AGE: Reform Social Security
By Alyssa Berg
With the passage of the Social Security Act in 1935, Congress codified our nation’s commitment to supporting the elderly, their survivors, and the disabled as they transition from the workforce to retirement. Since its passage, Social Security has provided integral support for millions of retirees, with over 40% of elderly Americans relying on benefits from the program to stay above the federal poverty level. Since 1935, each new generation of the American workforce has looked to this program as an earned benefit that will be waiting at the end of a career spent paying into the system.
But for Millennials, there are no such guarantees. Ours will be the first generation in the program’s nearly-80 year existence to experience an overburdened system that won’t be able to support the full population entitled to the program’s benefits. According to the Social Security Board of Trustees, in less than 20 years (by the year 2033), the Social Security trust fund will be exhausted by bulging demand from the baby boomer generation. So where does this leave Millennials once we reach retirement?
Common Sense Action believes that it’s important to start addressing these issues now in a way that’s fair to both today’s Social Security beneficiaries, to the baby boomers beginning to leave the workforce, and to future generations just beginning to pay into the system. Here’s our plan:
Policy Option 1: Use Chained CPI to index benefits.
Cost of living adjustments (COLAs) for Social Security benefits are indexed to inflation using the traditional consumer price index (CPI) for urban wage earners and clerical workers (CPI-W). We propose replacing the use of the CPI-W with the Consumer Price Index for Urban Consumers (CPI-U),
or the Chained CPI, which accounts for changes in consumer spending habits when prices grow at different rates. According to the Social Security Board of Trustees, the program’s solvency can be improved by reductions in program spending, and using the Chained CPI to index Social Security to inflation would do just that.
Policy Option 2: Gradually raise the Social Security retirement age to 69 and index it to life expectancy.
Since the establishment of 65 as the full retirement age several decades ago, life expectancy has increased for both men and women. This positive trend is expected to continue, and the Social Security retirement age should be adjusted in kind to reflect these changes. According to the Social Security Administration, the full retirement age is already set to rise from 65 to 67 by 2027, but raising the full retirement age to 69 and indexing retirement age to life expectancy would reduce program spending and bolster program solvency in the long run.
Policy Option 3: Subject 90 percent of wages to the Social Security payroll tax.
Between 1983 and 2008, the share of total wages subjected to the Social Security payroll and self-employment tax declined from 90 percent to 83.4 percent, due to rapid increases in wages for top earners. Raising the cap to 90 percent of payroll is estimated to eliminate about 28
percent of Social Security’s long-run deficit and continue to improve the program’s solvency.
Policy Option 4: Adjust Social Security benefits for wealthier recipients.
Under current Social Security law, all individuals who pay into the system are eligible for benefits, which are based on a percentage of an individual’s lifetime covered earnings. Currently, benefits for individuals in the highest wage bracket (average monthly wage above $4,517 and below the cap on covered earnings) are awarded at level of 15 percent. We propose reducing the initial benefit for average monthly wages above $4,517 from 15 percent to 10 percent, impacting approximately the top 25 percent of earners. This proposal would enhance Social Security’s long-term sustainability.