In Washington, all eyes are on the 12-member congressional super-committee. It begins its work this month and is charged with figuring out, by Thanksgiving, how to slash $1.5 trillion from the deficit. Congress is expected to vote on its recommendations by Dec. 23.
Unless the committee exempts it, which seems unlikely, Social Security will be among the programs scrutinized.
Here are three measures likely to be considered:
1. Change the cost-of-living adjustment (COLA).
COLAs protect the buying power of benefits against erosion by inflation. Since 1975 the consumer price index (CPI) has been used to set the rises. But some economists argue that the CPI overstates inflation because it doesn't fully take into account how consumers react to price rises by substituting lower-cost items (such as chicken for beef).
The super-committee may recommend replacing the present CPI with a so-called chained CPI that measures the effect of substitutions. This would be a more accurate gauge, proponents say; it would also save Social Security money by lowering COLAs.
The Congressional Budget Office has estimated that adoption of the chained CPI could save about $108 billion over 10 years. By the time a retiree reaches the age of 90, his or her benefit would be about 8 percent lower than if the current system had been retained.
Critics say that while the chained CPI may more accurately measure inflation for most consumers, it doesn't factor in the relatively high out-of-pocket health care costs paid by older Americans — who typically spend two to three times as much of their budgets on medical care as younger households do. Their freedom to make substitutions is limited: Aspirin is no substitute for a hip replacement.
Some proponents would compensate by providing a "bump-up" in benefits at, say, age 85. That would provide little comfort for people below 85 but still struggling to meet rising costs with reduced COLAs.
2. Use a means test to cut benefits for wealthier beneficiaries.
Unlike welfare programs, Social Security has never subjected anyone to a means test to determine eligibility for benefits. Social Security has functioned as an earned right. That's where the whole idea of entitlement comes from — we're entitled to benefits because we've been contributing toward them for so many years. This is one of the chief reasons why Social Security has always enjoyed strong public support.
Today some lawmakers argue that this approach is unsustainable. With Social Security facing a growing gap between revenues and outlays, they ask, why should Warren Buffett get benefits?