Former Treasury Secretary Tim Geithner's new book, "Stress Test: Reflections on Financial Crises," went on sale Monday. Some of the hype centered on an excerpt in which Geithner wrote that the Obama administration had urged him to downplay the effect of the Social Security shortfall on the federal deficit.
Geithner described a session in which he was being prepped for an appearance on a Sunday political talk show during which White House communications director Dan Pfeiffer asked him to say that Social Security didn't contribute to the deficit. Geithner wrote that he objected to that phrasing because Social Security "wasn't a main driver of our future deficits, but it did contribute."
Fox News and other conservative media have jumped on this anecdote, saying that it means that the White House wanted Geithner to lie. Whether you interpret what Geithner wrote that way or you see it as a political way to say the White House doesn't support cuts to Social Security, it still re-emphasizes the need to find ways to shore up this essential retirement program.
Here are eight of the most frequently made suggestions for increasing what Social Security takes in and reducing the amount it pays out, according to AARP:
- Raise the full retirement age. Beginning in 2023, increase the claiming age by two months a year until it reaches age 70 in 2040. This could eliminate 44 percent of the funding gap.
- Recalculate the cost-of-living adjustment. Adopting the controversial chained COLA would reduce benefits by an estimated 8.5 percent after 30 years and eliminate 23 percent of the gap.
- Raise the payroll tax cap. Earnings greater than $117,000 in 2014 aren't taxed by Social Security, so only about 84 percent of all payroll is taxed. If the cap were raised to cover 90 percent of earnings, which was the case in 1977, then this would eliminate an estimated 36 percent of the funding gap.
- Eliminate the payroll tax cap. Eliminating the payroll tax cap altogether would eradicate the funding gap, but it would entitle high earners to outsized benefits, changing the nature of the program.
- Reduce benefits for higher earners. Enacting a sliding scale that reduced benefits for the highest-earning 50 percent of workers could eliminate 31 percent of the funding gap, but it would also affect middle-income workers who really aren't wealthy.
- Increase the payroll tax rate. Raising the payroll tax gradually over 20 years on both workers and employers from 6.2 percent to 7.2 percent would potentially eliminate 64 percent of the funding gap.
- Cover all newly hired state and local government workers. Requiring all newly hired state and local workers and their employers to pay into Social Security would fill about 8 percent of the funding gap. Currently, about 25 percent of government workers don't have Social Security coverage.
- Increase number of years used to calculate initial benefits. Raising the number of years used to calculate benefits from 35 to 38 years would eliminate about 13 percent of the gap.
What combination would you choose and which would affect your retirement planning the least?
In the meantime, here are seven little-known Social Security benefits.