The future of the Social Security system: Part eight

Stephen<lovejoy@msu.edu> Lovejoy, Michigan State University Extension - September 17, 2015

Does Social Security reform mean slashing benefits?

Lifetime Benefits Under Simpson-Bowles (2010 GDP-indexed dollars). Source: Social Security Chief Actuary, CRFB Calculations

Michigan State University Extension discusses some alternative reforms. Some observers have equated Social Security reform as code for slashing benefits, especially for the poor. However, many of the reform plans indicate that benefits would continue to grow faster than inflation and would be further enhanced for low-income recipients.

Under current law, scheduled benefits – even after adjusting for inflation – continue to grow over time. Indeed, average lifetime benefits are projected to approximately double over the next 40 years. This growth occurs both because benefits are indexed to wages –which normally grow faster than inflation – and because growing life expectancy allows beneficiaries to receive benefits longer.

Most Social Security reform plans do not cut benefits from their current levels, but rather slow the growth of benefits to reduce some of the pressure that wage-growth and rising life-expectancy will place on the program. Many plans make these changes progressively, so that lower-earning workers continue to enjoy most or all of the benefit growth currently scheduled. Often, reform plans also include targeted benefit enhancements for low- income populations such as a minimum benefit or old-age bump up.

Under the Simpson-Bowles plan, for example, between now and 2080 lifetime benefits would still nearly double for the highest earners, increase by roughly 150 percent for median workers, and approximately quadruple for very low earners. In the absence of any changes, scheduled benefits are set to more than triple for all income groups.

For very low earners, under Simpson-Bowles, benefits would be 40 percent higher than what is scheduled and 75 percent higher than what is payable under current law.

Rather than slash benefits, this and other reform plans would actually prevent a 21 percent benefit cut that would be necessary under current law, enhance benefit growth for vulnerable populations, and continue to allow other benefits to grow over time.