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Retirement Planning > Social Security

Nine Ways to Save Social Security

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Happy Birthday, Social Security. Or is it?

August marks the 75th anniversary of the signing of Social Security into law by President Roosevelt. Three quarters of a century on and controversy over this staple of the New Deal shows little sign of abating.

As The Washington Post‘s Chris Cillizza notes, former President Bush’s failure to pass a reform of the system played a role in the Democratic takeover of the House and Senate in 2006 and Democrats are hoping it will mitigate their expected losses in the upcoming midterm election.

President Obama took to the airwaves earlier this month to castigate critics of the program. And Senate Majority Leader Harry Reid is wielding the Social Security hammer in an attempted political bludgeoning of Republican challenger Sharron Angle over past comments.

So what can be done to ensure Social Security’s long-term solvency? Will it require radical surgery, or over-the-counter medicine? Are critics’ concerns more hype than help? Should it be done away with altogether?

We round up ideas and opinions of the interested parties.

1). Increase taxes/means testing. As The New York Times notes, since President Reagan’s 1983 reform, the rule specifying the amount of annual wages that are subject to the Social Security payroll tax (currently $106,800) has not kept up with the income gains of the top earners. In 1983, only 10% of all wages escaped the payroll tax. Today, it is 15%. If the wage base was increased over 40 years so the amount of wages on which no payroll tax was paid was closer to the 1983 level, some 10% of the Social Security shortfall would disappear. But is it fair?

“They’ll tax more and more of your income and, at some point, it will be that wealthy people simply won’t get it at all,” says lawyer, economist and comedian Ben Stein. “It’s just not going to be viable to pay people Social Security who have a $1 million a year in dividend income. That just doesn’t make much sense. It makes sense if you assume that you have a right to Social Security. But if you assume that you are bound by the laws of arithmetic and the laws of financial gravity, then it doesn’t make sense.”

2). Raise the eligibility date. Life expectancy for someone who was able to live past childhood in 1935 was 65 years old. Actuaries calculated that just as many people would be expected to die before they began receiving benefits as would individuals who live to collect payments. But with advances in technology and medicine, today’s life expectancy is 78 years old. However, the eligibility age has not changed since the program began.

3). Consider privatizing a portion of the Social Security Trust Fund. With the recent financial crisis, the idea isn’t popular. Besides the perceived market risk, populist outrage over Wall Street salaries further complicates the issue. However, Laurence Kotlikoff, Professor of Economics at Boston University and author of Jimmy Stewart is Dead: Ending the World’s Ongoing Financial Plague with Limited Purpose Banking, has a solution for both problems.

“Privatize a portion of the trust fund” he argues, “but invest it in a globally diversified index fund run by the government. That way, it minimizes risk and removes Wall Street from the picture.”

4). Freeze current system in place, start anew. Facing severe budget shortfalls, state governments have severely cut back on retirement benefits offered through Public Employee Retirement Associations (PERA). Kotlikoff suggests something similar, only he says it won’t necessarily result in cuts to benefits.

“Freeze the current system so it pays out its current obligations to retirees, but for those now contributing or just entering the system, replace it with something simple and partially-privatized. Just zero-out the earnings and begin again. It isn’t that complicated; a laptop computer could run the whole system.

5). Offer a one-time buyout. Former presidential candidate and bass guitar aficionado Mike Huckabee suggested in 2008 that we offer higher-income retirees a one-time buyout or the opportunity to purchase a tax-free annuity. It might have been just more election year Social Security rhetoric, but something to consider for those who don’t have to rely on it each month.

6). Link life expectancy to income levels. Again with a nod to our friends at the New York Times, the well-off live longer than the less affluent, and their lead is growing. That’s bad news for Social Security. It means that those with high earnings not only draw the biggest retirement checks, but they also do so for a longer time, compared

with everyone else. That, in turn, makes the system less progressive than it would be if life expectancy were roughly the same at all income levels. Currently, the highest-earning workers get 15 cents in benefits for every dollar of earnings at the top end of the benefit formula. Reducing that share to 10 cents over the next 25 years or so would affect only about the top 15% of retirees, would make the program more progressive and would close about 10% of Social Security’s deficit.

7). Act now. According to, the sooner reform is implemented the better off the system is going to be. The Social Security Trust Fund is strong financially, but the longer reform is dragged out, the less solvent becomes. If action is not taken before Social Security is on the edge of bankruptcy, there will be much less money to work with.

8). Do nothing. Social Security is in good shape. According to the National Committee to Save Social Security, “Unfortunately, the opponents of Social Security have spent millions of dollars promoting the illusion that Social Security is in severe financial trouble and will not be there when the next generation retires. Nothing could be further from reality. That is why the National Committee to Preserve Social Security and Medicare is spreading the truth, through educational materials like the one you are reading now. Social Security is a strong and effective retirement program that provides millions of Americans the financial protection they need when they most need it. Implementing a few balanced, modest changes will ensure that Social Security remains stable for generations to come.”

9). Get political. As if it could get any more political, Kotlikoff wants to take it to the streets.

“It’s financial child abuse. Young people hand over 15% of their salary in tax to Social Security, and we hand back this incredibly complicated system which they have no idea how it works. If we increase the eligibility age, it equates to a 20% cut in benefits. We need to start a commission of young people to get their ideas. We need to call for marches on Washington. We need to start a political movement.”


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