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Social Security: Closing the Gap

New report weighs options for ensuring solvency.

social security options

— Bruce Peterson/Gallery Stock

3. Raise the retirement age.

The age to receive full retirement benefits has already gone up from 65 to 66 and is scheduled to reach 67 in 2027.

One of the proposals evaluated by the CBO would index the full retirement age to changes in average longevity. That would take care of about one-third of the shortfall. But raising the retirement age could create problems for people in physically demanding occupations, such as construction workers.

An increase in the full retirement age would amount to a cut for most recipients, suggests Rother. That’s because most workers don’t wait until full retirement age to start claiming benefits, and their early benefits are a reduced amount based on the full retirement age. If the full retirement age were raised, people retiring at 62 would get smaller benefits forever.

4. Change the COLA.

Cost-of-living adjustments have ensured that Social Security benefits keep pace with inflation. But many economists believe that the Consumer Price Index on which the adjustments are based is a flawed measure of buying power.

It would be more accurate, they say, to use the “chained CPI,” which reflects changes in consumer spending patterns. If the price of beef rises, for instance, many people might switch to pork, softening the impact on their household finances.

Moving to that index would shave a little bit off of benefits every year, and close about a third of the solvency gap. But, says Baker, that would place a hardship on Social Security recipients who live the longest, and rely on the benefits for more and more of their total income in their late years: “It would hurt a lot of widows, many of whom are on the edge of poverty.”

Baker adds the Labor Department has been tracking a price index that is based on a basket of goods that older consumers tend to buy. But that index has been rising faster than the CPI now used for COLAs, partly because of the increase in the cost of health care. So using a “senior market basket” as a base would likely raise benefits (and widen Social Security’s financial gap) over the long term.

5. Increase benefits for low-income earners.

Social Security has changed in many ways over its 75-year history, and one way is this: Its ability to meet the needs of the poorest retirees has declined as costs have gone up, many analysts say.

“Low-income workers haven’t had much in the way of wage increases, and they have not been able to save for retirement,” observes Rother. “They are more dependent on Social Security than we would have anticipated 20 or 30 years ago.”

The CBO report analyzes several options aimed at raising benefits for workers who have low earnings over a long period of time. These would worsen the financial shortfall by a little or a lot, depending on how the increases were constructed.

But such moves might help make the rest of the CBO options more palatable to policymakers who want to do something to stabilize the long-term finances of the program without hurting its most vulnerable recipients.

Linda Stern writes on the economy and taxes.

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