Here's how expanding social security helps all retirees:
For lower-income workers, by contrast, rates of return on these catch-up contributions would be quite high. For those in the lowest earnings bucket—workers who earned 25% or less of the median Social Security recipient—rates of return on catch-up contributions would be roughly 4.5%, compared to around 1% for higher earners. The dollar amount for lower-earners would be lower, since benefits are proportional to contributions, but the return would be significantly greater for those at the bottom.
The key point to understand about Social Security is that it is an insurance program. It insures against the possibility that we outlive our retirement savings. While there are other vehicles for retirement savings—401s, IRAs, annuities—Social Security is the most effective way to protect the broader population. Since it is a pay-as-you-go program supported by payroll taxes, it isn’t vulnerable to financial market ups and downs.
Our Catch-Up proposal is not the final word on Social Security. It would slightly reduce the actuarial shortfall of Social Security in the long run, but there are other ways of shoring up the system for future beneficiaries. Still, the proposal underscores a basic point understood by
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