Solving the Social Security Shortfall

 

With fewer retirees receiving income from defined benefit pensions, the lifetime annuity income from Social Security will be even more important in the years ahead in protecting seniors from longevity risk.

 

But Social Security faces problems. The big issue is long-range solvency. The combined Old-Age, Survivors and Disability Insurance trust funds are projected to be exhausted in 2034; at that point, beneficiaries would face a sharp across-the-board benefit cut, or Congress would need to approve an emergency injection of new revenue. An earlier solution could involve new revenue, a reduction of benefits or a combination of both.

 

Beyond the solvency question, other Social Security redesigns could also help improve retirement outcomes of lower- and middle-income workers who haven’t been able to save for retirement. On the left, advocates favor a broad expansion of benefits, financed with new revenue. On the right, proposals call for benefit cuts via a higher retirement age and less generous cost-of-living adjustments. Another idea that makes sense is to allow the Social Security trust fund to invest a reasonable portion of the trust fund in equities—a move that could bolster solvency and fund expansion.

 

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