Some Options for Social Security Reform on the Benefits Side
CRFB’s earlier post on CBO’s Social Security Options publication covered some of the broad reform options, especially those effecting Social Security Revenues. Today, we’d like to focus a little more on a few options on the benefits side.
Raising the retirement age is one often cited possibility (see our previous post on this here). Since the average American retiree’s expected life expectancy has increased by more than five years since the inception of the Social Security program in the 1940s, it is fundamentally more costly for the government to provide benefits to them for the duration of their retirement years. This problem could be offset by an increase in the retirement age. One option CBO presents is a raise to age 68 (Option 26), which would occur gradually by 2028. According to CBO, this would decrease Social Security’s total outlays by 3 percent of current GDP and also decrease lifetime benefits to retirees by about 6 percent. The federal retirement age (FRA) could also be raised to 70 (Option 27) in the same 30 year time window, an increase that would more fully offset the increase in life expectancy that has put stress on the program, reducing Social Security outlays by 6 percent by 2040 and benefits to retirees by 15 percent.
Another option is the lowering of initial benefits, often called “progressive price indexing.” CBO includes two options (Options 18 and 19) for this: implementing the indexation for either the top 70 or top 50 percent of earners, with no effect on the scheduled benefits for the bottom percent of average earners. This option would require initial benefits for such earners to gradually decline over time (relative to current law, not in nominal terms) by approximately 30 percent, decreasing total Social Security outlays by about 7 percent from the current level. If initial benefits were lowered for the top 50 percent of earners instead, the reduction in outlays would be 6 percent.