percent were dually entitled to their worker benefit and a higher spouse benefit (Table IF). The proportion of aged women who were receiving only retired-worker benefits or who were dually entitled has increased by 1.8 percentage points between 1999 and 2002.

II. Measures of Benefit Adequacy and Equity

Social Security benefits and Supplemental Security Income both play an important role in the economic security of beneficiaries. Adequacy and equity are measured in terms of the size of benefits in relation to prior earnings, poverty levels and how benefit dollars are distributed.

Because of Social Security's progressive benefit formula, low-wage workers experience higher replacement rates in retirement than other workers. Replacement rates measure the adequacy of OASDI benefits in retirement relative to prior earnings. More specifically, SSA defines replacement rates as the ratio of the retired worker's benefit based on his or her own earnings to his average indexed monthly earnings (AIME). The median replacement rate in 2002 was about 42 percent (Table IIA.1). Median replacement rates ranged from 70 percent for those in the lowest earnings group to 30 percent for those in the highest earnings group (Table IIA.2). Because women tend to have lower earnings than men, their median replacement rate is higher than that of men. In 2002, it was about 51 percent for women compared with almost 37 percent for men.

Measures of poverty provide a broader assessment of the adequacy of income of those who receive OASDI benefits and SSI benefits, including other sources of income of beneficiaries and income of other family members. In 2001, the most recent year for which data are available, 8.4 percent of OASDI beneficiaries aged 65 or older (2.6 million individuals) were below poverty, about the same as in 1998 (Table IIB). The poverty rate for beneficiaries aged 18–64 was about the same in 2001 as it was in 1998, but the poverty rate for children in families reporting Social Security benefits declined from about 25 percent to 20 percent over the same period. Although the poverty rate is much lower for aged beneficiaries than for younger beneficiaries, more aged beneficiaries are poor than are working aged beneficiaries or children living in families receiving OASDI benefits.

SSI beneficiaries residing in states with only a federal benefit received payments that raised them to 70 percent of the poverty level in 2002. Those living in states that supplemented SSI payments were raised to levels ranging from 72 percent of the poverty threshold in Michigan to 96 percent in California (Table IIC). California's SSI as a percent of the poverty threshold had increased by 3 percentage points between 2001 and 2002, primarily as a result of an increase in the monthly level of supplementation from $181 to $205.

Although low-income workers receive proportionately higher OASDI benefits relative to past earnings, high-earning workers receive higher OASDI benefits in absolute terms. As shown in Table IIA.2, the replacement rate for the lowest quintile in 2002 was 70.1 percent; however, individuals in this quintile received only 16 percent of OASDI dollars paid in 2001 (Table IID). Conversely, individuals in the highest quintile had a replacement rate of 30.2 percent, but they received 23 percent of OASDI dollars paid in 2001.

III. Measures of Reliance on Social Security Programs

OASDI was designed to be a partial replacement of income lost because of retirement, disability or death of a worker. The outcome indicators in this section show both the extent to which individuals have other sources of the income they need to ensure economic security and the comparative role that OASDI and other sources play in economic security. The measures also indicate which groups would be most affected, by virtue of their heavy reliance on these programs, by changes to the program.

Based on survey reports of income, over half of beneficiaries aged 65 or older and over two-fifths of beneficiaries aged 18 to 64 rely on OASDI for half or more of their family income, and 14 to 15 percent of both age groups rely on OASDI for all of their income (Table IIIA). OASDI provides 89 percent of the family income of beneficiaries 65 or older in the lowest income quintile compared with 21 percent for those in the highest income quintile (Table IIIB). Reliance on Social Security for 90 percent or more of total income appears to be increasing slightly.

IV. Measures of Return-to-Work Among Persons with Disabilities

Since their inception, the Disability Insurance (DI) and SSI programs have emphasized the importance of beneficiaries returning to work when possible. However, moving DI and SSI beneficiaries into employment has proved to be a substantial challenge.

DI beneficiaries are entitled to receive full benefits throughout a 9-month trial work period (TWP) during which they may work and have earnings above a level which constitutes substantial gainful activity (SGA)—currently $800 per month. If, after completing the TWP, a beneficiary continues to have a disabling impairment and has earnings above SGA; his or her benefits are suspended. The beneficiary is also entitled to a 36-month extended period of eligibility (EPE). During the EPE, if earnings fall below the SGA level, benefit payments resume without the beneficiary's having to file a new application. After completing the EPE, if earnings continue to be above the SGA level, benefits are terminated.

In 2001(the most recent year for which complete data are available), 14.5 percent of DI worker beneficiaries were working, with median earnings of $3,023. The percentage of beneficiaries working declined slightly from the previous year, but the number who were working was about the same. In 2002, only 0.2 percent (10,300) of all DI beneficiaries had their benefits suspended after completing a TWP because they had earnings above the SGA level ($780 a month in 2002). Also in 2002, 0.53 percent of DI beneficiaries (29,200) had their benefits terminated because their earnings exceeded the SGA level (Table IVA). The figure on benefit terminations includes beneficiaries who completed the EPE in 2002 as well as beneficiaries who did not report that they were working whose earnings were not detected by SSA until after they completed the EPE.

About 6 percent of the disabled SSI beneficiaries aged 18 to 64 worked, with most working at or below SGA (Table IVB). Through section 1619(a) of the Social Security Act, SSI recipients who earn more than SGA can continue to receive cash benefits. Average monthly earnings in 2002 were $312 ($1,043 for those working above SGA and $257 for those working at or below SGA). Of those who worked, about 5 percent (15,300) stopped receiving cash SSI benefits because of their earnings. That group constituted less than half a percent of all SSI beneficiaries (Table IVC).

The proportion of SSI beneficiaries who work has declined in each of the past 2 years. Previous research has demonstrated a strong inverse correlation between the work patterns of SSI beneficiaries and the overall rate of unemployment. The unemployment rate increased from 4.0 percent in 2000 to 4.7 percent in 2001 and to 5.8 percent in 2002. The decline in the proportion of working DI beneficiaries noted above suggests that this finding may also apply to that population.

V. Measures of Private Provision for Retirement

OASDI was intended to be a floor of protection in retirement that would be supplemented by employer-sponsored pensions and individual savings. Adequacy of income in retirement is highly dependent on having sources of income other than OASDI. In 2001, half of the working population had coverage in an employer-sponsored pension plan (Table VA). Plan participation was highest—55 percent—among workers aged 40 to 54. Plan participation was substantially lower for the total population than for the working population (41 percent compared with 50 percent). Historical data show that pension coverage leveled off in the 1970s at roughly half the work force covered and has remained at that level since that time. Plan participation between 2000 and 2001 declined by 2 percentage points among both the total population and the working population. Also, pension plan participation is shifting from largely defined benefit plans toward defined contribution plans, which add more personal choice but also add market risk in accumulating a pension.

Assets can provide income in retirement, such as interest, dividends, and periodic withdrawals. Assets such as a home provide services until the value is recovered when sold. Income from assets comes largely from financial assets, but the most important component of most people's assets is the value of their home. Measures of both financial assets and net worth, which includes the value of the principal residence and other property and businesses, are shown here. In 2001, median family financial assets for married couples aged 65 or older were $80,000 and median net worth was $274,900. Nonmarried individuals aged 65 or older had median financial assets of $18,000 and a median net worth of $91,600 (Table VB). As these figures indicate, asset amounts vary greatly by marital status and age with some groups having very little accumulated in old age. Both financial assets and net worth increased considerably from 1998 to 2001 for all age groups of married couples, and generally increased less or declined for nonmarried persons. Financial assets declined for nonmarried individuals aged 55–64 and net worth declined for nonmarried individuals aged 65 and over.

In summary, the outcome indicators help us understand the impact of SSA programs, individual work choices, and other factors on income security.

1. Program Coverage and Eligibility
   • Labor force participation is the foundation of economic security for most.
   • Coverage for disability is lower for women than for men.
   • One-third of women receive benefits only as wives or widows.
   • Another 29 percent of women are entitled to a worker benefit but also receive a supplement because their spouse benefit is higher than their worker benefit.
2. Benefit Adequacy and Equity
   • Poverty rates have generally declined but still vary greatly across age groups.
   • Children in beneficiary families and adult beneficiaries between ages 18 and 64 are more likely to be poor than are beneficiaries 65 and older.
   • The current benefit formula provides higher replacement rates to low earners but higher benefits to those with higher incomes.
3. Reliance on Social Security
   • About half of beneficiary families receive 50 percent or more of their income from Social Security.
   • Reliance on Social Security is higher for older and lower-income beneficiaries.
4. Return-to-Work Opportunities Among Persons With Disabilities
   • About 14 percent of DI beneficiaries and 6 percent of SSI disabled beneficiaries work.
   • Less than 1 percent of DI and SSI disabled beneficiaries worked enough to lose benefits.
5. Private Provision for Retirement
   • About half of today's workers have pension coverage.
   • Increasingly, these plans are defined contribution plans, which provide the potential of higher returns together with individual risk.
   • Levels of financial assets and net worth have been growing but indicate that many people have little private savings to supplement Social Security.