Social Security: AARP Drops Truth Bomb About System’s Instability, Suggests 9 Ways To Save It

Worried senior couple looking at view through window of their home.
DjelicS / Getty Images

One of the most worrisome headlines about retirement in the United States is that Social Security benefits could be reduced starting in 2034 due to a shortage of funds. For retirees who depend heavily on Social Security income to get by, the prospect of smaller checks every month is more than a little problematic.

The AARP addressed this issue in a lengthy report this week. The report noted that not only is Social Security the biggest source of income for most retirees, but the program also has never missed a monthly payment since it cut its first check in 1940.

Lately, though, people have grown anxious about Social Security as a large influx of new baby boomer retirees exhausts the current trust fund. A 2020 AARP poll found that 57% of Americans are not confident in the future of the program — despite the fact that it has widespread public support.

“It’s crystal clear that Americans of all generations value the economic stability Social Security has offered for the last 86 years — even more so as we face the health and economic challenges of a global pandemic,” said Nancy LeaMond, AARP executive vice president and chief advocacy and engagement officer. ​

But if lawmakers don’t do something to help support Social Security, it will be out of money in about 12 years, the AARP noted. At that point, its only funding would come from ongoing tax revenue, which would cover only 78% of promised benefits.

Are You Retirement Ready?

So what to do about it? In its report, the AARP listed nine ways to save Social Security. Here’s a quick look:

  1. ​​​Increase payroll tax rates. ​​Upping the rate from its current 12.4% to something closer to 14.4% could add billions of dollars in additional funding every year, though a hike would be hardest felt by lower earners and the self-employed.​​
  2. Broaden the base. Some state and local workers are taxed on public pensions rather than Social Security. Bringing all of them into the SSA would create a large new influx of cash. ​​
  3. Broaden the definition of “income.” Some forms of income are not subject to Social Security Administration payroll taxes, such as the value of​ employer-sponsored group health insurance. Gradually eliminating these exclusions — and collecting payroll taxes on the additional income — would prop up the Social Security trust funds for about four additional years.
  4. Increase the SSA tax on higher incomes. ​​This approach calls for adjusting the size of Social Security payments based on a person’s wages, wealth or income.
  5. Cut benefits for new recipients. ​​Under this plan, newly eligible retirees would be paid a little less per month than promised. By cutting payments to new retirees by 3%, you could extend the life of the trust funds by 10 years, according to a 2005 study by the SSA.
  6. Reduce the cost-of-living adjustment (COLA). ​​Every year the SSA adjusts beneficiary payments to account for inflation, based on the government’s Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Some have proposed switching to different inflation measures or simply reducing the COLA, but this is not a popular idea because of the financial impact it would have on beneficiaries. ​​
  7. Change benefit calculations. ​ The SSA uses your highest 35 years of salary history to determine your retirement benefit. Using a higher number of years, such as 38 or 40, would reduce a beneficiary’s average annual earnings and the size of their monthly benefit, which would help the trust fund last longer.
  8. Increase the retirement age. ​​You can start taking Social Security at age 62, though with lower benefits than if you waited until you were older. Gradually increasing the age thresholds would ease some of the strain on the trust funds.
  9. Converting Social Security to a different program. Among the proposals here is to change it to individual account plans similar to a 401(k), in which workers contribute some or all of their payroll taxes to a self-managed retirement account invested in stocks, bonds and other securities. This has support in some quarters, but many Americans oppose such a plan.

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