How to Tune-Up Social Security

5. Set a minimum benefit

People who had low incomes during their working lives — perhaps one in five earners — now may end up with benefits that are still below the poverty line. A minimum benefit might be set at 125 percent of the poverty line, indexed to wage increases to keep it adequate over time.

6. Modify the COLA formula

Social Security benefits generally rise to keep up with the cost of living. This cost-of-living adjustment, known as the COLA, is currently based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (known as CPI-W).

One proposal would switch to a different measure, the "chained CPI," which assumes consumers alter their buying patterns if a price goes up too much. Say the price of beef soars — people may switch to chicken. The chained CPI rises about 0.3 percentage point more slowly each year than the CPI-W, meaning benefits would grow more slowly, too — about 6 percent less over the course of 20 years. Adopting a chained CPI would reduce the shortfall by about 23 percent.

Another approach would substitute a formula known as CPI-E. It takes into special account the type of spending that is more common among people 62 and older, such as medical care, which continues to rise faster than other costs. This could increase benefits, expanding the shortfall by about 16 percent.

7. Raise the full retirement age

The age at which you can get full Social Security benefits is gradually rising to 67 for people born in 1960 and later. Pushing it up even further would save money and provide an incentive for people to keep working.

A full retirement age of 68 could reduce the shortfall by about 18 percent. Raising it to 70 would close 44 percent. Such increases could be phased in, and proponents say this approach makes sense in an era of increased life expectancy. A healthy 65-year-old man, for example, is expected to live beyond 82. But not everyone has benefited equally from increases in longevity — lower-income, less educated workers have not gained as much as their more affluent, more educated counterparts. And a later full retirement age could be onerous for workers with health problems or physically demanding jobs. A related proposal — longevity indexing — would link benefits to increased life expectancy.

8. Give the oldest a boost

Americans are living longer, and the oldest often are the poorest. They may have little savings left; usually they no longer work and any pensions they have are likely eroded by inflation. A longevity bonus, for example, a 5 percent benefit increase for people above a certain age, say 85, could help them.

9. Establish private accounts

Free-market advocates have long pushed to make Social Security more of a private program, in which some of your payroll taxes would go into a personal account that would rise and fall with the financial markets. Supporters believe that stock market returns could make up for benefit cuts. You would own the assets in your personal account and could pass them on to your heirs. Personal accounts could be introduced gradually and become a choice for younger workers, while retirees and near retirees could remain in the current system. Opponents worry that they would replace a guaranteed, inflation-protected benefit for workers and, potentially, family members, with more limited protections. Private accounts only pay out the amount in the account. Also, diverting money to private accounts means additional funding could be needed to pay currently promised benefits.

10. Cover more workers

Not all workers take part in Social Security. The largest uncovered group is about 25 percent of state and local government employees who rely on state pension systems. Bringing new hires into Social Security would raise enough new revenue to trim about 8 percent of the long-term shortfall (though down the road, when these people claim benefits, costs would rise). State and local governments may oppose such a measure because it would divert dollars from public pensions that are already underfunded.

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Jonathan Peterson wrote Social Security for Dummies © 2012 by AARP/John Wiley & Sons Inc. He is an executive communications director at AARP and a former correspondent at the Los Angeles Times.

'Social Security for Dummies'

New AARP book by Jonathan Peterson helps you navigate the system, figure out your options and make decisions about your benefits. Read