Social Security is in trouble – how would you fix it?

Restoring Social Security’s solvency need not be so difficult.

That’s important to know, given how difficult Social Security funding reform appears to be on Capitol Hill. But it’s not the lack of relatively painless fixes that make overcoming Social Security’s actuarial deficit impossible. The culprit is political polarization in Congress.

Notice I said “relatively” painless. Overcoming the Social Security deficit will require either reducing currently scheduled benefits or increasing Social Security fund income, or both. But I think you’ll agree that you can package together a number of non-major changes that collectively overcome Social Security’s actuarial deficit. (This shortfall is the difference between Social Security’s total income over the next 75 years and the total benefits it would be required to pay under current law.)

“The key is to make these changes now rather than wait,” Linda Stone, senior pension fellow at the nonpartisan American Academy of Actuaries, said in an interview. “The longer we put off doing that, the more painful any solution will be.”

If you were in any doubt that there are many ways to restore Social Security’s solvency, you should take the “Social Security Challenge” – a new interactive tool created by the Academy. This new app lets you explore what combination of changes would eliminate the Social Security deficit. You can choose from more than two dozen specific policy options in nine separate categories. When you select a given option, the app shows you what percentage of the Social Security deficit you’ve eliminated.

Consider the impact of raising the Social Security payroll tax by 0.05 percentage points per year for the next 24 years, with an identical increase to be paid by the employer. This change would gradually increase the employee portion of the Social Security tax rate from its current 6.2% to between 7.0% and 7.5% in 2047. According to the new app, this change alone would eliminate nearly half — 44%, to be exact — of the actuarial deficit facing Social Security over the next 75 years.

To put this tax increase into context, consider what it means in kroner and øre. Given that the median worker earns $1,085 a week, according to the Bureau of Labor Statistics, the 0.05% increase in Social Security taxes equates to an additional 54 cents a week — or less than $30 a year. And since these calculations focus on the median worker, half would pay even less.

I in no way intend to minimize the impact of this increase on those who are barely scraping by now. But it is also important not to exaggerate the impact of such a change.

Another change that would go a long way toward eliminating the Social Security deficit would be to gradually increase the retirement age. This would represent a continuation of the changes passed by Congress in 1983, which is the last time changes to Social Security’s finances were enacted. Consider what would happen if the age for both early retirement (currently 62) and full retirement (currently 67) were to rise by three months each year for the next eight years – until those age groups were 64 and 69 respectively.

These changes would eliminate an additional 25% of the actuarial deficit, according to this new app. Along with the gradual increase in the Social Security tax, these two changes would eliminate 69% of the Social Security funding shortfall between now and 2098.

You could argue that raising the retirement age lives up to the spirit, as opposed to the letter, of the original legislation passed in 1935 that created Social Security. That’s because life expectancy in the United States has increased by more than six years since then, according to the American Academy of Actuaries. So Social Security is being asked to pay for more years of retirement than it was originally designed to support.

In discussing the impact of these two amendments, I am not taking a position one way or the other as to whether they are the right ones to adopt. My point is to give you an idea behind this new app. That app invites you to pick and choose from the more than two dozen that this app offers. There are countless different combinations that together eliminate the entire actuarial deficit.

When you arrive at your preferred combination of changes, tell your member of Congress.

Mark Hulbert is a regular contributor to MarketWatch. Hans Hulbert Ratings tracks investment newsletters that pay a flat fee to be reviewed. He can be reached at

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