Three Takes on Reforming Social Security

Though neither major party presidential nominee has offered a plan to shore up the Social Security trust funds, prompt action is needed to prevent insolvency and the resulting $100,000 lifetime benefit cut for today's typical 50-year-old and $170,000 lifetime cut for today's newest college graduates.

Luckily, many solutions are available to ensure Social Security's solvency, and last week three pieces were released outlining potential solutions. They come from Joshua Gotbaum of the Brookings Institution (formerly the Pension Benefit Guarantee Corporation), Gene Steuerle of the Urban Institute (and CRFB board member), and Rachel Greszler of the Heritage Foundation.

Joshua Gotbaum argues that policymakers should enact Social Security reform in the context of the broader retirement security conversation. He argues that while there is a tension between those who want to expand benefits and those who want to control costs, this tension can be addressed by enhancing benefits for those who need them the most while achieving broader long-term solvency. He specifically cites the Bipartisan Policy Center's (BPC's) proposal from earlier this year, which would raise revenues, slow the growth of benefits, and increase the retirement age in order to achieve 75-year solvency while instituting a strong minimum benefit, enhanced benefits for widows, and a more progressive benefit formula. Gotbaum explains:

After much debate and simulation modeling, [BPC] proposed that Social Security benefits be changed to provide a more reliable safety net and raise benefits for women and the working poor...The result of all these changes? Social Security would be fully funded for the next 75 years, perhaps longer, and would be a better safety net for more people than it is now.

Gene Steuerle offers a similar take from a different perspective. Writing on the role of Social Security in the federal budget, Steuerle argues that it's important to restructure Social Security so that rather than offering large benefits to wealthy individuals in retirement, we instead ensure retirement security for lower-income retirees and prioritize public investments in education, infrastructure, and income security. Steuerle explains:

The current [Social Security] system discourages work in late-middle age, something that is no longer easily affordable and which reduces economic growth, personal income and tax revenues. Congress should reduce Social Security’s natural disincentives for work both by adjusting the retirement age as we live longer and saving a larger share of lifetime benefits for later ages, when health needs rise and work is less possible. As lifespan increases, Social Security now promises a typical newly retired couple aged 62 an average of more than 28 years of benefits (today, one of them is likely to make it to 90 years of age). That’s more than enough; there are greater societal needs than the desire for more retirement years.

Rachel Greszler also calls for making Social Security more progressive, and in fact "return [Social Security] to its anti-poverty roots." Specifically, Greszler proposes Social Security be gradually transformed into a flat benefit that offers much higher benefits for low-income workers but reduces future scheduled benefits for middle- and upper-income earners. She also proposes to adjust the retirement age and index cost-of-living adjustments to a more accurate measure of inflation. As Greszler explains:

A flat, anti-poverty benefit would lift millions of retirees out of poverty. Although middle- and upper-income earners would receive less from Social Security, they would be far better off financially (both in their working years and retirement) than if they were forced to pay higher taxes to maintain Social Security’s promised benefits.

These three proposals are all very different and come from authors with very different political perspectives. But interestingly, they have four major features in common. First, all effectively conclude that Social Security's cost growth should be slowed, not accelerated. At the same time, however, all argued for making Social Security more progressive by not only slowing benefit growth at the top, but by enhancing benefits for low-earners and others in need. Additionally, all three proposed or expressed support for plans to raise the Social Security retirement age to reflect rising longevity.

Perhaps most importantly, all called for or proposed plans to make Social Security fully solvent over the next 75 years, so that no one will face a massive across-the-board benefit cut as a result of insolvency.

There are many ways to ensure Social Security is solvent (design your own plan here), but changes need to happen sooner rather than later. The cost of delay is high, and time is running out to enact sensible solutions.