These days, as Con­gress debates the debt ceil­ing issue, Social Secu­ri­ty is sud­den­ly front page news again.  If you want to see the lighter side of the debate, click here:

The first thing to under­stand is that there IS a sol­ven­cy prob­lem with Social Secu­ri­ty.  Alice Munnell, Direc­tor for the Cen­ter for Retire­ment Research at Boston Col­lege Uni­ver­si­ty points out that, accord­ing to the Con­gres­sion­al Bud­get Office, the Office of Man­age­ment and the Bud­get and the Gov­ern­ment Account­abil­i­ty Office, the ben­e­fits promised to future retirees exceed the sched­uled tax­es that are pro­ject­ed to be tak­en in.  In fact, last year, Social Secu­ri­ty began pay­ing out more in ben­e­fits than it received in pay­roll taxes–years ear­li­er than pro­ject­ed, due to the 2008 Great Reces­sion.

The sec­ond thing to under­stand is that Social Secu­ri­ty is not going away; too many peo­ple today and in the future depend on it for a cru­cial part of their retire­ment income.  Munnell notes that Social Secu­ri­ty accounts for 87% of non-earned income for the poor­est third of house­holds over age 65, 70% for the mid­dle third and 37% for the high­est third. 

So the ques­tion becomes: how can Con­gress bring Social Secu­ri­ty back into rev­enue bal­ance.  To help illus­trate some of the trade-offs, the Amer­i­can Acad­e­my of Actu­ar­ies web site includes a game that allows all of us to fix Social Security–you can make your own adjust­ments here: and dis­cov­er a vari­ety of ways to bal­ance the books, some more painful than oth­ers.  You could, for exam­ple, move up by one year the day when peo­ple have to wait until age 67 to claim max­i­mum ben­e­fits, and after that index the retire­ment age to main­tain today’s ratio between expect­ed retire­ment years and work years.  This, alone, would solve 20% of the fund­ing prob­lem, and some would argue that it should have been done years ago. 

As an alter­na­tive, you could reduce the annu­al cost of liv­ing adjust­ments in Social Secu­ri­ty pay­ments by half a per­cent­age point.  This would reduce the pro­ject­ed defi­cien­cy by 40%.  Of course, it would also erode the pur­chas­ing pow­er of elder­ly peo­ple who count on Social Secu­ri­ty for a sig­nif­i­cant part of their income. 

We could reduce ben­e­fits by 5% for future retirees, which would solve 31% of the prob­lem. 

Or we could reduce the ben­e­fit for­mu­la for the top half of earn­ers, who the­o­ret­i­cal­ly are less depen­dent on Social Secu­ri­ty in retire­ment.  That would solve 43% of the pro­ject­ed Social Secu­ri­ty deficit.  It would also mean that peo­ple who are able to fund a com­fort­able retire­ment will get much less out of the sys­tem than they put into it.

On the oth­er side of the ledger, we could incre­men­tal­ly increase the rev­enues going into the Social Secu­ri­ty sys­tem.  For instance, if we raised the pay­roll tax rate from the cur­rent 6.2% to 6.7% for employ­ees and employ­ers, 48% of the short­fall would go away.  As an alter­na­tive, we could tax Social Secu­ri­ty ben­e­fits like we do IRA and pen­sion ben­e­fits, which would make up 14% of the pro­ject­ed short­fall.

As you can see, none of these pro­pos­als, by itself, will bring Social Secu­ri­ty back to fis­cal health.  If you’re look­ing for an out-of-the-box solu­tion to add to the mix, con­sid­er an arti­cle in the Chris­t­ian Sci­ence Mon­i­tor, where for­mer U.S. Sec­re­tary of Labor Robert Reich notes that a big (and large­ly undis­cussed) prob­lem with Social Secu­ri­ty is the shift­ing bal­ance of work­ers pay­ing into the sys­tem to retirees col­lect­ing from it.  Forty years ago, he says, there were five work­ers for every retiree; today, there are three.  In 20 years, per­haps less, the ratio will be 2:1–that is, every two work­ers in Amer­i­ca will have to pay what­ev­er is required to sup­port one retiree’s Social Secu­ri­ty ben­e­fits. 

How would you fix this prob­lem?  Reich pro­pos­es that we allow more immi­grants into the U.S.–that immi­gra­tion reform and enti­tle­ment reform are linked.

As the deficit debate goes for­ward, you’ll hear a lot more about how to “fix” Social Secu­ri­ty.  Con­sid­er this a cheat sheet on the options that var­i­ous par­ties will even­tu­al­ly put on the table.  We would love to hear your thoughts on how to solve this and oth­er issues.  Dur­ing our plan­ning process we put our heads togeth­er to come up with solu­tions that make lives bet­ter and more suc­cess­ful.  Let’s encour­age our gov­ern­ment to do the same.  If you have a good idea, let us know!



Alice Munnell:

Robert Reich: