1. Increase the retirement age to 70 by 2030 and keep adjusting the age as people live longer.
   Estimated fix: 68%.
   Argument for: When Social Security was enacted life expectancy was age 61. Today life expectancy has increased to 76.
   Argument against: Employers may not want older workforce with higher health care costs.
   
   
2. Cut Cost-of-Living Adjustments (COLAs).
   Estimated fix: 37%.
   Argument for: A 1996 Congressional commission said the Consumer Price Index (CPI) overstates the rate of inflation by 1.1% and thus COLAs are too high.
   Argument against: The Bureau of Labor Statistics has already implemented many of the commission’s recommended changes to the CPI. COLA reductions are cumulative. The financial impact grows more severe as the beneficiary grows older and health care costs increase.
   
   
3. Reduce benefits by 5% for future retirees.
   Estimated fix: 26%.
   Argument for: Everyone should share the cost to fix Social Security.
   Argument against: Future retirees do pay their fair share with payroll taxes during their working careers. Low-income earners would be hit hardest, especially those who rely entirely on Social Security.
   
   
4. Change the benefit formula by increasing the number of years used to calculate average wages from 35 to 40 years.
   Estimated fix: 24%.
   Argument for: People would have incentive to work more and productivity would increase.
   Argument against: This hurts people who work less than 40 years, especially women who stop work to have children.
   
   
5. Reduce benefits for those whose total retirement income exceeds $50,000 per year.
   Estimated fix: 75%.
   Argument for: This preserves benefits for those most in need.
   Argument against: Changes Social Security from a universal program to a means tested program based on need.
   
   
6. Raise payroll tax on workers and employers by 0.5 percentage point each.
   Estimated fix: 53%.
   Argument for: Increasing the payroll tax from 12.4% to 13.4% gradually won’t be significant because real wages are going up.
   Argument against: Medicare payroll taxes may also have to be increased. Total taxation could be a burden, particularly for low-income earners.
   
   
7. Increase amount of wages subject to Social Security tax from $87,000 to $100,000.
   Estimated fix: 26%.
   Argument for: This would increase payroll taxes for those who can most afford it.
   Argument against: Makes Social Security a bad deal for those with higher incomes. Costly for employers.
   
   
8. Tax Social Security benefits like pension benefits.
   Estimated fix: 16%. Pension benefits are taxed on the amount a person receives in excess of what they paid in.
   Argument for: Low-income retirees (currently 30% of total) would still pay no income tax.
   Argument against: This will increase the taxes of middle-income seniors.
   
   
9. Government invests 40% of the Social Security Trust Funds in private investments such as stocks.
   Estimated fix: 48% (Dependent upon future investment returns.)
   Argument for: This would require the government to set aside 40% of payroll taxes rather than use it for other government spending. Hiring investment managers and investing in index funds avoids government interference in markets.
   Argument against: Social Security would own 5% of the private market. Stock voting and stock selection could be politicized.
   
   
10. Create private personal retirement accounts by diverting 1% of Social Security payroll taxes to a private account.
    Estimated fix: 0% (Takes money out of system.)
    Argument for: Could boost return on investment without the problem of government ownership of stock. Gives individuals more control over their retirement money.
    Argument against: Individuals take on greater financial risk. Large transition costs must be paid to cover current retirees. Benefits under traditional system likely to be cut to offset what is paid into private accounts.

Source: American Academy of Actuaries, 5/14/02, http://www.actuary.org/socsec/index.htm.

February 2003