Social Security modernization? Needed but with neutral cost: CRR
Social Security needs to serve populations better, including widows, the ‘oldest old,’ and very low earners.
The Social Security system needs updating as societal needs change—but while a number of proposed changes would help specific groups whose needs have changed since the system began, they must, and could, be done in a way that would not only be effective but also cost neutral.
So says a brief from the Center for Retirement Research at Boston College, which provides an overview of how four of the “most discussed” changes could be incorporated into the system while proposing ways that could be done while “adjust[ing] other benefits to offset the costs.”
At issue is the need to address “evolving social, economic, and demographic circumstances such as the rising labor force participation of women, the decline in marriage rates, longer life spans, and sluggish wage growth,” which the report says “have undermined the support that Social Security offers for caregivers, widows, the ‘oldest old,’ and very low earners.”
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Four changes already proposed by bipartisan commissions, suggesting broader support, are as follows:
- Providing credits for those who care for children
- Improving support for widows
- Ensuring adequate income for retirees at advanced ages
- Offering a meaningful benefit to very low earners.
While these would certainly help the groups for which they’re intended, they would involve additional cost to the program. The brief goes on to explore the costs involved and potential targeted changes that could offset those costs.
Benefits are linked not only to marital history (providing two types of spousal benefits: a spouse’s benefit and a widow’s benefit), but also to earnings.
Related: How claiming benefits can greatly affect Social Security value for couples
But the latter penalizes those who earn very little. And that’s despite a special minimum benefit for very-low-earning workers that has eroded over time so much, because the initial amount of the minimum benefit is linked to inflation, that very few people actually receive it.
The logistics of boosting the benefit for the aforementioned four categories would add costs to the program, although they could be offset by reductions in other benefits.
The brief points out that just the two changes of reducing the primary insurance amount (PIA) factor that is presently applied to a portion of higher earners’ wages from 15 percent to 5 percent and reducing the spousal benefit, by themselves, could fully offset the increased costs.
In addition, other offsets—such as further lowering the benefits for spouses of higher earners or perhaps a slight modification in the cost-of-living-adjustment for all beneficiaries could take that even further.
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