Come up with your own plan to stabilize Social Security. Try mixing and matching these six options to close the funding gap.
Most analysts expect lawmakers to approve a combination of tax changes and benefit changes so that workers and beneficiaries share the cost of stabilizing Social Security over the next 75 years.
TAX CHANGES
Increase the payroll tax.
Social Security gets most of its money from a payroll tax on covered workers' earnings – up to $106,800 in 2009. The current tax rate is 12.4 percent – 6.2 percent from employees and 6.2 percent from employers. Raising the rate by one-quarter of 1 percentage point on both employees and employers would close 23 percent of Social Security's shortfall. 23%
Raise the limit on taxable earnings.
Historically, Social Security has taxed 90 percent of all earnings in covered jobs, but that share has slipped to 83 percent over the last 25 years. If the share had remained constant, taxable maximum income would be $213,000 in 2009. Phasing in a taxable maximum that again covered 90 percent of all wages by 2020 would close 39 percent of Social Security's gap. 39%
Include newly hired state and local government workers.
About 5 million state and local government workers aren't covered by Social Security. Bringing newly hired employees into the system would produce revenue in the short term and close 10 percent of Social Security's shortfall, though the measure's impact would diminish as those covered workers started claiming benefits. 10%
BENEFIT CHANGES
Raise the full retirement age to 68 or 70.
Because of Social Security reforms approved in 1983, the full retirement age is scheduled to increase to 67 for workers born in 1960 or later. Further increasing the full retirement age to 68 by 2028 would close 25 percent of Social Security's gap, while raising the
age to 70 by 2040 would close 61 percent of the shortfall. 25%
Reduce cost-of-living adjustments.
Some analysts say Social Security's annual automatic cost-of-living adjustments should be cut because they overstate price increases. Using a more accurate inflation index that accounts for consumers' changing their purchasing habits in response to price hikes would close 17 percent of Social Security's gap. 17%
Change the initial benefit formula.
Social Security pays retirement benefits based on the highest 35 years of a worker's earnings. Some analysts propose using 38 or 40 years, which would scale back benefits for workers with shorter careers. The 38-year proposal would eliminate 18 percent of Social Security's deficit; the 40-year proposal would eliminate 29 percent. 18%
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