Options for Reducing the Social Security Shortfall

Note: We are indebted to the American Academy of Actuaries for much of the material in this section, and especially their calculations of the effect each of the changes would have on the shortfall.

Generally, the options for reducing the shortfall can be grouped into two categories:

1. Reduce Benefits
2. Increase Revenues

Privatization (the establishment of private savings accounts with) is not listed as a way to correct the shortfall (although it is an option for changing the way Social Security Works) because, as proposed, it is the reduction in accompanying reduction in benefits that actually produces any structural reduction in the shortfall.

Reduce Benefits

Benefits may be reduced in four different ways:

1. Increasing the normal retirement age
2. Lowering the Cost of Living Adjustments
3. Modifying the benefit formula to reduce the benefit paid on retirement
4. Means test benefits to reduce or eliminate payments to those who earn more than a set amount in retirement.

Increase Revenues

Benefits may be reduced in four different ways:

1. Increasing the Payroll Tax
2. Raising the cap on wages subject to the tax
3. Taxing benefit like a pension plan (i.e., tax benefits paid in excess of contributions made)
4. Including exempted (Federal and state) workers
5. Investing Trust Fund assets for better rate of return