There are, of course, many answers to that. For one the rate of return on Social Security is lousy. Many people have pointed out that if anyone but the government ran this system there would be politicians falling all over themselves looking to get to the bottom of things and threatening people with punishment. The scandal would be enormous. But for the purposes of this post, I am going to ignore that (and other) complaints about the program to concentrate on two simple explanations. It’s not that other gripes and such are not relevant, but there are certain limitations within the system that constrain the payout of Social Security benefits.
One of them, believe it or not is restraint from our politicians. I know, I know that sounds crazy. But the last two major adjustments to Social Security benefits happened 30 years ago. A cost of living adjustment (COLA) was added in 1975 and the raising of the retirement age to receive full benefits was done in 1983. Now, it can be argued that their hands are somewhat tied in that the system’s design is such that it is a pay as you go format. But, in reality that is nothing more than a really tiny fig leaf. The baby boomers contributions were added to budget and replaced with IOUs (government IOUs, but IOUs nonetheless). Those of us behind the boomers will not only have a higher retirement age, but every penny of our contributions (and much, much more) will be used to pay them. However, even given all of that, it is still remarkable that there is not more political pressure to raise Social Security benefits. After all, in some districts at least, you would think that it would be easy to call for a bigger monthly check. On the other hand we do have a $17 trillion debt so it might not be quite as simple as all that. Regardless, the fact is that all things considered, it is somewhat amazing that Social Security has been as constrained as it has been.
The other factor is the same as that faced by insurance companies when they calculate an annuity payout. And that is life expectancy. As Americans keep living longer, the less money there is to go around. Anything that pays out for life has a benefit boosted by the death of the other fellows in that pool. As those that die early get nothing, their money is added to the pot to pay the rest. If lots of people started dying early, there would be much more money available to increase the monthly payout for those remaining. Now in reality, with Social Security running a deficit there would be no “money available” as there is not really “money available” now to pay the beneficiaries. But once again this is where that tiny fig leaf comes in. Politicians like to explain Social Security benefits as solid based on the principles of the program, not how the program actually works. If you look at any literature about Social Security it often reads as if it is an insurance program. The language is all cribbed from the insurance industry and makes everything seem logical and based on a solid accounting of actuarial tables, beneficiary credits etc. So, while it must be undoubtedly tempting for politicians to call for a vast increase in Social Security benefits, it would require them to throw away the purported meaning of the program.
That would be extremely difficult to do (at least today) and therefore they do restrain themselves somewhat. There are quite a few reasons that Social Security benefits are low, but whether any of them matter is another question entirely. For good or ill, that monthly check is unlikely to go higher anytime soon.