SOCIAL SECURITY SOLVENCY OPTIONS
We should work together to shore up the program, as soon as possible, for the long term so it will be there for all generations. But it is not necessary to dismantle Social Security in order to save it. A radical overhaul is not needed. If we make reasonable changes now, the program will be able to pay full benefits to the boomer generation and those that follow.
Here are two examples that, together, would get us more than half the way toward solvency:
First, we can restore the total wages taxed by Social Security to 90 percent of nationwide earnings, a historic level. Currently, only about 85 percent are subject to Social Security payroll taxes. The maximum wage subject to Social Security payments in 2005 is $90,000. Gradually raising that cap to $140,000 (perhaps phased in over 10 years) would lower the projected shortfall by some 43 percent.
Second, we can diversify Social Security's trust fund investments to increase the likelihood of higher returns. Today, the trust fund can only be invested in Treasury bonds. These are safe investments, but they have a modest rate of return. Currently trust fund bonds average about a 6% return. Investing some of these funds in a broad stock index fund -- as most state and other pension systems do -- could yield higher returns and lower the expected shortfall by some 15 percent.
Taken together, these two steps would lower Social Security's shortfall by 58 percent - and that is just for starters. There are a number of other possibilities that have been put forward. For example, extending Social Security coverage to make it universal, with appropriate transition relief reduces the shortfall by about 9%. AARP could support all three of these steps.
There are other changes that have been suggested for consideration to make Social Security solvent for future generations. Some of the more straightforward options that have been proposed at one time or another include:
- Gradually raise the retirement age to 70 by 2083 (reduces shortfall by 38 percent).
- Increase the number of work years calculated in the benefit formulas from 35 (the current base) to 38 (lowers the projected shortfall by 16 percent).
- Index the starting benefit level for longer lifespans or "average longevity" (lowers the projected shortfall by 25 percent).
- Reduce benefits for new retirees by 5 percent (lowers the projected shortfall by 26 percent).
- Raise the Social Security tax by ½ percentage point (from 6.2 to 6.45 percent each for employers and employees (reduces the shortfall by some 24 percent).
- Use a revised Consumer Price Index being developed by the Bureau of Labor Statistics that includes product substitution data ("superlative" index) for determining cost of living adjustments (COLA). (reduces the projected shortfall by 14 percent).