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A New Interactive Tool: You Decide How to Fix Social Security

Peter Huff contributed to this post.

Due to changing demographics within the United States, Social Security’s trust funds – for Old-age and Survivors’ Insurance (OASI) and Disability Insurance (DI) – are facing serious sustainability issues.  Combined, they are on track for insolvency in 2033, at which point payroll tax revenues would only be able to finance 77 percent of scheduled benefits. The aging and retirement of the Baby Boom generation is the primary factor behind the impending solvency crisis, causing outlays to elderly beneficiaries to significantly exceed receipts from the working age population.

The Committee for a Responsible Federal Budget (CRFB) recently published its analysis of this year’s trustees report which outlines Social Security’s financial difficulties and highlights the urgency of enacting gradual taxation, benefit, and program changes in order to maintain the program’s solvency.  There are many plausible alternatives, including those proposed by the Bipartisan Policy Center’s Domenici-Rivlin Task Force and the Simpson-Bowles Fiscal Commission

CRFB has conveniently produced an interactive tool that allows users to pick from a list of options to design their own plans to achieve long-term solvency. Many avenues of reform are actually quite simple. As demonstrated by the tool, which shows the magnitude of each reform’s impact on the projected 75-year Trust Fund shortfall, seemingly small changes could substantially improve the solvency of Social Security.* Possible modifications to the basic benefit structure include adjusting the progressivity of the benefit formula, modifying the method used to measure inflation to account for changes in the cost of living, and increasing the retirement age. Similarly, options for changes to the program’s revenue stream include raising the payroll tax rate, broadening the payroll tax base by increasing the limit on wages that are taxable (currently set at $113,700 for 2013), covering some previously exempt state and local employees, and changing the Trust Fund’s investment strategy from complete dependence on relatively low-risk, low-return government bonds to diversification into more volatile, higher-return corporate stocks, bonds, and mutual funds. 

The tool also includes several options for structural changes including fraud prevention and tightening of disability requirements. Last but not least, users have the option to increase benefits for certain groups of low-income and vulnerable individuals by selecting changes that include raising the special minimum benefit, implementing an old-age bump-up in benefits to ensure that seniors have sufficient income in their later years, and reinstituting survivor’s and disability benefits for college-aged students. These can be crucial elements of a reform package that better targets benefits to those individuals who need them most.

CRFB’s tool underscores many relatively simple, straightforward, and often common sense solutions to the funding issues facing Social Security. By enacting a balanced and comprehensive reform package soon that addresses both benefits and worker’s contributions, policymakers can ensure Social Security’s sustainability well into the future and prevent a serious crisis from developing. 

Early action is advisable for several reasons. First, instituting gradual, long-term reforms, rather than sharp benefit cuts or tax hikes once the trust funds are on the verge of insolvency, would promote stability, reduce uncertainty about the system’s future, and avoid disruptive harm to beneficiaries and the economy. In addition, the present cost of reform – in terms of impact on beneficiaries and taxpayers – is lower than it will be at any point in the future. Should policymakers choose to wait to address Social Security’s solvency challenges, the magnitude of necessary reforms would be concentrated on increasingly fewer Americans as the gap between outlays and contributions grows. 

The success of any solvency package relies on the willingness of policymakers to act in manner that promotes balanced and comprehensive reforms to the system. The availability of CRFB’s tool has the potential to engage the public to promote better understanding of the problem and the trade-offs necessary to put Social Security back on a sustainable track.


* The use of the term “Trust Fund” here refers to the combined OASI and DI balance. For more details about the two trust funds’ individual solvency status, see this post.

2013-06-05 00:00:00
The tool underscores relatively simple and often common sense solutions to the issues facing Social Security

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