“Fixing” Social Security

If nothing is done, the Social Security Trust Fund will be depleted by ca. 2035 and projected retirement benefits will drop by ca. 20%. What are the alternatives?

The favorite alternative on the right is to increase the normal retirement age to 70. 

“Increase the normal retirement age (NRA) 3 months per year for those age 62 starting in 2026 and ending in 2037 (NRA reaches 70 for those age 62 in 2037). Thereafter, index the NRA to maintain a constant ratio of expected retirement years (life expectancy at NRA) to potential work years (NRA minus 20). We assume the NRA will increase 1 month every 2 years. Also, increase the earliest eligibility age (EEA) from 62 to 64 at the same time the NRA increases from 67 to 69; that is, for those attaining age 62 in 2026 through 2033. Keep EEA at 64 thereafter.”

The argument for increasing the retirement age is that when the program started the average life expectancy was 62 and now average life expectancy is in the 70s or 80s. Of course, most of the increase in life expectancy since 1940 is actually due to an increase in survivorship between birth and age five due to vaccines and antibiotics. The relevant statistic is how much life expectancy for someone *at age 65* has increased since 1940. For men, that has increased about 6 years and for women about 7 years. 

Setting aside that increasing the age of SS eligibility is the equivalent of cutting benefits, the Social Security Administration’s own projections would do little to extend the Trust Fund solvency.1 It’s really no solution at all.

What about other alternatives? One would be to eliminate the payroll tax cap on Social Security. The Social Security Administration projects that would extend the Trust Fund solvency by two decades.2
Of course, removing the cap but keeping the same benefit structure turns SS into welfare, a perennial GOP football. 

Another alternative would be to leave the cap in place but raise taxes on all workers incrementally to reach an additional 2%. This idea has been discussed extensively here at AB in the past and apparently the math says it would allow full benefits to continue indefinitely.

A third, not mutually exclusive alternative is to allow more legal immigrants as workers. Undocumented workers already subsidize SS when they supply fake SS numbers and their employers send in payments that will never be claimed as benefits. I don’t know how much immigration expansion would be required, but I haven’t seen this seriously discussed.

 

1 https://www.ssa.gov/oact/solvency/provisions/charts/chart_run102.html#graph

2 https://www.ssa.gov/oact/solvency/provisions/charts/chart_run160.html#graph

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