Social Security provides much-needed income for the vast majority of retired Americans. As a social insurance program, Social Security's design returns a higher percentage of average lifetime earnings to low-income earners than to those who had more lucrative careers. Yet some policymakers have called for Social Security to go a step further, providing minimum benefit amounts to qualify low-income recipients. Interestingly, Social Security has offered what it calls special minimum benefits for decades, even though many have no idea that they're there. Let's take a closer look at exactly how Social Security's special minimum benefits work and how you can tell whether you might be able to claim them for yourself and your family.
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How you qualify for Social Security minimum benefitsIn 1973, the Social Security Administration started paying out the special minimum benefit to long-term low-wage earners. The provision acts as an alternative to the standard way of determining Social Security's primary insurance amount, which is based on wages. Rather than looking at wages, the special minimum benefit looks solely at qualifying years of coverage. In order to earn a year of coverage, a worker must earn at least $13,230 in 2015, with that amount adjusted for changes in the Consumer Price Index each year.
In order to earn a special minimum benefit, a worker needs at least 11 years of coverage. As of December 2014, the resulting primary insurance amount on which special minimum benefits are based starts at $39.90 for those with 11 years of qualifying work and go all the way up to $829.80 for those with 30 or more years.
In determining your benefits, the SSA compares the calculation based on the regular benefit rules with the amount from its special minimum benefit table. If the amount based on the special minimum benefit is higher, then that's what the worker receives. Otherwise, the regular wage-based benefit gets paid.
Why Social Security minimum benefits have become less importantThe reason why so few people talk about Social Security minimum benefits is that over the years, they've become a lot less important. As a 2013 examination from the SSA noted, the effect of the special minimum benefit has diminished because of the differences in how it's calculated and how workers become eligible. Overall, wages have grown at a faster rate than price inflation, and so the amount of regular benefits that workers earn has caught up with the special minimum benefits in most cases.
You can see this effect in the distribution of those who receive special minimum benefits now. The largest number of minimum-benefit beneficiaries first became eligible in the late 1980s and early 1990s. Since then, though, the number of beneficiaries has dropped dramatically, with the 2010-2013 cohort falling in number to less than a quarter of past peak levels. Moreover, the average boost is relatively small, averaging less than $50 per month.
New minimum benefit proposalsRecently, policymakers have looked at ways to expand Social Security, especially for low-income earners. That has led to proposals to revamp the minimum-benefit system.
Most of those proposals preserve much of the existing minimum-benefit framework, instead aiming at changing certain aspects. Some proposals change threshold figures in a way that includes more potential recipients. For instance, reducing the earnings necessary to get a year of coverage to make it closer to the quarterly credit system that traditional Social Security uses would expand eligibility considerably. Some policymakers want to allow those caring for children to include that time as years of coverage for minimum-benefit purposes.
Other proposals target the way that the minimum benefit is calculated. Rather than using the law's historical basis for benefits, new proposals would tie payouts to various measures of the poverty level in an effort to guarantee viable minimum income for retirees. Changing the way in which benefit increases are tied to inflationary pressures over time can also lead to substantial impacts on payouts.
For now, relatively few people qualify for Social Security minimum benefits, and those who do get a fairly small bump in income from the system. Most proposals to change the system would similarly have minimal impacts on current beneficiaries. Over time, though, a more aggressive proposal to strengthen minimum benefits under Social Security could be a boon for low-income earners, even as it would impose potential new costs that the system would somehow have to absorb.
The article Social Security Minimum Benefits: Making a Comeback? originally appeared on Fool.com.
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