What the Proposed Social Security Reform Might Mean for You

Social Security card surrounded by cashRemember Cold War bomb drills in elementary school where you had to take shelter under your desk? That's what the deficit-reduction commission's proposal to retool Social Security makes me think about. Well-meaning, but could it possibly be all that effective?

Click on this link if you'd like to read the entire plan. If you just want to know what's in it, here's what is being proposed:

  • Change how Social Security checks are calculated so people who earned less during their working lives get a larger percentage of benefits relative to what they earned, while people who made big salaries would get relatively smaller checks. That would encourage high-earners to save more because Social Security would be an even smaller proportion of their retirement income than it is now.

  • Give people who make minimum wage, or close to it, their entire working lives, a boost by increasing their Social Security check so that they are above the poverty line and index it to inflation so it stays that way. This idea could make a big difference for women, who are most likely to end up taking low-paying jobs as aides and maids.
  • Increase the age at which people can claim full Social Security by one month every two years. Full retirement age for most people about to retire now is 66. For Gen-Xers it will be 67. This proposal would put full retirement age at 68 in 2050 and 69 in 2075. By then, with people living longer, this probably won't seem like much of a burden.
  • Add a hardship exemption for people unable to work beyond age 62. If you've spent your life working on the line or climbing telephone poles, making beds, or driving big trucks, 62 is the right age to quit.
  • Raise current Social Security benefits for the oldest retirees who are most at risk of outliving their retirement income. Every little bit helps my 101-year-old friend who has simply spent up most of her money.
  • Raise the amount of money on which people pay Social Security taxes. The cap is now $106,800. Under this proposal, it would rise to 90% of wages by 2050. Right now, the cap is based on 86% of wages. Unless it is increased as proposed, it will fall to 82.5% by 2020 because of inflation.
  • Change the formula for cost of living increases to reflect what's known as the "chained CPI" or "chained Consumer Price Index." The Bureau of Labor Statistics, which currently calculates both, says using the chained version would lower the annual increase. Nobody on Social Security wants that. The only consolation is that the chained CPI better reflects rising medical costs.
  • Cover newly-hired state and local workers after 2020. Weaning public employees off their costly retirement plans could potentially lower state and local taxes and that would be a huge boon for older homeowners. Plus, anything that makes the Social Security pot bigger is better.
  • Allow greater flexibility in how benefits are claimed. This includes allowing retirees to collect half their benefits early and half at a later age. That makes working part-time more attractive.
Will this plan save Social Security? Who knows. The proposal includes a chart that adds up all these potential savings and says that in 75 years, this plan will eliminate 116% of the existing shortfall. Let's hope for our children's sake that those guys with calculators and green eyeshades really know what they are doing.

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