Once considered politically off-limits, changing Social Security is creeping into the 2016 presidential campaign in both major parties.
Some candidates want to raise the retirement age. Some want to collect more taxes. Some want to tinker with benefits.
Working Americans and their employers fund Social Security through payroll taxes, funding the retirement of current beneficiaries with this promise: future workers will pay your benefits when your golden years arrive. Because of an aging population, fewer workers increasingly must to fund the benefits of a greater number of retirees.
Here are some ideas to fix that problem.
1. Work longer
Republican Gov. Chris Christie of New Jersey in April proposed increasing the retirement age to 69. Republican Florida Sen. Marco Rubio also supports raising the retirement age.
Raising it to 69 would reduce the projected funding shortfall by 25 percent over 75 years, according to the Social Security Administration.
There’s a downside, however. Lower-income Americans have shorter life spans, meaning they’d get less in relative terms. And they’re more likely to quit work before 69 and be forced to take early retirement.
That would mean a reduced lifetime payment from Social Security. Those who need it most would effectively get the least back.
Under the last overhaul of Social Security in 1983, Americans born after 1960 presently reach official Social Security retirement at 67. Those born between 1954 and 1959 can retire at 66 and people born before that at 65.
2. Get less
Several Republican candidates, especially former Florida Gov. Jeb Bush, suggest that people with higher incomes don’t need Social Security in retirement and thus should get less. This would represent a significant philosophical shift toward a welfare-like approach and away from a program whose hallmark is equal treatment for all.
Today, everyone’s benefits are calculated under a formula that looks at an individual’s lifetime work history. Workers who earn more pay more up front in Social Security, and get more back in retirement. If an individual’s income in retirement is high enough, their Social Security benefits already are treated as taxable income.
3. Pay more
Employers and employees each pay taxes into Social Security, each equal to 6.2 percent of the wages.
But there’s a ceiling on how much income is subjected to payroll taxes for Social Security, this year limited to the first $118,500 earned. There is no such income cap for the portion of payroll taxes going to fund Medicare.
Sen. Bernie Sanders of Vermont, seeking the Democratic presidential nomination, would keep the cap but subject all income above $250,000 to payroll taxes.
Since the current cap on income subjected to payroll rises over time, by the end of two decades it will have risen to around $250,000. At that point, under a Sanders plan, all income would simply be subjected to payroll taxes, as it now for Medicare funding.
4. Change the COLA
Social Security benefits are subjected to an annual cost-of-living adjustment based on the Labor Department’s Consumer Price Index, used to determine the inflation rate.
Some GOP candidates, such as Sen. Ted Cruz of Texas, hint at an alternate measure of inflation, called chain-weighted CPI. It’s a fancy term that economists use for a calculation of inflation that assumes consumers react to higher prices by seeking cheaper alternatives. For retirees, it would translate into a less generous annual adjustment, saving the Social Security program money.
5. Remember the elderly drive less
Advocates for seniors complain the measure used today for Social Security adjustments ignores that seniors consume differently than younger Americans. The benefit adjustment has been subdued in recent years because gasoline prices have plunged, lowering the inflation rate. But seniors drive less than most of us, and that isn’t reflected in benefit adjustment.
Former Maryland Gov. Martin O’Malley proposes using the Labor Department’s Consumer Price Index-E, which narrowly gauges on what seniors actually spend their money. This CPI-E has a problem, however. It is relatively new, experimental and, by the agency’s own admission, not yet ready for prime time. It may help seniors but could cost Social Security more too.