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How Americans Would Solve the Social Security Crisis

By: Mathew Greenwald

The Social Security Crisis

There has been little comment about the damage created by the failure to address the Social Security funding crisis. The crisis is real. The Social Security Trust Fund is running out of money and is expected to be totally depleted in 2033, only eight years from now! If nothing is done, Social Security benefits will then be cut by 23% for every beneficiary.

This looming crisis has caused a great deal of anxiety among large numbers of Americans about financial security in retirement and has made it difficult for those approaching retirement to effectively plan financially for their life in retirement. A key part of retirement planning is trying to figure out what asset level is needed at retirement to fund needed expenses throughout retirement. Since Social Security is the foundation for almost all retirees’ income, the goal of retirement planning is to calculate how to fill in the gap between what an individual or family will get from Social Security and their expenses. But how can people now estimate what they will get from Social Security? Based on current law, it will be 17% less than scheduled benefits. This is a substantial figure, especially since 40% of retirees get at least half their income from Social Security.

Testing Policy Options

Greenwald Research was asked by the National Academy of Social Insurance (NASI), with support from AARP, the Chamber of Commerce, and the National Institute on Retirement Security, to determine how the American public wants the Social Security crisis resolved. We used a conjoint analysis to determine the package of Social Security reforms that Americans prefer. You can get a copy of the report at the NASI website: https://www.nasi.org.

In all, we tested policy options in nine key areas, including:

  • raising the income cap subject to Social Security taxes
  • increasing the Social Security tax
  • increasing the age of entitlement for full benefits
  • decreasing benefits for higher income beneficiaries.

We also tested expanding benefits, such as using a formula which will increase annual cost of living adjustments. When testing preferences for reform, respondents were informed about the impact of each package of policy options on the Social Security funding gap. This turned out to be very important because one of our major findings is that an overwhelming majority of Americans – regardless of political affiliation – want the Social Security funding gap fully closed: they do not want benefits to be cut for most retirees.

The Preferred Solution

This is the solution Americans prefer (in order of the strength of their preference for the policy change):

  • Keep the current cap of annual work income subject to Social Security taxes, which was $168,000 at the time of the survey and is now at $176,100, and reinstate it on income above $400,000. Do not provide higher benefits based on taxes paid on income above $400,000.
  • Increase the tax rate on both employees and employers from 6.2% to 7.2%
  • Increase the cost-of-living adjustment by basing it on inflation for older people
  • Give parents who are stay-at-home caregivers for children under age 6 credit for work for the purpose of calculating Social Security benefits
  • Reduce the penalty for receiving Social Security benefits early for people with a long history of physically demanding work or who are unable to work due to declining health
  • Reduce benefits for higher income beneficiaries

These changes not only eliminate the Social Security funding gap, they provide a surplus of 1%.

Eighty-two percent of Americans prefer this package over the current system.

It is interesting that there is support for expanding Social Security in limited ways, even though, in each case, the particular policy would worsen the Social Security funding gap. Americans want a cost-of-living adjustment that is more closely aligned with the real inflation older people face. They want to provide more benefits to those who cannot work because they are raising young children or because they are worn out after years of physical work.

Our key takeaway is that given the facts about the Social Security funding gap, there is a broad consensus on how the funding crisis should be addressed. Greenwald Research does not have a comment on the solution the public prefers. But we do feel that solving the funding crisis one way or another in the very near term will reduce anxiety and make retirement planning more effective: two desirable outcomes.